Apprenticeship Levy 2026/27 | Complete Employer Guide

The Apprenticeship Levy is a payroll charge. An employer with an annual pay bill above £3 million, including the relevant pay bills of connected companies or charities, pays 0.5% of the pay bill through PAYE, reduced by a £15,000 annual allowance (£1,250 a month). The levy charge itself applies across the UK, but apprenticeship-service funding rules and the account examples in this guide are primarily for apprentices whose main workplace is in England; Scotland, Wales and Northern Ireland use different arrangements.

Getting the levy right matters because it is reported monthly through the Employer Payment Summary (EPS) as part of the PAYE process. Model your exposure with the Apprenticeship Levy Calculator→, and see how the levy sits alongside employer National Insurance with the Employer NI Calculator→.

How the Levy Is Calculated

The formula is: 0.5% of the total pay bill, less the allocated annual allowance, with the result calculated cumulatively. The £3 million figure is the point at which the £15,000 allowance is fully used; it is not a separate deduction from the pay bill. HMRC works the charge out cumulatively each month using payroll information, so seasonal swings in pay bill are reconciled across the tax year.

The allowance is annual, not automatically £15,000 per company. If you control connected companies or charities, you must aggregate their pay bills and share one £15,000 allowance between them. The levy is reported monthly on the EPS through PAYE; the cumulative calculation and allocation must also be retained in payroll records.

What Counts in the Pay Bill

Your pay bill includes every payment to employees subject to Class 1 secondary National Insurance: salaries and wages, bonuses, commissions, overtime, statutory payments such as SSP and SMP, and most directors' remuneration. Excluded items include benefits in kind (company cars, private medical insurance), expenses and mileage payments, pension contributions, and most termination payments under £30,000.

• Class 1 secondary NI is the test — the pay bill is based on earnings on which the employer is liable for Class 1 secondary NICs. Earnings below the usual secondary threshold, and earnings for under-21 employees or under-25 apprentices where a zero rate applies, can still be included.
• Connected companies aggregate — companies under common control combine pay bills and share one allowance; separately registered but jointly owned entities cannot each claim £15,000.
• Group companies split the allowance — HMRC lets a group allocate the £15,000 between companies in any way, but the total offset is still £15,000.
• Seasonal spikes count — the levy is annualised cumulatively, so a Christmas bonus peak raises the cumulative figure even if monthly pay is usually low.
• New employers — report when the previous-year bill was over £3m, when you expect the current-year bill to be over £3m, or when it unexpectedly rises over £3m; once reporting starts, continue through the end of that tax year.

Worked Example: Brighton Manufacturing

Brighton Manufacturing Ltd pays £416,667 a month, a £5,000,000 annual pay bill, with no connected companies. The monthly cumulative levy is 0.5% of cumulative pay over £3m, minus the £1,250 monthly allowance.

Brighton pays £10,000 in levy over the year. For English apprenticeships, the amount credited to its apprenticeship service account also depends on the English share of its workforce; from 1 August 2026 there is no automatic 10% government top-up. The account funds are for eligible apprenticeship training and assessment, not a general cash credit.

Using Your Apprenticeship Service Account

Once you pay the levy, the English share of the funds is made available in your digital apprenticeship service account. Funds cover eligible apprenticeship training and assessment for approved standards — they cannot be spent on apprentice wages, travel or general equipment. Funds entering an account from August 2026 become unavailable after 12 months; funds already there before August 2026 retain the 24-month rule. The oldest funds are removed first.

• Existing employees can qualify — the employee, employer, standard and workplace must satisfy the current England funding rules; an approved standard alone is not enough.
• 50% transfer rule — the annual transfer allowance is up to 50% of the previous financial year’s levy funds, with the English percentage applied. It is not simply 50% of the current year’s balance.
• Non-levy and exhausted funds — for starts from 1 August 2026 in England, non-levy employers and levy employers that exhaust their funds generally receive 95% government funding for apprentices aged 25 or over; the government funds eligible training and assessment in full for apprentices aged 16–24, subject to the published age and eligibility rules. Do not apply the old blanket “under 50 staff and aged 16–21” rule to 2026/27.
• Devolved nations differ — the levy tax is UK-wide, but funds and apprenticeship funding rules for Scotland, Wales and Northern Ireland are administered separately from the English apprenticeship service.
• Register early — many levy payers never set up their account, letting credits expire; registration at the apprenticeship service is free and takes minutes.

