How is the apprenticeship levy calculated?

Each month, take 0.5% of your year-to-date pay bill, subtract your year-to-date allowance (£1,250 a month for a full allowance) and subtract levy already paid. The pay bill is all earnings liable to employer Class 1 National Insurance, including earnings below the thresholds and pay to under-21s and apprentices under 25.

Do connected companies each get a £15,000 allowance?

No. Companies or charities that are connected under the Employment Allowance rules share one £15,000 allowance and add their pay bills together to test the £3 million limit. You decide how to split the allowance at the start of the tax year, and you can't change it during the year.

What is the Growth and Skills Levy?

It's the government's new name for the apprenticeship levy and the training it funds. The tax collected by HMRC is unchanged at 0.5%, but in England levy funds can now pay for foundation apprenticeships and short apprenticeship units as well as full apprenticeships.

What changed for levy payers in August 2026?

For funds entering accounts from 1 August 2026, the 10% government top-up stopped and unused funds expire after 12 months instead of 24 months. When levy funds run out, employers pay 25% co-investment for apprentices aged 25 or over, while training for 16 to 24-year-olds is fully funded.

Is the apprenticeship levy tax deductible?

Yes. HMRC says levy payments are a deductible expense for Corporation Tax. The levy is paid monthly with your PAYE and National Insurance, so it's recorded alongside payroll costs.

HR, payroll & employment

Apprenticeship Levy in 2026: Who Pays, How It's Worked Out and What Changed

Apprenticeship Levy 2026: 0.5% on pay bills over £3m, the £15,000 allowance, connected companies, monthly EPS reporting, and the August 2026 funding changes.

Edited by Sumeet YadavFounder & editor, MSMETOOLS · fact-checked against official sources

Updated October 2026 Verified against official sources 12 October 2026 16 min read

Apprenticeship Levy — MSMETOOLS guide cover

Contents (9)

1. What the apprenticeship levy is
2. Who has to pay
3. Connected companies and the allowance
4. How to work out and report the levy each month
5. How levy funds work in England
6. What changed from August 2026
7. Using the levy as a small or growing business
8. Common levy mistakes
9. What to do next

The apprenticeship levy is a payroll tax on the UK's larger employers. If your pay bill, together with any connected companies, is over £3 million a year, you pay 0.5% of it each month through PAYE, less an annual allowance of £15,000. In England, the money you pay comes back as funds you can spend on apprenticeship training. This guide is for finance teams, payroll managers and owners of growing businesses. It covers who pays, how the pay bill and allowance work, connected companies, monthly reporting, and the big funding changes that took effect from August 2026 under the new Growth and Skills Levy.

Quick answer

The apprenticeship levy is 0.5% of your annual pay bill, less a £15,000 allowance, so only employers with a pay bill over £3 million (including connected companies) pay anything. It's worked out monthly, reported on your EPS and paid with PAYE. In England, levy funds go into an apprenticeship service account; from 1 August 2026 new funds get no 10% top-up and expire after 12 months.

Pay bill = earnings liable to employer Class 1 NI, including pay below the thresholds
Connected companies share one £15,000 allowance, split at the start of the year
Unused allowance can't be carried into the next tax year
Levy payers who run out of funds pay 25% for apprentices aged 25+; 16 to 24s are fully funded
Non-levy employers pay 5% for 25+ apprentices and can get a £2,000 hiring payment for 16 to 24s

What the apprenticeship levy is

The levy was introduced by Part 6 of the Finance Act 2016 and has applied since 6 April 2017. It's collected by HMRC across the whole UK, but the training it funds is run separately in each nation. In England, the Department for Education's apprenticeship service turns levy payments into funds that employers can spend. Skills policy is devolved, so Scotland, Wales and Northern Ireland receive their own funding allocations from the Treasury and run their own apprenticeship programmes. Employers there pay the levy in the same way, but the English apprenticeship service only funds apprentices whose main workplace is in England.

The rate and allowance haven't changed since 2017. HMRC's 2026-27 rates and thresholds confirm a 0.5% charge and a £15,000 allowance. Because 0.5% of £3 million is exactly £15,000, the allowance cancels out the levy on the first £3 million of pay. An employer with a £3 million pay bill pays nothing, and one with a £4 million pay bill pays 0.5% of £1 million, which is £5,000.

The government now calls the scheme the Growth and Skills Levy, reflecting the wider range of training it pays for in England. The tax side, which is what HMRC collects through payroll, is the same: the name change hasn't altered the rate, allowance or reporting.

