Apprenticeship Levy

The Apprenticeship Levy, introduced in April 2017 following George Osborne’s 2015 Budget announcement, represents a significant shift in how we fund skills training in Britain. The policy emerged from an attempt to address the UK’s skills shortage and create sustainable, long-term funding for apprenticeships.

The Levy operates as a 0.5% charge on the payroll of employers with pay bills exceeding £3 million per annum. This marked a shift from a voluntary, employer-led co-funding model to a compulsory, payroll-based levy with pooled and redistributive funding.

Large employers paying the Levy receive their contributions back through digital accounts, topped up with an additional 10% government contribution – meaning for every £1,000 contributed, employers receive £1,100 in their account. They have 24 months to spend these funds on apprenticeship training.

The Levy supports all employers, not just those who pay it. Small- and medium-sized enterprises with payrolls under £3 million pay only 5% of apprenticeship training costs, with the government funding the remaining 95%. For apprentices aged 16-21, the government pays 100% of training costs for non-levy employers. This is designed with the intention that smaller businesses can access high-quality training.

Levy-paying employers can transfer up to 50% of their annual funds to other organisations, including SMEs in their supply chains, with the aim of creating a collaborative training ecosystem. Any unspent Levy funds are recycled to support apprenticeships across the economy, not simply for that business or industry.

Further reading

• Department for Education — How are apprenticeships funded and what is the apprenticeship levy? 

• HM Revenue and Customs — Pay Apprenticeship Levy