Who Will Pay the Apprenticeship Levy?

The Apprenticeship Levy is a government initiative in the United Kingdom designed to fund apprenticeship training. Its primary purpose is to create a dedicated investment in apprenticeships, aiming to increase the quantity and quality of apprenticeship opportunities across various sectors. This levy serves to support employers in developing a skilled workforce by providing resources for approved apprenticeship programs.

Identifying Levy-Paying Employers

An employer’s liability to pay the Apprenticeship Levy is determined by the size of their annual pay bill. Organizations with an annual pay bill exceeding £3 million are required to contribute to the levy.

The pay bill calculation includes all earnings subject to Class 1 secondary National Insurance contributions (NICs), such as wages, bonuses, and commissions. For groups of ‘connected companies,’ their combined pay bills are aggregated when determining if the £3 million threshold is met. If a group’s total pay bill surpasses this amount, they are collectively liable for the levy, and the single £15,000 allowance must be shared among them.

Employers whose annual pay bill falls below the £3 million threshold do not pay the Apprenticeship Levy. These non-levy paying employers can still access government support for apprenticeship training, typically through a co-investment model where the government contributes a significant portion of the training costs. The levy applies uniformly to employers across all sectors, encompassing both private and public organizations throughout the UK.

Calculating the Apprenticeship Levy

For liable employers, the Apprenticeship Levy is calculated at a rate of 0.5% of their annual pay bill. Employers also receive an annual levy allowance of £15,000, which is offset against their total levy payment.

The levy is calculated and reported on a monthly basis through the Pay As You Earn (PAYE) process to His Majesty’s Revenue and Customs (HMRC). The annual allowance is spread across the year, typically as £1,250 per month, and any unused allowance can be carried forward within the tax year.

This monthly calculation and reporting mechanism ensures that the levy payment adjusts with fluctuations in an employer’s pay bill throughout the tax year. The process integrates with existing payroll procedures, simplifying compliance for businesses.

Accessing Levy Funds

Once an employer pays the Apprenticeship Levy, the funds become accessible through their digital apprenticeship service account. This online account serves as a dedicated portal where the paid levy funds are held, along with a 10% government top-up on monthly contributions. Employers can use these funds to cover the costs of apprenticeship training and end-point assessments with approved training providers.

Funds in the digital account typically expire 24 months after they enter the account if they are not utilized. This expiration policy encourages employers to actively invest in apprenticeship training rather than accumulating large balances. While the funds can cover training and assessment, they cannot be used for other associated costs, such as apprentice wages, travel expenses, or general business operational expenses.

Employers also have the option to transfer a portion of their unused levy funds, up to 25%, to other employers, including those in their supply chain or other businesses. This flexibility allows for broader investment in skills development beyond a single organization. The digital account operates on a first-in, first-out basis, meaning the oldest funds are used first to minimize the risk of expiry.