Guide
Apprenticeship Levy — Do You Need to Pay It?
Written by EmployerCalculator Editorial · Reviewed against official UK sources · Last updated: June 2026
The apprenticeship levy is 0.5% of annual pay bill above a £3m allowance. Only employers with a pay bill over £3m pay anything. This guide explains who pays, how to calculate the liability, and what non-levy employers can do instead.
What the levy is and who pays it
The apprenticeship levy was introduced in April 2017. It charges 0.5% of annual pay bill on UK employers whose annual pay bill exceeds £3 million. Each employer receives a £15,000 annual allowance, which has the practical effect of making the levy payable only on the portion of pay bill above £3 million — so an employer with a pay bill of exactly £3 million pays nothing, and an employer with a pay bill of £3.5 million pays 0.5% of £500,000 = £2,500 per year.
The vast majority of UK employers do not pay the levy because their pay bill is below £3 million. Most small and medium businesses — those with fewer than around 100 employees at average UK salaries — fall well below this threshold. The levy is primarily paid by large employers: retail chains, NHS trusts, large manufacturers, financial services firms, and central government. It is deducted monthly through PAYE and flows into a digital apprenticeship service account from which the employer can draw funds for apprenticeship training.
Pay bill for levy purposes means the total of all payments to employees that are subject to Class 1 secondary (employer) NI — broadly, gross wages and salaries, overtime, shift pay, bonuses and commissions, but not pension contributions, expenses or benefits taxed separately. Pay bill is not the same as payroll cost: it excludes employer NI, pension, and non-cash benefits.
How to calculate your liability
The formula is straightforward: (annual pay bill × 0.5%) minus £15,000 = annual levy liability. The £15,000 allowance translates to a pay bill threshold of £3 million (£15,000 ÷ 0.5% = £3,000,000). For monthly reporting, divide the annual allowance by 12 (£1,250 per month) and apply it against monthly levy calculated at 0.00417% of monthly pay bill.
At a pay bill of £3.5 million: levy = (£3,500,000 × 0.5%) − £15,000 = £17,500 − £15,000 = £2,500 per year. At £5 million: levy = (£5,000,000 × 0.5%) − £15,000 = £25,000 − £15,000 = £10,000 per year. At £10 million: levy = £50,000 − £15,000 = £35,000 per year.
Connected employers share the £15,000 allowance — they cannot each claim the full £15,000. Where a business operates through multiple legal entities under common control, the levy allowance is split between connected entities. This is a common trap for group structures where each subsidiary operates a separate payroll: the group may pay levy even if no individual entity reaches £3 million, if the group as a whole does.
What you can spend levy funds on
Funds in a levy-paying employer's digital apprenticeship service account can be spent on training and assessment costs for apprentices working in England. The training must be delivered by an approved training provider on an approved apprenticeship standard. Levy funds cannot be used for apprentice wages, travel costs, equipment, or any costs outside the approved training contract.
Each apprenticeship standard has a maximum funding cap — the most the government will pay towards training for that standard. Where training costs exceed the cap, the employer must fund the excess themselves. The apprenticeship service account does not carry forward indefinitely: unused funds expire 24 months after entering the account, so levy-paying employers should have an active apprenticeship strategy to avoid losing funds.
The digital apprenticeship service account also shows real-time levy balance, reserved funds, and training payment schedules. Large employers with complex apprenticeship programmes use the service to manage multiple providers, cohort intakes and spending against their training plan. ESFA (Education and Skills Funding Agency) audits are conducted to confirm that levy spending meets the rules.
Non-levy employers: co-investment and reservations
Employers below the £3 million pay bill threshold do not pay the levy and do not have a digital apprenticeship service account funded by their own contributions. Instead, they access apprenticeship funding through a co-investment arrangement: the government contributes 95% of apprenticeship training costs, and the employer pays the remaining 5% directly to the training provider.
To access this funding, non-levy employers must create an account on the apprenticeship service and reserve funding against a specific apprenticeship standard and start date. Reservations must be made before the apprenticeship starts — employers cannot apply for funding retrospectively. The number of reservations available to non-levy employers in each academic year is limited, so planning ahead is important particularly for employers intending to start multiple apprentices.
Non-levy employers can also benefit from additional incentive payments in some circumstances — for example, for hiring apprentices aged 16–18 or those with an education, health and care plan. These payments are made direct to the employer and are in addition to the 95% training cost contribution. A non-levy employer hiring a 17-year-old on an apprenticeship standard can access training cost contributions plus any applicable incentive payments at very low net cost, making apprenticeships financially attractive even without a levy account.
Use the calculator
Put the figures from this guide into practice with the live calculator tools below.
Frequently asked questions
How much does it cost to employ someone in the UK?
