The Apprenticeship Levy: A Complete Guide for 2026
Updated: Aug 21
The apprenticeship levy is undergoing its most significant reform since it was introduced. From 1 August 2026, levy-paying employers face shorter fund expiry periods, the removal of the government top-up and higher co-investment costs when their accounts run out.
At the same time, the Growth and Skills Levy is widening the range of approved training that employers can fund, including foundation apprenticeships and apprenticeship units.
These changes create both opportunities and compliance risks. Employers need to understand how much funding is available, when it will expire and how it can be used. Training providers must ensure that employers receive accurate information and that contracts, ILR records, pricing and supporting evidence reflect the correct funding arrangements.
Skills Office Network supports training providers to navigate complex funding requirements, reduce compliance risks and maintain accurate apprenticeship records.
Table of Content:
What Is the Apprenticeship Levy?
The apprenticeship levy is a UK tax on employers with an annual pay bill of more than £3 million.
It is collected by HM Revenue and Customs through the PAYE system. The money supports apprenticeship training across the UK, although the way funding is made available differs between England, Scotland, Wales and Northern Ireland.
In England, levy-paying employers receive notional funding through their apprenticeship service account. These funds can be used to pay for approved apprenticeship training and assessment, subject to the applicable funding rules and maximum funding bands.
From August 2026, employers can also use available levy funds for a wider range of approved Growth and Skills Levy products, including:
Apprenticeships
Foundation apprenticeships
Apprenticeship units
Although the funded skills offer is now commonly described as the Growth and Skills Levy, employers continue to pay the apprenticeship levy through PAYE.
Who Pays the Apprenticeship Levy?
Employers must pay the apprenticeship levy when their annual pay bill is more than £3 million.
The annual pay bill includes payments to employees that are subject to employer Class 1 secondary National Insurance contributions, including:
Salaries and wages
Bonuses
Commissions
Certain other employment earnings
The levy applies across private, public and voluntary sector employers.
Connected companies and connected charities must consider their combined pay bill. They share one annual £15,000 levy allowance, which means organisations cannot automatically apply a separate allowance to every company within the group.
Employers with an annual pay bill below £3 million will not usually pay the apprenticeship levy, although connected company rules may affect the calculation.
Training providers should confirm an employer’s levy status during onboarding rather than relying on assumptions based on the organisation’s size. Incorrectly identifying an employer as levy or non-levy can affect apprenticeship service records, co-investment and funding claims.
How Is the Apprenticeship Levy Calculated?
The apprenticeship levy is charged at 0.5% of the employer’s annual pay bill.
Employers receive a £15,000 annual levy allowance, which reduces the amount they must pay.
The basic calculation is:
Annual pay bill × 0.5% − £15,000 levy allowance
For example, an employer with an annual pay bill of £5 million would calculate its levy as follows:
£5,000,000 × 0.5% = £25,000
£25,000 − £15,000 allowance = £10,000
Annual apprenticeship levy liability = £10,000
The levy is reported and paid monthly through the employer’s PAYE process, using a cumulative calculation across the tax year.
The £15,000 allowance reduces the employer’s tax liability. It is not an additional sum that can be used to pay for training.
How Do Apprenticeship Levy Funds Enter an Employer’s Account?
Employers that pay the levy need an apprenticeship service account to access funding for eligible training in England.
The amount entering the account is based on:
The apprenticeship levy declared to HMRC
The proportion of the employer’s pay bill paid to employees who live in England
This is sometimes described as the employer’s English percentage.
Before 1 August 2026, the government added a 10% top-up to funds entering the employer’s account. This top-up has now been removed for new funds.
Employers will continue to receive monthly funds based on their English pay bill, but the amount appearing in the account may therefore be lower than under the previous system.
Training providers should ensure that the apprenticeship service reflects the correct employer, apprentice, standard, start date and agreed price. Any differences between apprenticeship service records, employer contracts and the ILR should be investigated promptly.
Providers that need support managing these records can access specialist ILR and Data Support from Skills Office Network.
What Changed on 1 August 2026?
Several important apprenticeship levy funding changes took effect on 1 August 2026.
The 10% Government Top-Up Has Ended
The government no longer adds a 10% top-up to new levy funds entering apprenticeship service accounts.
Funds that entered an account on or before 31 July 2026 retain the value already credited, including any top-up previously applied.
Training providers should avoid using outdated funding illustrations or employer communications that continue to include the 10% top-up.
