The Apprenticeship Levy is a UK tax of 0.5% of an employer's annual pay bill, paid monthly through PAYE, but only by employers whose pay bill (including connected companies or charities) is over £3 million. Every employer gets a £15,000 annual allowance against it, so most small businesses never pay it (as of October 2026).
If you've heard 'apprenticeship levy' and assumed it's a cost you're paying, it usually isn't. But the levy rules still shape what you pay towards an apprentice's training, and the funding guidance was updated again in October 2026. Here's what HMRC and the Department for Education guidance say.
Who pays the Apprenticeship Levy
HMRC says you pay the levy each month if your annual pay bill is more than £3 million, or if you're connected to other companies or charities for Employment Allowance purposes and your combined pay bill is more than £3 million. All sectors are included. Your pay bill means all payments to employees that are subject to employer Class 1 secondary National Insurance, such as wages, bonuses and commissions.
| Your situation | Do you pay the levy? |
|---|---|
| Pay bill £3 million or less, not connected | No |
| Connected employers with a combined pay bill under £3 million | No |
| Pay bill over £3 million | Yes, 0.5% of the pay bill minus the £15,000 allowance |
| Connected employers over £3 million combined | Yes, sharing one £15,000 allowance |
How the levy is worked out
The levy is 0.5% of your pay bill, reduced by the £15,000 allowance. HMRC applies it month by month: divide the allowance by 12, subtract that from 0.5% of the month's pay bill, and carry any unused allowance forward to the next month within the same tax year. You can't carry unused allowance into the next tax year.
- Work out your pay bill for the month.
- Calculate 0.5% of it.
- Subtract your monthly share of the allowance, plus any unused allowance from earlier months this tax year.
- Report the result on your Employer Payment Summary (EPS).
- Pay it with your PAYE bill.
Connected companies share one allowance
This is the rule that catches growing groups. Connected companies or charities only get one £15,000 allowance between them, and you decide how to split it the first time you have to pay. HMRC says you can't change the split during the tax year, even if you merge with or acquire another company part-way through. Employers with several PAYE schemes can rebalance unused allowance between their own schemes at the end of the year, but not across connected companies.
Once you've started paying, you must keep reporting the levy until the end of the tax year, even if your pay bill turns out to be under £3 million. If you find a mistake in your annual pay bill after the year ends, HMRC says you submit an extra EPS with the corrected figure for the full year.
What you pay towards apprenticeship training in England
Here's the part that matters for most readers. The Department for Education guidance, updated on 8 October 2026, sets out how training is funded in England:
| Employer | Apprentice aged 16 to 24 | Other apprentices |
|---|---|---|
| Doesn't pay the levy | Government pays 100% | You pay 5%, government pays 95% |
| Pays the levy, levy funds used up | Government pays 100% | You pay 25%, government pays 75% |
That second row is easy to miss: once your levy funds are exhausted, the co-investment for older apprentices is 25%, not the 5% smaller employers pay. In both cases the government's share is capped at the funding band maximum, and the employer pays anything above it. Some 15-year-olds also qualify for full funding if their 16th birthday falls between the last Friday of June and 31 August.
How smaller employers access funding
If you don't pay the levy, you create an apprenticeship service account and reserve funds in its finance section, or let your training provider reserve them for you. Funds can be reserved up to 3 months before the apprenticeship starts, and since 3 April 2023 there's no limit of 10 new apprenticeship starts for smaller employers. You'll still need to pay your apprentice at least the apprentice National Minimum Wage, for time at work and in off-the-job training.
If you're planning wider staff development too, AI training providers for UK small businesses can sit alongside an apprenticeship, and UK payroll software should report the levy automatically if you ever pay it.
Scotland, Wales and Northern Ireland
The levy itself is UK-wide, because it's collected by HMRC through PAYE. But the funding rules above are for England. The Department for Education guidance tells employers in Scotland, Wales and Northern Ireland to contact the apprenticeship authority in their devolved administration.
Apprentices have their own minimum rate, and our UK minimum wage guide sets it out.
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My verdict
If your pay bill is under £3 million, the Apprenticeship Levy isn't a tax you pay, but it does decide your share of training costs: nothing for apprentices aged 16 to 24 and 5% for older apprentices in England. That makes an apprentice one of the cheapest ways a small business can train someone, so don't let the word 'levy' put you off.
Related: the investment page.
Frequently asked questions
Who has to pay the Apprenticeship Levy?
Employers with an annual pay bill over £3 million, including any connected companies or charities.
How much is the Apprenticeship Levy?
0.5% of your annual pay bill, reduced by a £15,000 annual allowance.
Can I carry over unused levy allowance?
Only within the same tax year, month to month. HMRC says unused allowance can't be carried into the next tax year.
How much do small employers pay for apprenticeship training?
In England, nothing for apprentices aged 16 to 24, and 5% of the cost for other apprentices, with the government paying 95% up to the funding band maximum.
What do levy payers pay once their funds run out?
25% of the training cost for apprentices outside the fully funded age group, with the government paying 75%.
How is the levy reported?
Monthly on your Employer Payment Summary, and paid with your PAYE bill.
Do franchises get their own allowance?
No. HMRC says franchises have one £15,000 annual allowance for all the franchises under your control, which you can share across them or your PAYE schemes.
Is the allowance reduced if I start employing part-way through the year?
No. HMRC says if you start or stop being an employer part way through the tax year, you can use your full annual allowance against the levy you owe.