Levy vs Other Employment Taxes

The levy works alongside employer National Insurance and pension auto-enrolment, and each is calculated on a different base. For 2026/27, employer NI is generally 15% above the relevant secondary threshold, while auto-enrolment has separate qualifying-earnings rules. The levy is 0.5% of the total pay bill less the allocated allowance. Do not estimate employer NI from a £5 million pay bill alone: employee mix, thresholds and zero-rate categories affect the result.

There is one interaction worth noting: the levy pay bill is based on earnings subject to Class 1 secondary NICs, so changes to headcount or pay mix can move both lines, but not always in the same amount. Non-cash benefits provided through salary sacrifice can fall outside the levy pay bill where they are not subject to Class 1 NICs; obtain payroll advice before relying on salary sacrifice to reduce either charge.

How to Report and Common Mistakes

The levy is reported monthly through the EPS as part of PAYE. What you must manage is the underlying data: correct pay bill figures, aggregated connected-company pay, the allowance allocation, the monthly report, and the apprenticeship service account balance. The most common errors are failing to aggregate connected companies, applying the wrong expiry date, ignoring the England-only funding rules, and overcommitting transfer funding.

Review the group and the funding location

Recheck connected-company status when ownership, control or group structure changes. Keep the calculation showing which employers were included, how the single allowance was allocated and who approved the allocation. A payroll team that calculates each PAYE scheme separately can still miss the group-level levy position. If an entity joins or leaves the group, document the effective date and revisit both the annual estimate and the EPS reporting.

Also separate the UK-wide levy charge from the location of apprenticeship delivery. The tax is collected through PAYE across the UK, but the digital account and funding rules described here are principally for England. Before promising training, confirm the apprentice's workplace, approved standard, provider, start date, age rules and the nation responsible for funding. A balance in the account is not permission to spend it on any course or on general employee costs.

Manage the account as a restricted training budget

Forecast planned starts against the expiry date of each fund tranche and keep evidence of transfers, approvals and provider commitments. Do not count a proposed transfer as money available until the receiving employer accepts it and the current rules permit it. If a course is cancelled or an apprentice leaves, ask the provider how the account will be adjusted and update the forecast. Review balances monthly alongside the EPS rather than waiting for the annual accounts.

Frequently Asked Questions

Payroll evidence and monthly reconciliation

Keep the pay-bill calculation, connected-group structure, allowance allocation, payroll reports, EPS submissions and apprenticeship-service statements together. Reconcile the year-to-date levy calculation to the payroll ledger each month rather than relying only on a single annual estimate. If employees transfer between connected companies, the pay bill changes, or a group allocation is amended, record the effective date and the reason for the change.

Separate the PAYE charge from the later use of apprenticeship funds. The levy calculation and the training-funding rules are related but not interchangeable: a balance in the service account does not prove that a particular course, provider or apprentice is eligible. Keep the apprenticeship agreement, training-provider details and funding decision with the payroll file. If the group operates across England, Scotland, Wales or Northern Ireland, map the relevant funding route before forecasting the spend.

Run your payroll numbers through the Apprenticeship Levy Calculator→ and check employer costs end to end with the Employer NI Calculator→. Pair this guide with Employer NI 2026/27 and Making Tax Digital 2026/27 for the full payroll picture.

Official sources

• GOV.UK: Pay the Apprenticeship Levy
• HMRC Apprenticeship Levy Manual
• GOV.UK: Apprenticeship funding
• GOV.UK: Transfer your Apprenticeship Levy to another business
• GOV.UK: Funding rules for apprenticeships