New Funds Expire After 12 Months
New funds entering levy accounts from 1 August 2026 expire after 12 months if they are not used.
Previously, employers generally had 24 months to use their funds.
The change does not shorten the expiry period for money already in the account. Funds that entered on or before 31 July 2026 continue to follow the previous 24-month expiry period.
The account operates on a first-in, first-out basis. This means the oldest available funds are normally used first when training payments are made.
Co-investment Has Changed
When a levy-paying employer does not have enough money in its apprenticeship service account, it may need to contribute towards the remaining training and assessment costs.
For new starts from 1 August 2026:
Training for apprentices aged 16–24 is fully funded up to the funding band maximum once the employer’s levy funds are exhausted.
For apprentices aged 25 or over, the levy-paying employer contributes 25%.
The government contributes the remaining 75%, up to the funding band maximum.
The employer’s levy funds are still used first, including when the apprentice is aged under 25. Full government funding applies after the available account funds have been exhausted.
Different co-investment arrangements may apply to apprentices who started under earlier funding rules. Providers may therefore manage learners subject to different funding requirements at the same time.
A Funding Assurance Review can help providers test whether the correct rules have been applied across apprenticeship cohorts before errors lead to funding recovery.
What Is the Growth and Skills Levy?
The Growth and Skills Levy expands the range of approved training that can be supported through the apprenticeship funding system.
Levy funds can now be used for full apprenticeships, foundation apprenticeships and approved apprenticeship units.
Full Apprenticeships
Full apprenticeships remain substantial employment-based training programmes aligned with approved occupational standards.
Apprentices must be employed in an appropriate role and receive the required training during their normal working hours.
Providers remain responsible for confirming eligibility, carrying out an appropriate initial assessment, recognising prior learning and agreeing a suitable training plan with the employer and apprentice.
Foundation Apprenticeships
Foundation apprenticeships are designed to create progression routes for young people and help them develop occupational and employability skills.
They are shorter than full apprenticeships and focus on preparing participants for further training or employment within priority sectors.
Providers must follow the specific eligibility, delivery, evidence and funding requirements that apply to foundation apprenticeships.
Apprenticeship Units
Apprenticeship units are shorter, approved training products based on selected skills from occupational standards.
They are intended to give employers greater flexibility when responding to specific skills needs without always committing an employee to a complete apprenticeship.
Units are subject to their own funding, delivery and assessment requirements. Providers should not assume that the rules for full apprenticeships apply in exactly the same way to apprenticeship units.
Skills Office Network’s consultancy services can support providers to interpret new requirements, review operating processes and develop compliant approaches to new funded provision.
What Can Apprenticeship Levy Funds Be Used For?
Levy funds can be used for eligible training and assessment delivered through approved Growth and Skills Levy products.
For a full apprenticeship, eligible costs may include:
Training that develops the apprentice’s occupational knowledge, skills and behaviours
Planned off-the-job training
Training materials directly linked to the apprenticeship
Assessment required by the approved apprenticeship standard
Eligible English and maths provision
Certain mandatory qualifications included within the standard
Funding is subject to the maximum funding band assigned to the apprenticeship.
Employers and training providers agree a total price for training and assessment. If the agreed cost exceeds the funding band maximum, the employer must pay the additional amount from its own funds.
Providers should retain clear evidence showing how the price was negotiated, what the price includes and how prior learning affected the training content and cost.
What Can Apprenticeship Levy Funds Not Be Used For?
Levy funds cannot normally be used for general employment costs or activities outside the eligible training and assessment requirements.
Ineligible costs may include:
Apprentice wages
Recruitment costs
Travel and accommodation
Manager salaries
General business expenses
Equipment required for the apprentice’s normal job
Training that does not contribute to the approved programme
Activities delivered outside the funding rules
Costs above the funding band maximum
Employers and providers should agree clearly what is included in the training price and how any additional costs will be paid.
If an ineligible cost is included within a funding claim, the provider may be required to repay the associated funding. Regular learner file sampling and funding checks can help identify these risks before an external audit.
What Happens When Apprenticeship Levy Funds Expire?
Unused funds are removed from the apprenticeship service account when they reach the applicable expiry date.
For new funds entering from August 2026, this generally means employers have 12 months to use them. The expiry operates monthly rather than as a single annual deadline.
For example, unused funds entering an account in September 2026 will normally expire in September 2027.
Once funds expire, they cannot be reclaimed by the employer. This does not necessarily stop an existing apprenticeship, but it may affect how future training payments are funded.
If an employer’s account no longer contains enough money to cover scheduled payments, government funding and employer co-investment rules may apply.
Employers should therefore monitor:
Current account balance
Monthly contributions
Scheduled training payments
Funds approaching expiry
Existing apprenticeship commitments
Planned new starts
The potential cost of co-investment
Training providers should discuss potential funding shortfalls with employers before they affect scheduled payments. Agreements should explain what happens if levy funds become unavailable and whether employer co-investment will be required.
Can Employers Transfer Apprenticeship Levy Funds?
Levy-paying employers can transfer up to 50% of their previous financial year’s levy funds to other organisations.
Transfers can support businesses of any size, including other levy-paying employers and organisations that do not pay the levy.
An employer may use transfers to support:
Businesses within its supply chain
Small and medium-sized enterprises
Priority industries
Local employers
Specific occupational skills
Regional workforce development
Transferred funds can pay for eligible apprenticeship training and assessment up to the funding band maximum.
Transfers are generally used for new apprenticeship starts. Both the sending and receiving employer must use the apprenticeship service and agree the transfer arrangements.
The sending employer should consider whether it can maintain the commitment for the full duration of the apprenticeship. The receiving employer should understand how training would be funded if the transfer could no longer cover the required payments.
Providers must retain confirmation of the sending employer and ensure transfer arrangements are accurately reflected in the apprenticeship service and supporting evidence.
How Does Funding Work for Employers That Do Not Pay the Levy?
Employers with an annual pay bill below £3 million do not normally pay the apprenticeship levy, but they can still access government support for apprenticeship training.
For new starts from 1 August 2026:
The government funds 100% of eligible training and assessment costs for apprentices aged 16–24, up to the funding band maximum.
For apprentices aged 25 or over, the employer contributes 5%.
The government contributes the remaining 95%, up to the funding band maximum.
Non-levy employers access funding through the apprenticeship service and must reserve funds for the planned apprenticeship or approved apprenticeship unit.
From 1 October 2026, eligible non-levy employers may also receive a hiring payment of up to £2,000 when recruiting a new apprentice aged 16–24, subject to the detailed eligibility requirements.
Training providers should explain that the funding arrangements for non-levy employers are different from those applying to levy-paying employers whose account has run out. The distinction is particularly important for apprentices aged 25 or over:
Non-levy employers contribute 5%.
Levy-paying employers with insufficient funds contribute 25%.
Why Employers Need an Apprenticeship Levy Strategy
The shorter expiry period and removal of the government top-up make proactive planning more important.
An effective strategy should connect apprenticeship funding to genuine workforce priorities rather than selecting programmes simply to use available funds.
Employers should consider:
Current and future skills gaps
Roles affected by succession planning
Employees ready for progression
Recruitment requirements
Retention challenges
Priority operational capabilities
Available apprenticeship standards and units
The capacity of managers to support participants
The likely timing of new starts
Funds at risk of expiry
Employers should also avoid rushing employees onto unsuitable programmes. An apprenticeship must provide substantial new learning and be appropriate to the employee’s role and starting point.
Poor programme selection can result in disengagement, withdrawal and limited business impact. It can also create funding risks where the apprentice’s role, prior learning or planned training does not support eligibility.
What the Apprenticeship Levy Changes Mean for Training Providers
Training providers have an important role in helping employers understand how funding applies to each programme.
Providers should ensure that employers receive clear information about:
The total agreed price
The applicable funding band
Available levy funds
Potential co-investment
Costs above the funding band
The rules applying to different start dates
The impact of the apprentice’s age
Employer responsibilities
Payment arrangements
Any changes affecting training or assessment
Providers must not assume that every levy-paying employer has sufficient funds available throughout the programme.
The employer’s apprenticeship service account status should be monitored, particularly where:
Funds are being used more quickly than expected
The employer has multiple apprentices
A transfer is involved
Funds may expire
The learner or employer’s circumstances change
The agreed price exceeds the funding band
Co-investment may become payable
Training providers should also ensure that contracts, training plans, ILR data, evidence files and apprenticeship service records remain consistent.
Skills Office Network’s ILR and Data Support helps providers manage data submissions, investigate errors, strengthen internal capability and reduce the risk of inaccurate funding claims.