Apprenticeship levy at a glance (2026-27)

0.5%

Levy rate

of the annual pay bill

£15,000

Annual allowance

shared by connected employers

£3 million

Pay bill before any levy is due

12 months

Life of new levy funds

for funds entering accounts from Aug 2026

Who has to pay

You pay the levy 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. Every sector is covered, including charities, public bodies, schools and the NHS.

What counts as the pay bill

The pay bill is all payments to employees that are liable to employer Class 1 secondary National Insurance: salaries, wages, bonuses, commission and other cash earnings. It includes earnings that don't actually attract employer NI, because they're below the secondary threshold or because of a relief. So you must include:

pay to employees earning below the secondary threshold and lower earnings limit;
pay to employees under 21, even though employer NI is 0% on their earnings up to £50,270;
pay to apprentices under 25, even though they get the same relief.

You leave out earnings of employees under 16, earnings of people not covered by UK National Insurance law, and benefits in kind that attract Class 1A rather than Class 1 contributions, such as company cars.

Some groups have specific rules. Employment agencies pay the levy on workers they supply if they pay the employer NI on their earnings. Fee-payers include deemed payments to contractors caught by the off-payroll working rules. Franchisors with several franchises under their control get one allowance for all of them. A 50:50 joint venture isn't connected to either parent and gets its own allowance. Each academy governing body gets its own allowance, but a multi-academy trust gets one.

Two electricians in hard hats and hi-vis vests fitting ceiling lights from a mobile scaffold tower — Construction employers pay the apprenticeship levy as well as any CITB levy; one doesn't replace the other.· Image: IFA teched (Flickr) (CC BY 2.0)

Industry training levies don't reduce the apprenticeship levy. A construction firm that pays the CITB levy still pays the apprenticeship levy if its pay bill is over £3 million.

Connected companies and the allowance

Companies are connected for the levy in the same way as for the Employment Allowance: broadly, if one company controls another or both are controlled by the same person or group, they're connected, and similar rules apply to groups of charities. HMRC says the rules are the same for both reliefs. Connected employers add their pay bills together to test the £3 million limit and share one £15,000 allowance between them.

You choose how to divide the allowance between connected companies, and between your own PAYE schemes, the first time you have to pay the levy in a tax year. Once set, the split between connected companies can't be changed during the year, even if the group changes through an acquisition or demerger; you revisit it at the start of the next tax year. A single employer with several PAYE schemes has a little more freedom: if one scheme doesn't use its share, the split can be changed at the end of the year to use the unused allowance against another scheme. Unused allowance never carries forward into the next tax year.

Public bodies that aren't charities each get a full allowance, because they aren't treated as connected. NHS trusts and other health bodies are treated as companies and follow the connected companies rules.

Worked example: getting the split wrong

Two companies owned by the same family are connected. Alpha Ltd has a pay bill of £2.5 million and Beta Ltd has £1.5 million, so the group's combined pay bill is £4 million and both must report the levy.

Allocation	Alpha's levy (0.5% of £2.5m = £12,500)	Beta's levy (0.5% of £1.5m = £7,500)	Group total
All £15,000 to Alpha	£0 (£2,500 of allowance wasted)	£7,500	£7,500
£12,500 to Alpha, £2,500 to Beta	£0	£5,000	£5,000

Splitting the allowance in line with each company's expected levy saves the group £2,500 a year. Because the split between connected companies is fixed for the year, it pays to forecast pay bills before the first EPS of the tax year.

How to work out and report the levy each month

The levy is calculated cumulatively through the year, like PAYE. With a full allowance, you get £1,250 of allowance a month.

Monthly levy calculation

1
Work out the pay bill for the year to date
Add up all earnings liable to employer Class 1 NI since 6 April, across the PAYE scheme.
2
Take 0.5% of it
This is the gross levy for the year to date.
3
Subtract the allowance for the year to date
£1,250 a month for a full allowance, or your share divided by 12. Unused allowance rolls forward within the tax year.
4
Subtract levy already paid this year
What's left is this month's levy. Your payroll software or HMRC's Basic PAYE Tools can do the sum.
5
Report it on the EPS and pay it
Show your allowance and levy due year to date on the Employer Payment Summary, and pay it with PAYE by the 22nd of the next tax month.

You must start reporting from the beginning of the tax year if your pay bill was over £3 million last year or you expect it to be this year, or from the month it unexpectedly goes over. Once you've started, keep reporting until the year ends, even if the pay bill finally comes in under £3 million; any overpayment comes back as a PAYE credit. If you start or stop being an employer part-way through a year, you still get the full annual allowance.

Corrections go on your next EPS. If you find an error in the year's pay bill after the year ends, submit an extra EPS with the correct levy for the full year and pay the difference. Keep the records used to work out the levy for at least 3 years after the end of the tax year. Levy payments are deductible for Corporation Tax.

Worked example: a single employer

A manufacturer with no connected companies has a steady pay bill of £350,000 a month, or £4.2 million a year.

	Monthly	Year
Pay bill	£350,000	£4,200,000
Levy at 0.5%	£1,750	£21,000
Less allowance	−£1,250	−£15,000
Levy to pay	£500	£6,000
Funds into the apprenticeship account if 90% of staff live in England	£450	£5,400

Before August 2026 the account would also have received a 10% top-up, taking the monthly funds to £495. That top-up no longer applies to new funds. Funds that aren't spent within 12 months now expire, so a £5,400-a-year account needs a spending plan.

How levy funds work in England

When you pay the levy, the apprenticeship service credits your account each month with the levy paid multiplied by the share of your pay bill paid to employees who live in England. HMRC works that share out from employees' home addresses. When you first open an account, it's credited with up to 12 months of past levy payments.

You can spend the funds on apprenticeship training and end-point assessment for your own apprentices, on foundation apprenticeships, and on apprenticeship units, which are short courses for existing staff aged 19 or over. The money doesn't go to you; the training provider is paid directly from the national budget and your account balance goes down. Each apprenticeship standard has a funding band, from £1,500 to £27,000, which caps what can be drawn from your account for it. Any agreed price above the band is paid by the employer directly to the provider.

You can also transfer up to 50% of your annual funds to other employers, such as small firms in your supply chain or local charities, either by pledging funds publicly or by a direct transfer. A transfer must cover the full cost of the apprenticeship up to the band, for its whole duration.

Apprentices in work uniforms talking with a trainer in a training workshop — Levy funds pay the training provider directly; the apprentice's wages remain the employer's cost.· Image: Ausgrid photos (Flickr) (CC BY 2.0)

What changed from August 2026

The 2025 Autumn Budget and announcements in June and July 2026 changed how levy funds work for apprenticeships starting from 1 August 2026. These are the biggest changes since the levy began:

Levy funding before and after 1 August 2026 (England)

	Up to 31 July 2026	From 1 August 2026
Government top-up to levy funds	10% added each month	None on new funds
Expiry of unused funds	24 months	12 months for new funds; older funds keep 24 months
Levy payer out of funds, apprentice 25+	Employer pays 5%	Employer pays 25%
Levy payer out of funds, apprentice 16 to 24	Employer pays 5% (some exemptions)	Fully funded by government
Non-levy employer, apprentice 25+	Employer pays 5%	Employer pays 5%
Non-levy employer, apprentice 16 to 24	Fully funded for some groups	Fully funded
Non-levy hiring payment, apprentice 16 to 24	None	Up to £2,000 for practical periods from 1 October 2026
What funds can buy	Apprenticeships	Apprenticeships, foundation apprenticeships and apprenticeship units

Government top-up to levy funds

Up to 31 July 2026: 10% added each month
From 1 August 2026: None on new funds

Expiry of unused funds

Up to 31 July 2026: 24 months
From 1 August 2026: 12 months for new funds; older funds keep 24 months

Levy payer out of funds, apprentice 25+

Up to 31 July 2026: Employer pays 5%
From 1 August 2026: Employer pays 25%

Levy payer out of funds, apprentice 16 to 24

Up to 31 July 2026: Employer pays 5% (some exemptions)
From 1 August 2026: Fully funded by government

Non-levy employer, apprentice 25+

Up to 31 July 2026: Employer pays 5%
From 1 August 2026: Employer pays 5%

Non-levy employer, apprentice 16 to 24

Up to 31 July 2026: Fully funded for some groups
From 1 August 2026: Fully funded

Non-levy hiring payment, apprentice 16 to 24

Up to 31 July 2026: None
From 1 August 2026: Up to £2,000 for practical periods from 1 October 2026

What funds can buy

Up to 31 July 2026: Apprenticeships
From 1 August 2026: Apprenticeships, foundation apprenticeships and apprenticeship units

Two other changes narrow what the funds cover. Since 1 January 2026, level 7 (master's level) apprenticeships are only funded for apprentices aged 16 to 21 at the start, or under 25 for care leavers and those with an education, health and care plan; existing level 7 apprentices are funded to completion. From September 2026, funding was withdrawn from 16 standards, including Team Leader (level 3), Operations Manager (level 5) and Chartered Manager degree apprenticeships (level 6), which had mostly been used to train existing staff aged 25 and over. People already on those programmes continue to be funded.

