The apprenticeship levy: who pays, and how to use the allowance

Most international employers budget for UK salaries, pensions and National Insurance. Far fewer budget for the apprenticeship levy. Yet once a UK pay bill passes £3 million, this charge applies every month. This guide explains who pays, how the apprenticeship levy allowance works and how to use your funds. It also covers the August 2026 changes that shortened how long those funds last.

What is the apprenticeship levy?

The apprenticeship levy is a UK employer charge of 0.5% on annual pay bills above £3 million. HMRC collects it monthly through PAYE. In England, levy payers can then spend that money on apprenticeship training through an online apprenticeship service account.

In practice, the levy works like a training budget you fund in advance. However, the money only returns to you if you use it. Meanwhile, the government has reformed the system under its Growth and Skills Levy programme. As a result, employers can now fund shorter apprenticeship units as well as full programmes.

Who pays the apprenticeship levy?

Every UK employer with an annual pay bill above £3 million pays the apprenticeship levy. This includes foreign-owned companies running UK payroll. The pay bill means total earnings subject to Class 1 secondary National Insurance contributions. Connected companies share one allowance, so your group structure matters.

For example, a US parent with two UK subsidiaries cannot claim two allowances. Instead, both entities share a single £15,000 allowance, as HMRC’s apprenticeship levy guidance confirms. Employers below the threshold pay nothing. Nevertheless, growing teams should track the figure, because one hiring round can push payroll over the line.

How the levy threshold payroll calculation works

The levy threshold payroll figure sits at £3 million because the £15,000 allowance cancels 0.5% of that amount. Therefore, you only pay on earnings above that level. You report the levy each month on your Employer Payment Summary (EPS), alongside your other PAYE filings.

Annual UK pay bill	0.5% of pay bill	Allowance	Levy due
£2,500,000	£12,500	£15,000	£0
£3,000,000	£15,000	£15,000	£0
£5,000,000	£25,000	£15,000	£10,000
£10,000,000	£50,000	£15,000	£35,000

The allowance builds up at £1,250 per month. As a result, payroll teams calculate the levy on a cumulative, year-to-date basis.

How does the apprenticeship levy allowance work?

The apprenticeship levy allowance is a £15,000 annual offset against the levy you owe. It is not a cash grant. Instead, it reduces your bill, which is why only employers above £3 million make payments. Connected companies agree how to divide one allowance between them.

Once you pay, the funds appear in your apprenticeship service account. You can then use them for:

• apprenticeship training with an approved provider
• end-point assessment for your apprentices
• apprenticeship units, the shorter courses now available to employers

However, levy funds cannot pay apprentice wages.

What changed for levy funds in August 2026?

From 1 August 2026, new levy funds expire after 12 months instead of 24. The government also ended its 10% top-up on new funds. Funds that entered accounts on or before 31 July 2026 keep the older 24-month expiry.

Other rules changed too, according to the Department for Education’s funding update:

• Once levy funds run out, employers contribute 25% for apprentices aged 25 and over.
• For new starts, training for apprentices aged 16 to 24 is fully funded.
• Since January 2026, most new Level 7 starts aged 22 and over no longer receive funding.

Consequently, unused funds now disappear twice as fast.

How does an apprenticeship levy transfer work?

An apprenticeship levy transfer lets a levy payer share up to 50% of its annual funds. Any business can receive a transfer, including levy payers and smaller firms. The money pays for training and assessment for the receiver’s new apprentices.

Transfers help when you cannot spend everything internally. For instance, you can support suppliers, clients or small firms in your sector. In turn, funds that might expire build skills across your wider network. The government’s transfer guidance explains how to set this up.

Which apprenticeship levy mistakes do foreign employers make?

Most mistakes come from treating the levy as an afterthought. Foreign employers often plan UK headcount first and check payroll obligations later. By then, levy payments are due and unused funds are already ageing.

• Leaving the levy out of UK payroll budgets as headcount grows.
• Claiming a separate allowance for each connected UK entity.
• Forgetting that account funds cover apprentices in England only. Scotland, Wales and Northern Ireland run their own schemes.
• Letting funds expire under the new 12-month rule.

However, the levy is only one UK payroll duty. Our UK payroll compliance guide for foreign companies covers the others. If you also use contractors, read our guide to contractor misclassification and IR35.

Turning the apprenticeship levy into a talent strategy

The apprenticeship levy is more than a payroll deduction. Used well, it funds the skills your UK team needs. Since 1987, Octagon has provided the structure that lets organisations move talent and build teams across borders. Our payroll administration covers tax and statutory reporting, so compliance stays built in.

As a result, we help reduce the risk of miscalculated levy, shared-allowance errors and costly filing mistakes. Meanwhile, you keep full control over salaries, benefits, hiring and training decisions. We handle the complexity, with full transparency, so you can focus on growth. Speak to Octagon Professionals about building compliant UK payroll for your next expansion.

Frequently asked questions

What is the apprenticeship levy threshold?

The threshold is an annual UK pay bill of £3 million. Below that, employers pay no levy, because the £15,000 yearly allowance cancels 0.5% of £3 million. Above it, employers pay 0.5% on the excess. Connected companies share a single allowance, so group payroll counts together when checking the limit.

Do foreign companies pay apprenticeship levy in the UK?

Yes. Any employer running UK payroll pays the levy once its UK pay bill exceeds £3 million. Ownership does not change the rule. A foreign parent’s UK subsidiaries also count as connected companies. Therefore, they share one £15,000 allowance rather than each claiming their own.

How long do apprenticeship levy funds last?

Levy funds entering an account from 1 August 2026 expire after 12 months. Older funds, received on or before 31 July 2026, still last 24 months. The oldest funds leave the account first. Employers should therefore plan training early, or transfer surplus funds before they expire.

Can you transfer apprenticeship levy to another company?

Yes. Levy-paying employers can transfer up to 50% of their annual levy funds. Any business with an apprenticeship service account can receive them, including small firms. The receiver can only use the money to train and assess new apprentices, up to the funding band maximum.