Common Apprenticeship Levy Compliance Risks
Errors in apprenticeship funding can lead to delayed payments, funding recovery or difficult conversations with employers.
Common risks include:
Applying the wrong funding rules to an apprentice
Incorrectly identifying whether an employer pays the levy
Failing to explain co-investment requirements
Misunderstanding the apprentice’s age at the start of training
Using an incorrect funding band
Inconsistencies between the ILR and apprenticeship service
Claiming ineligible training costs
Insufficient evidence of the negotiated price
Weak initial assessment or prior learning evidence
Unclear employer-provider contracts
Continuing to rely on outdated funding guidance
Assuming the 10% top-up still applies
Treating all account funds as having the same expiry period
Failing to retain evidence of levy transfer arrangements
Providers need controls that reflect the learner’s start date because different funding rules may apply to apprentices within the same employer or cohort.
Skills Office Network’s Funding Assurance Review provides an independent assessment of funding practices, learner evidence and operational controls. Our specialists identify potential risks, explain where processes may not meet funding requirements and provide practical recommendations before an external audit takes place.
Strengthening Oversight of Apprenticeship Funding
Apprenticeship levy compliance should not sit solely with a data or finance team.
Leaders and governors should receive clear information about:
Funding performance
Levy and non-levy activity
Employer co-investment
Data errors
Funding assurance findings
Learners past their planned end date
Withdrawals and breaks in learning
High-risk employers or cohorts
Corrective actions
Potential financial exposure
Effective oversight helps providers identify systemic risks rather than treating every error as an isolated administrative issue.
Skills Office Network provides specialist Governance Support to help boards and senior leaders strengthen scrutiny, risk management and accountability across funded provision.
Providers requiring wider operational assistance can also access flexible 360 Degree Support, including regular consultancy, learner portfolio audits, ILR management and contract performance reviews.
Frequently Asked Questions
How much is the apprenticeship levy?
The apprenticeship levy is charged at 0.5% of an employer’s annual pay bill. Employers receive an annual £15,000 levy allowance, meaning it generally applies when the annual pay bill exceeds £3 million.
Is the apprenticeship levy being replaced?
Employers continue to pay the apprenticeship levy through PAYE. However, the funded skills offer is expanding under the Growth and Skills Levy, allowing levy funds to support full apprenticeships, foundation apprenticeships and approved apprenticeship units.
How long do employers have to use apprenticeship levy funds?
New funds entering an employer’s apprenticeship service account from 1 August 2026 expire after 12 months. Funds that entered on or before 31 July 2026 continue to expire after 24 months.
Does the government still add 10% to apprenticeship levy funds?
No. The 10% government top-up ended for new funds entering apprenticeship service accounts from 1 August 2026. Existing account funds retain any top-up already applied.
What happens if a levy-paying employer runs out of funds?
For new starts from 1 August 2026, the government funds eligible training and assessment costs for apprentices aged 16–24 once levy funds have been exhausted. For apprentices aged 25 or over, the employer contributes 25% and the government contributes 75%, up to the funding band maximum.
Can levy funds be used for existing employees?
Yes. Existing employees can complete an apprenticeship if the programme is appropriate to their role and provides substantial new learning. Their prior learning and experience must be assessed before training begins.
Can an employer get expired levy funds back?
No. Once funds expire and are removed from the apprenticeship service account, they cannot normally be reclaimed by the employer.
Can apprenticeship levy funds be transferred?
Yes. Levy-paying employers can transfer up to 50% of their previous financial year’s levy funds to other businesses to support eligible apprenticeship training and assessment.
How can training providers check their apprenticeship funding compliance?
Providers can use regular internal sampling, ILR reconciliation, learner file reviews and independent funding assurance reviews to identify risks.
Skills Office Network can review whether funding rules have been correctly applied and whether ILR data, apprenticeship service records, contracts and learner evidence are consistent.
Protect Your Apprenticeship Funding
The 2026 apprenticeship levy reforms create new opportunities, but they also introduce tighter timescales and more complex funding arrangements.
Training providers need accurate systems to manage apprenticeship service records, ILR data, funding evidence, employer contributions and the different rules applying to each learner.
Skills Office Network supports apprenticeship providers with:
Funding rules and learner evidence checks
Employer co-investment reviews
Audit preparation and post-audit support
Our specialists can help you identify funding risks, strengthen internal controls and prepare confidently for external scrutiny.
