Apprentice Levy Calculator
Calculate your apprentice levy contribution based on your annual payroll and levy allowance.
Comprehensive Guide: How is Apprentice Levy Calculated?
The Apprentice Levy is a UK government initiative designed to fund apprenticeship training. Introduced in April 2017, it requires all UK employers with an annual payroll bill over £3 million to invest in apprenticeship programmes. This guide explains exactly how the apprentice levy is calculated, who needs to pay it, and how funds can be used.
1. What is the Apprentice Levy?
The Apprentice Levy is a 0.5% tax on an employer’s annual payroll bill, payable through PAYE alongside income tax and National Insurance. The funds collected go into a digital account that employers can use to pay for apprenticeship training and assessment.
2. Who Needs to Pay the Apprentice Levy?
You must pay the apprentice levy if:
- You’re an employer with an annual payroll bill of more than £3 million
- You’re connected to other companies or charities for Employment Allowance purposes that together have an annual payroll bill of more than £3 million
3. How is the Apprentice Levy Calculated?
The calculation follows this formula:
- Calculate 0.5% of your total annual payroll bill
- Subtract the £15,000 levy allowance (this is spread monthly, so you get £1,250 allowance each month)
- The remaining amount is your annual levy payment
For example, if your annual payroll is £5,000,000:
- 0.5% of £5,000,000 = £25,000
- Subtract £15,000 allowance = £10,000 levy due
4. Levy Allowance Explained
All employers receive a £15,000 levy allowance each tax year. This works out to £1,250 per month. The allowance operates on a monthly basis – if you don’t use your full monthly allowance, you can’t carry it over to the next month.
| Monthly Payroll | 0.5% of Payroll | Monthly Allowance Used | Levy Due |
|---|---|---|---|
| £200,000 | £1,000 | £1,000 | £0 |
| £300,000 | £1,500 | £1,250 | £250 |
| £500,000 | £2,500 | £1,250 | £1,250 |
5. Connected Companies and the Levy
If your company is connected to others (for example, through common ownership or control), you only get one £15,000 allowance to share between all connected companies. The connected companies rules are the same as those for the Employment Allowance.
6. How to Pay the Apprentice Levy
You pay the levy each month through PAYE, alongside your other payroll taxes. HMRC will calculate how much you need to pay based on the information you provide in your Full Payment Submission (FPS).
7. Using Your Levy Funds
Funds in your apprenticeship service account can be used to:
- Pay for apprenticeship training and assessment for apprentices that work in England
- Fund up to 100% of the training costs for your apprentices
- Transfer up to 25% of your annual funds to other employers (from April 2019)
Funds expire 24 months after they enter your account, so it’s important to use them before they disappear.
8. What Happens If You Don’t Pay Enough Levy?
If your levy payments don’t cover the full cost of training, the government will pay the remaining amount (up to the funding band maximum). This is called ‘co-investment’ and currently requires employers to pay 5% of any additional costs, with the government paying the remaining 95%.
9. Recent Changes to the Levy System
Since its introduction in 2017, the apprentice levy has undergone several changes:
- April 2019: Levy-paying employers can transfer up to 25% of their funds to other employers
- August 2019: Non-levy paying employers can reserve funding for apprenticeship training
- April 2020: Increased flexibility in how transferred funds can be used
- April 2021: Introduction of new funding bands for some apprenticeship standards
| Date | Change | Impact |
|---|---|---|
| April 2017 | Levy introduced | 0.5% tax on payroll bills over £3m |
| April 2018 | First anniversary | First funds begin to expire |
| April 2019 | Transfer allowance increased to 25% | More flexibility in fund sharing |
| August 2020 | New funding rules | More support for SMEs |
| April 2021 | New funding bands | Adjusted costs for some standards |
10. Common Misconceptions About the Apprentice Levy
There are several myths about the apprentice levy that can lead to confusion:
- “The levy is just another tax” – While it is collected like a tax, the funds are specifically earmarked for apprenticeship training that benefits your business.
- “Only large companies need to worry about it” – Companies of all sizes can benefit from apprenticeships, and non-levy payers can access government funding.
- “The funds can only be used for young apprentices” – Levy funds can be used to train apprentices of any age.
- “Unused funds can be carried over indefinitely” – Funds expire after 24 months if not used.
11. How to Maximise Your Levy Funds
To get the most from your apprentice levy:
- Plan your apprenticeship programme in advance to use funds before they expire
- Consider upskilling existing staff through apprenticeships
- Explore transferring unused funds to other employers in your supply chain
- Use the apprenticeship service to manage your funds and find training providers
- Regularly review your training needs and apprenticeship standards
12. Alternative Funding for Non-Levy Payers
If you don’t pay the levy (because your payroll is under £3m), you can still access government funding for apprenticeships. You’ll need to:
- Reserve funding through the apprenticeship service
- Pay 5% of the training costs (government pays the remaining 95%)
- Work with an approved training provider
13. The Future of the Apprentice Levy
The apprentice levy has been subject to ongoing review and potential reforms. Some of the proposed changes include:
- Making the system more flexible to allow funding for other types of training
- Extending the period before funds expire from 24 to 36 months
- Simplifying the process for transferring funds between employers
- Increasing the proportion of funds that can be transferred
The government has committed to reviewing the levy system to ensure it meets the needs of employers and supports economic growth.
Authoritative Resources
For official information about the apprentice levy, consult these authoritative sources: