What is the Apprenticeship Levy?

If you run a business in the UK who hires apprentices, you may have heard the term “Apprenticeship Levy” but aren’t quite sure what it means or how it affects you. Whether you’re an employer trying to make sense of your payroll deductions, or someone curious about how apprenticeships are funded, this guide breaks it all down in simple terms.

In this guide, we’ll cover how the Levy works, who pays it, how to calculate your contribution, and how to put your funds to good use.

How does the Apprenticeship Levy work?

The Apprenticeship Levy is a UK government scheme that was introduced in April 2017. It requires larger employers to contribute to a central pot of funding that is used to pay for apprenticeship training across England.

Think of it like a savings account. Employers who pay into the Levy have their contributions stored in a digital account called the Apprenticeship Service. This money can then be spent on funding apprenticeship training for their employees.

The goal of the scheme is straightforward: to encourage more businesses to invest in apprenticeship training, grow the country’s skilled workforce, and give more people the chance to earn while they learn.

If a business does not use its Levy funds within 24 months, the money expires and is returned to the government. This means it really does pay to have a plan in place for how you will use your funds.

Who pays the Apprenticeship Levy? 

Not every business has to pay the Apprenticeship Levy. It only applies to employers with an annual pay bill of more than £3 million. If your business falls below this threshold, you do not need to pay the Levy directly.

However, smaller employers are not completely left out. Businesses with a pay bill under £3 million can still access government funding for apprenticeships through a co-investment arrangement. Under this system, the government pays 95% of the training costs, and the employer contributes just 5%. This makes apprenticeships accessible for businesses of almost any size.

It is also worth knowing that the Levy applies across all sectors, not just finance or professional services. However, the way funds are used can vary depending on the industry and the type of apprenticeship being delivered.

How to calculate the Apprenticeship Levy

Calculating your Apprenticeship Levy contribution is simpler than it might sound. Here is how it works:

The Levy rate is set at 0.5% of your total annual pay bill, minus a £15,000 government allowance.

So the formula looks like this:

(Total annual pay bill x 0.5%) – £15,000 = Annual Levy payment

For example, if your annual pay bill is £8 million:

£8,000,000 x 0.5% = £40,000 £40,000 – £15,000 = £25,000 annual Levy payment

This amount is then split across 12 monthly payments and collected through PAYE alongside your usual tax and National Insurance contributions. The government also tops up your Levy account by 10%, so for every £1 you contribute, you actually have £1.10 to spend on apprenticeship training.

How to use your Apprenticeship Levy funds

Once your funds are sitting in your Apprenticeship Service account, you can use them to pay for apprenticeship training and assessment costs for your employees. This applies to both new recruits and existing members of staff who are looking to upskill or change direction within your business.

Levy funds can be used to cover the cost of training delivered by an approved apprenticeship training provider, such as Simply Academy. They cannot be used to pay apprentice wages, travel costs, or any other general business expenses.

If you are an employer in the financial services sector, Simply Academy offers a range of apprenticeships that your Levy funds can directly pay for. These include our Level 3 Financial Services Administrator Apprenticeship, our Level 3 Mortgage Adviser Apprenticeship, and our Level 4 Paraplanner and Financial Planner Apprenticeship. Each programme is designed to develop the real skills your business needs, with support from mentors who have genuine industry experience.

You can also transfer up to 25% of your Levy funds to other businesses in your supply chain, which is a useful option for larger employers who want to support smaller partners or subsidiaries.

How to become an Apprenticeship Training Provider

If you are interested in becoming an approved apprenticeship training provider yourself, you will need to register on the government’s Register of Apprenticeship Training Providers (RoATP). This involves meeting strict quality standards and demonstrating your ability to deliver high-quality training.

However, for most employers, the simpler route is to partner with an established training provider like Simply Academy. We handle the training delivery, qualifications, and compliance, so you can focus on running your business while your apprentices gain the skills they need to thrive.

To find out more about how Simply Academy can help you make the most of your Apprenticeship Levy funds, get in touch with our dedicated team by emailing [email protected] or calling us free on 0808 208 0002.