UCAN | What is the Apprenticeship Levy

The Apprenticeship Levy in England

The Apprenticeship Levy in England is a government initiative introduced in April 2017 to fund apprenticeship training and encourage investment in workforce development. Here's a breakdown of its background and operation:

Background of the Apprenticeship Levy

• Purpose: To increase the quantity and quality of apprenticeships in England
• Target Audience: Employers with an annual pay bill over £3 million.
  • Funds not used by the target audience are available to non-Levy paying employers, subject to a modest co-investment payment of 5% of the fixed price of the apprenticeship (except for eligible small employers – see below).
• Legal Basis: The Levy is legislated under the Finance Act 2016 and administered by HM Revenue & Customs (HMRC).

How It Works

1. Levy Payment
   • Rate: Employers pay 0.5% of their total annual pay bill.
   • Allowance: Each employer gets a £15,000 annual allowance, meaning:
     • Only employers with a pay bill over £3 million actually pay the levy. For example, a company with a £5 million pay bill would pay £10,000 annually.
2. Accessing Levy Funds
   • Digital Apprenticeship Service (DAS): Employers access their funds through a DAS account now part of the Apprenticeship Service on gov.uk.
   • Monthly Funds: Levy payments are credited monthly into the employer’s account.
   • Government Top-Up: The government adds a 10% top-up to monthly funds.
3. Using the Funds
   • Funds can only be used for apprenticeship training and assessment with a government approved training provider.
   • Funds can only be used for one of the 650+ apprenticeships developed by employer groups and approved and regulated by The Institute for Apprenticeships and Technical Education (IFATE), soon to be transferred to Skills England.
   • The approved providers and apprenticeships can be found on the government site: Find apprenticeship training if you're an employer
   • Expiration: Funds expire 24 months after they enter the DAS account if not used.
   • Employers can:
     • Choose the type of apprenticeship.
     • Select the training provider.
4. Levy Transfers
   • Employers can transfer up to 25% of their unused funds to other businesses e.g., within a supply chain or industry. We can advise you on how to achieve this.

How Apprenticeship Training is Funded (Employer Scenarios)

Employers in England can fund apprenticeship training in several ways depending on whether they pay the Apprenticeship Levy, how much levy funding they have available, and the age of the apprentice.

Below are the six most common funding scenarios employers fall into.

Below is a detailed explanation of each scenario.

1. Levy Paying Employers (Using Their Levy Funds)

Employers with an annual payroll above £3 million pay the Apprenticeship Levy. The levy is 0.5% of total payroll, paid monthly to HMRC. Funds appear in the employer’s Apprenticeship Service account for training and assessment.

Example:

• Payroll: £5 million
• Levy: £10,000 per year
• Government 10% top-up
• Total available: £11,000

2. Levy Paying Employers (Levy Funds Exhausted – Before August 2026)

When levy funds run out, apprenticeship training moves to government co-investment (95% government / 5% employer).

Example:

• Training cost: £12,000
• Government pays: £11,400
• Employer pays: £600

3. Levy Paying Employers (Levy Funds Exhausted – From August 2026)

From 1 August 2026, the co-investment rate increases for levy funds exhausted: 75% government / 25% employer.

Example:

• Training cost: £12,000
• Government pays: £9,000
• Employer pays: £3,000

4. Levy Transfer Funding

Employers can transfer up to 25% of unused levy funds to other businesses, often supply chain partners. Apprenticeship training can be fully funded.

Employer contribution: £0

5. Non-Levy Employers

Employers with payroll < £3 million use government co-investment: 95% government / 5% employer.

Example:

• Training cost: £10,000
• Government pays: £9,500
• Employer pays: £500

6. Fully Funded Apprenticeships

Some apprenticeships are fully funded by the government.

This applies to apprentices who are:

• Aged 16–18
• Aged 19–24 with an Education, Health and Care Plan (EHCP)
• Aged 19–24 and previously in care

In these cases, the government pays 100% of the training cost and the employer contribution is £0.

Small Employer Exception

Employers with fewer than 50 staff may also be eligible for 100% funding for apprenticeships even if they are non-levy, regardless of the apprentice's age criteria above. This removes the usual 5% co-investment.

Example:

• Small employer with 30 staff
• Apprentice aged 22
• Government pays 100% of training costs
• Employer contribution: £0

More info: Funding an apprenticeship (non-levy employers)