The true cost to employ someone in the UK is typically 15–20% above gross salary. At £30,000: employer NI £3,750 + pension £713 = approximately £34,463 per year. At £50,000: employer NI £6,750 + pension £1,313 = approximately £58,063 per year. Adding workplace overheads of £2,000–£5,000 can bring the total to 20–25% above the headline salary.
What is the employer NI rate for 2026/27?
For 2026/27, employer Class 1 National Insurance is charged at 15% on employee earnings above the secondary threshold of £5,000 per year (£96 per week, £416 per month). This rate increased from 13.8% in April 2025, when the threshold was simultaneously cut from £9,100 to £5,000. Both changes apply from 6 April 2025.
How much employer NI do I pay on a £35,000 salary?
At £35,000 salary, employer NI for 2026/27 is £4,500 per year — 15% on £30,000 of earnings above the £5,000 threshold. That is £375 per month. In 2024/25, the same salary produced £3,585 in employer NI. The April 2025 changes therefore add £915 per year on this salary alone.
What is Employment Allowance and who can claim it?
Employment Allowance lets eligible employers reduce their annual employer NI bill by up to £10,500 in 2026/27, increased from £5,000 in 2024/25. The previous £100,000 NI bill eligibility cap has been removed, so more businesses qualify. Companies where the only paid employee is also a director cannot claim. Apply through payroll software via the Employer Payment Summary indicator.
What is the total employer cost above salary?
Beyond salary, employer cost includes: employer NI (15% on earnings above £5,000), employer pension (minimum 3% of qualifying earnings between £6,240 and £50,270), and overheads such as equipment, software and workspace. For most UK salaries this adds 12–20% above headline pay. Use the inputs above to set your exact pension rate and overhead figure.
What changed for employers in April 2025?
Three changes took effect from 6 April 2025: the employer NI rate rose from 13.8% to 15%, the secondary threshold was cut from £9,100 to £5,000, and Employment Allowance increased from £5,000 to £10,500 with the eligibility cap removed. For a £30,000 salary, annual employer NI increased from approximately £2,884 to £3,750 — a rise of £866 per year.
How is employer NI different from employee NI?
Employer NI is a cost paid by the employer on top of gross salary — it does not reduce take-home pay. Employee NI is deducted from the employee's wages instead. For 2026/27, employees pay 8% on earnings between £12,570 and £50,270, then 2% above that. Employers pay 15% on all earnings above £5,000 with no upper cap. This calculator covers the employer side; for employee take-home pay see AfterTaxSalary.co.uk.
What are employer costs in the UK?
UK employer costs in 2026/27 are: gross salary, employer NI at 15% on earnings above £5,000, employer pension at minimum 3% of qualifying earnings (£6,240–£50,270), and any operational overheads such as equipment or software. For a £35,000 salary, statutory employer costs (NI + pension) add approximately £5,363/year before overheads.
How much do I cost my employer in the UK?
If you earn £35,000, you cost your employer roughly £40,363/year — your salary plus £4,500 employer NI and £863 minimum pension. At £50,000, the total is approximately £58,063. Your employer pays these on top of your salary; they are not deducted from your pay. Use this calculator to see the exact figure for your salary.
Is this a PAYE cost calculator for employers?
Yes. PAYE employer costs include employer NI — calculated at 15% above £5,000 for 2026/27 — plus the employer's auto-enrolment pension contribution. The full calculator models both alongside any overhead assumptions to give a total PAYE-basis employer spend per employee.
What is a cost to company (CTC) salary in the UK?
Cost to company (CTC) in the UK refers to the total annual cost of an employee to their employer — salary, employer NI, pension, and overheads combined. A £35,000 CTC salary typically means a gross salary of roughly £30,000–£32,000 once the employer's NI and pension obligations are included in the total. Use this calculator to work backwards from a CTC budget to a gross salary.
Tools
Tools worth considering
UK payroll and HR tools. Editorial summary only — not endorsements.
Xero Payroll
Cloud payroll bundled with Xero accounting. Handles RTI submissions, auto-enrolment and payslip generation. Commonly used by UK small businesses already on Xero for bookkeeping.
See Xero Payroll →
QuickBooks Payroll
Payroll add-on for QuickBooks. Used by UK small employers for PAYE, NI, pension and HMRC RTI. Integrates with QuickBooks accounting.
See QuickBooks Payroll →
Sage Payroll
Long-established UK payroll software with HMRC recognition. Works standalone (without Sage accounting) and is widely used in small businesses and accountancy practices.
See Sage Payroll →
Employment Hero
HR and payroll platform used by growing UK teams. Combines contracts, onboarding, leave management and payroll in one system. HMRC RTI integrated.
See Employment Hero →
Once you know the cost — what next?
Running payroll correctly after you have calculated employer cost is the next practical step. The tools below handle HMRC RTI submissions, auto-enrolment pension and payslip generation automatically.