Are you looking invest in talent by upskilling your current team or taking on an apprentice? If you’re new to apprenticeships, you might be wondering how to calculate the apprenticeship levy and what you can spend it on.
That’s where Damar Training comes in. As a leading apprenticeship provider, we help organisations learn about the financial support and incentives they can receive to assist with the training of apprentices. In this blog, we’ll take a look at how you can calculate the apprenticeship levy.
How to easily calculate the apprenticeship levy
The apprenticeship levy is a UK tax paid by large employers with an annual pay bill of over £3 million, which is set at a rate of 0.5% of the total pay bill.
You can use the following formula to calculate:
(Your annual pay bill x 0.5%) – £15,000 annual allowance = Your annual levy
For example, if you are a large employer with a payroll bill of £20,000,000, then your annual levy payment would be:
(£20,000,000 x 0.5%) – £15,000 = £85,000
Your annual pay bill includes all earnings subject to Class 1 secondary National Insurance contributions, such as:
- Wages
- Bonuses
- Commissions
- Overtime payments
- Statutory sick pay
- Maternity, paternity, and adoption pay.
If you’re an employer that is part of a connected group of companies, then the levy must be calculated across the group, not just for individual companies.
How is the apprenticeship levy paid?
The levy is collected monthly through your PAYE system, alongside other taxes. This money goes into a digital account which you can then use to pay for approved apprenticeship training. Levy-paying employers in England currently receive a 10% government top-up on their levy funds. However, from August 2026, the government top-up payments will cease.
What can you spend the apprenticeship levy on?
Your apprenticeship levy is for the training and assessment costs of approved apprenticeship programmes.
You can’t spend the apprenticeship levy on the following:
- Wages: Whether that’s apprentice salaries or national insurance contributions
- Travel: Any costs for getting to and from work or training
- Admin costs: Your own internal management costs
- Non-apprenticeship training: Any courses that are not part of an approved apprenticeship
You can spend it on:
- Training costs: This is the core cost of apprenticeship programmes
- End-point assessment: The fees from end-point assessment organisations
- Levy transfers: You can transfer up to 50% of your funds to other businesses to help with their apprenticeship training.
Since last year, the apprenticeship levy has actually been officially renamed the growth and skills levy. The government announced plans to broaden what the levy could be spent on, including forms of training that don’t involve an apprenticeship, but no further details or timelines have been provided.
Can apprenticeship levy funds expire?
Apprenticeship levy funds expire after 24 months. Funds in your digital account must be used within this time frame, otherwise, you’ll miss out, and they’ll be reclaimed by HMRC. The 24-month window will be reduced to 12 months in August 2026.
As a result, it’s important to ensure that you’re planning ahead and utilising your funds effectively to hire new apprentices or upskill existing employees. If you’re unable to spend all of your levy pot, you should consider a levy transfer to an employer in your supply chain or community.
Learn more about how to use your apprenticeship levy effectively.
Benefits of the apprenticeship levy
The apprenticeship levy provides a dedicated financial resource for you to spend on apprenticeship training. By taking a strategic approach and partnering with reputable training providers, you have the ability to fill skills gaps, boost productivity, improve staff retention, create a more innovative culture – and so much more. Discover more of the benefits of apprenticeship training.
Apprenticeships with Damar Training
Hopefully, you’ve now got a better understanding of how to calculate the apprenticeship levy. This is the first step in ensuring that you can access quality apprenticeship training to make your organisation more effective and profitable.
As an established, values-driven provider with extensive experience in delivering impactful apprenticeships to organisations across England, Damar Training are here to help.