Your levy funds are still used first, even for an apprentice under 25 whose training would otherwise be fully funded. The co-investment and full funding only apply once your funds are exhausted. The government's own example shows the effect on a levy payer whose funds have run out: for a level 2 customer service apprenticeship in a £3,500 funding band, the employer's share for an apprentice aged 25 or over rises from £175 to £875. For an apprentice aged 16 to 24, it's now nothing.

Using the levy as a small or growing business

If your pay bill is below £3 million, you don't pay the levy, but the funding rules still matter to you. As a non-levy employer in England, you reserve funding through the apprenticeship service, and the government pays the training costs up to the funding band: all of them for an apprentice aged 16 to 24, and 95% for an apprentice aged 25 or over, with you paying the remaining 5% to the provider.

Support for non-levy employers (England, starts from 1 August 2026)

Your share of training costs

apprentice aged 16 to 24

Your share of training costs

apprentice aged 25 or over

£2,000

Hiring payment

16 to 24s, practical period from 1 Oct 2026

£1,000

Extra employer payment

16 to 18s and some 19 to 24s

There's also extra money for hiring young people. Employers get an additional £1,000 for taking on an apprentice aged 16 to 18 (or 19 to 24 with a care background or an education, health and care plan), paid in two instalments through the provider. Non-levy employers can get a hiring payment of up to £2,000 for a new apprentice aged 16 to 24 whose practical period starts from 1 October 2026, provided they haven't employed them for more than 90 days beforehand. Foundation apprenticeships, entry-level programmes for 16 to 24-year-olds in sectors such as construction, hospitality, health and care, and retail, carry an employer incentive of up to £2,000. Check the current funding rules for eligibility before you count on these.

On the payroll side, apprentices under 25 attract 0% employer National Insurance on earnings up to £50,270, and apprentices under 19 or in the first year of their apprenticeship can be paid the apprentice minimum wage of £8.00 an hour. Our National Minimum Wage guide covers when the full rates kick in, and the employer National Insurance guide explains the reliefs.

Growing businesses should also watch the £3 million line. If a hiring round or an acquisition will push your pay bill, or your group's combined pay bill, over the limit, you must start reporting in the month that happens.

Common levy mistakes

Leaving low earners out of the pay bill. Pay below the National Insurance thresholds, and pay to under-21s and apprentices, still counts. Leaving it out understates the levy.

Treating each group company separately. A company with a £2 million pay bill can still owe the levy if its connected companies take the group over £3 million. Check the group at the start of each tax year.

Stopping reporting mid-year. Once you've started reporting the levy in a tax year, keep including it on every EPS until the year ends, even in months when nothing is due.

Forgetting the funds. Levy paid but never spent is simply a tax. Opening an apprenticeship service account costs nothing, and since August 2026 unused funds disappear twice as fast as before, so it's worth deciding early whether you'll use them, transfer them or accept the cost.

Levy checklist for 2026-27

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Official links

What to do next

If you're near the £3 million line, forecast your group pay bill for 2026-27 and 2027-28 now, and settle the allowance split before the first EPS of the new tax year. If you already pay the levy, log into the apprenticeship service, check which funds are on the new 12 months clock, and plan starts, units or transfers before they lapse. Watch the Budget on 28 October 2026 for any further changes to the levy or its funding. The budget planner can help you model the cost of an apprentice's wages alongside the levy.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

Any UK employer whose annual pay bill is more than £3 million, counting the pay bills of any connected companies or charities together. The levy is 0.5% of the pay bill, reduced by a £15,000 annual allowance, so in practice you pay 0.5% of everything above £3 million. Smaller employers pay nothing.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 12 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1.Pay Apprenticeship Levy — HMRC / GOV.UK · accessed 12 October 2026
2.Rates and thresholds for employers 2026 to 2027 — HMRC / GOV.UK · accessed 12 October 2026
3.Apprenticeship funding (England), updated 29 July 2026 — DfE / DWP · accessed 12 October 2026
4.The Growth and Skills Levy — Department for Education · accessed 12 October 2026
5.ALM02000 — Background to the Apprenticeship Levy — HMRC manual · accessed 12 October 2026
6.Apprenticeship funding rules — DfE · accessed 12 October 2026
7.Employment Allowance: check if you're eligible — HMRC / GOV.UK · accessed 12 October 2026

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