The Apprenticeship Levy Explained
27 March 2025
Each year, millions of pounds worth of apprenticeship funding goes unspent. The apprenticeship levy was designed to change that - so if you’re not using it, you could be missing out.
Apprenticeships are one of the most effective ways to boost training and develop talent, no matter your sector or business size. However, despite the clear value on offer, many employers feel held back by the complexity of funding and perceived red tape getting in the way.
That’s where the apprenticeship levy comes in. It’s a government scheme designed to make apprenticeship funding accessible – and help employers invest in skills without the financial strain.
While it’s a legal requirement for larger employers, the challenge lies in making sure these funds don’t go to waste.
Understanding how it works could unlock significant support for your business, helping to train new starters and upskill existing staff and ultimately build a workforce fit for the future.
So, whether you’re a levy-paying organisation or a smaller business looking to tap into government co-investment, this guide will help you navigate the system with clarity and confidence.
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What is the apprenticeship levy?
Introduced in 2017, the apprenticeship levy is a scheme created by the UK Government to both encourage businesses to invest in workforce training and close skills gaps across industries.
Instead of firms relying on government-funded training programmes, the apprenticeship levy is intended to ensure that employers play an active role in developing their employees' skills through apprenticeships.
The purpose of the levy is to:
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Increase employer-led investment in training rather than relying on taxpayer funding
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Tackle skills shortages in key industries and futureproof UK PLC
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Encourage businesses to upskill both new and existing employees
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Create more high-quality apprenticeship opportunities
By understanding how the levy works, businesses can make the most of their contributions, invest in cost-effective training, and build a skilled workforce that drives growth and productivity.
Who pays the apprenticeship levy?
The apprenticeship levy applies to UK employers with an annual payroll of over £3m. If that’s your business, you’re required to invest 0.5% of your total wage bill into apprenticeship training. But before you panic about extra costs, here’s the good news: the Government gives every employer a £15,000 annual allowance, which means you only pay the levy on the amount that exceeds the threshold.
Here’s how that plays out in real terms:
If your payroll is £4m:
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0.5% of £4,000,000 = £20,000
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£20,000 minus the £15,000 allowance = £5,000 levy payment
This contribution is collected automatically through your PAYE system and held in your Apprenticeship Service account, ready to be used for approved apprenticeship training and assessment.
If your payroll sits below £3m, you won’t pay the levy, but you’re not left out. Your business can still access up to 95% government co-investment to fund apprenticeship training. And if you’re a small business with fewer than 50 employees, the Government may cover 100% of the training costs for apprentices aged 16–18 (or 19–24 with an education, health and care plan).
In short, whether you’re contributing to the levy or not, there’s support available to help you build a skilled, future-ready workforce, with government funding behind you.
How does the apprenticeship levy work?
If you’re a levy-paying employer, your contributions are kept safe in a digital Apprenticeship Service account, ready to be used on approved training and assessment. Within that portal, you can choose the training provider, track your balance, and allocate funds as needed.
Keep in mind that there’s a time limit. Any funds you don’t use within 24 months expire and go back to the Government, so it’s important to plan ahead and put your contributions to work.
You’re also not limited to using the levy just within your own organisation. If you know you won’t spend the full amount, you can transfer up to 25% of your unused funds to another business such as a supplier, a smaller organisation in your sector, or a local charity. This is a great way to support skills development beyond your business, while making sure your levy doesn’t go to waste. Transfers are managed through the Apprenticeship Service and can fully fund apprenticeship training for the recipient.
And remember: you’re not limited to one apprentice. You can use your levy to support multiple apprenticeships at once, across different teams, departments and skill levels. You just need to ensure that the training meets the funding rules.
Whether you’re using your levy to invest internally or support others in your network, the key is staying active and intentional. The funds are there, but they won’t wait forever.
What can the apprenticeship levy be used for?
Levy funds are a valuable resource, but it’s important to know that they come with clear rules. To make the most of your contributions, it’s important to know exactly what’s covered and what’s out of scope.
You can use your levy funds for the following:
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The cost of the apprenticeship training, so long as it’s delivered by a government-approved provider
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End-point assessment (EPA) – the final test that confirms an apprentice is industry-ready
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Training for both new hires and existing staff
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Apprenticeships at all levels – from Intermediate (Level 2) right through to Degree and Master’s-level (Level 7)
You cannot use levy funds for:
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The apprentice’s wages
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Hiring costs like recruitment agency fees or job ads
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Travel, accommodation, or subsistence for apprentices
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Managerial fees, licenses to practise, or training unrelated to the apprenticeship programme
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Anything outside the approved apprenticeship standards
Knowing what your levy covers helps you invest wisely - where it adds real value to your team.
It’s also important to consider that each apprenticeship has a funding band limit. If training costs go over it, you’ll need to cover the difference. More information on funding bands can be found here.
How can employers make the most of the apprenticeship levy?
Whether you’re paying in or not, there are a few hacks to ensure you’re making the most of the Government’s apprenticeship levy scheme.
If you’re a levy-paying employer:
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Plan ahead. Funds expire after 24 months, so map out your training needs early.
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Upskill existing staff. Apprenticeships aren’t just for new starters. They’re ideal for developing current employees too.
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Fund multiple apprenticeships – you’re not limited to one apprentice or role.
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Choose the right provider. Remember that a good training provider makes the process smoother and the training more relevant.
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Transfer unused funds. Share up to 25% of your levy with other organisations and support skills growth in your supply chain or sector.
If you’re a non-levy employer:
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Apply for a levy transfer. Larger businesses can fund 100% of your training costs.
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Set up your Apprenticeship Service account. You’ll need it to receive funds and manage training.
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Find a transfer partner. Look to suppliers, local authorities, or training providers who can help connect you.
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Make your case clear. Be prepared to explain how the funding will benefit your business and apprentices.
Used correctly, apprenticeship funding is more than support. It’s a strategy for building skills and long-term resilience into your workforce.
Make your apprenticeship levy work for you
Whether you’re paying into the apprenticeship levy or looking to benefit from it, the funding is there to help your business grow. Used well, it’s more than just a pot of money – it’s a chance to shape future talent and strengthen your workforce from within.
From upskilling your team to supporting your supply chain through levy transfers, there are more opportunities than ever to make a lasting impact. The key is knowing how the system works - and acting before those funds go to waste.
At PfP Thrive, we help employers of all sizes provide apprenticeship qualifications tailor-made for your business needs.
As part of Places for People, the UK’s leading social enterprise, our unique insight into the UK housing industry has allowed us to identify skill gaps in key trades and develop training programmes that will bridge these gaps and futureproof the industry.
To find out more about how we can help your organisation, including advice around funding for apprenticeships within the housing and construction sector, please contact us today..
The funding’s already there, so let’s put it to work.