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England recorded 353,500 apprenticeship starts in the 2024/25 academic year, and 68.8% of them were paid for with levy funds held in employers' apprenticeship service accounts [1]. The money behind those starts comes from a charge of 0.5% on every UK pay bill above £3 million, collected by HMRC through payroll [2].
The Growth and Skills Levy is the name the government gives to the reformed version of that charge. The tax collected through payroll has not changed. What has changed, mostly from 1 August 2026, is what employers in England can spend the money on, how long the money lasts, and how much of the training bill the government still covers once the money runs out [3].
For finance directors and payroll teams at large employers, the reform shifts the levy from a cost that could be recovered slowly into one that has to be planned and spent within a year. For smaller employers who never pay the levy, it changes the co-investment rules, adds a hiring payment for young apprentices and opens a new category of short training courses.
This article sets out how the levy is calculated and reported, what the Growth and Skills Levy allows funds to pay for, the new expiry and co-investment rules, the payroll reliefs that sit alongside apprenticeships, and the position in Scotland, Wales and Northern Ireland.
Key takeaways
- The levy charge itself is unchanged: 0.5% of the annual pay bill, reduced by a £15,000 allowance, payable only where the pay bill exceeds £3 million [2].
- From 1 August 2026, levy funds in England can pay for apprenticeships, foundation apprenticeships and short apprenticeship units.
- New levy funds expire after 12 months instead of 24, and the 10% government top-up on monthly contributions has stopped [10].
- Training for apprentices aged 16 to 24 is fully funded for all employers, while over-25s attract a 5% or 25% employer contribution.
- Level 7 apprenticeships are funded only for apprentices aged 16 to 21 (under 25 for care leavers and those with an EHC plan) for starts from 1 January 2026.
- Payroll still reports the levy on the Employer Payment Summary, and apprentices under 25 still attract 0% employer National Insurance up to £50,270.
How the levy is charged through payroll
The Growth and Skills Levy did not create a new tax. HMRC still collects the Apprenticeship Levy at a rate of 0.5% of an employer's annual pay bill, and employers still receive an allowance that reduces the levy payable by £15,000 across the year [2]. HMRC's employer rates page for 2026-27 lists the same 0.5% charge and £15,000 allowance for the period 6 April 2026 to 5 April 2027 [4].
Who pays and what counts as pay bill
An employer is liable when its annual pay bill exceeds £3 million, or when it is connected to other companies or charities whose combined pay bill exceeds £3 million [2]. Connected companies share a single £15,000 allowance between them, and multi-academy trusts also receive a single allowance, while public bodies each receive a full one [2].
The pay bill is broadly the total of earnings subject to Class 1 secondary National Insurance. HMRC states that it must include payments to employees under the age of 21 and to apprentices under the age of 25, even though both groups attract a 0% employer National Insurance rate up to their upper secondary threshold [2] [4]. This is the rule that most often surprises groups with large young workforces: a zero National Insurance bill does not take those wages out of the levy calculation.
A worked levy calculation
The table below applies the 0.5% rate and the £15,000 allowance published by HMRC to three illustrative pay bills [2].
| Annual pay bill | Gross levy at 0.5% | Allowance used | Annual levy payable |
|---|---|---|---|
| £2,500,000 | £12,500 | £12,500 | £0 |
| £3,000,000 | £15,000 | £15,000 | £0 |
| £4,000,000 | £20,000 | £15,000 | £5,000 |
| £10,000,000 | £50,000 | £15,000 | £35,000 |
In the £4 million example, the employer pays £5,000 over the year, and the allowance absorbs the first £15,000 of gross levy. The allowance cannot be carried forward from one tax year to the next, and unused allowance in a month rolls forward only within the same tax year [2]. Because the allowance equals 0.5% of £3 million, an employer only starts to pay once the pay bill crosses that line, which is why the £3 million figure doubles as the liability threshold [4].
Reporting on the Employer Payment Summary
Levy-paying employers report and pay monthly through the Employer Payment Summary (EPS), stating the annual allowance allocated to the PAYE scheme and the levy owed to date [2]. HMRC's reporting guidance sets the EPS deadline as the 19th of the following tax month, the same deadline used for claiming statutory payment recoveries and Employment Allowance [5].
HMRC asks employers to report from the start of the tax year if they expect a pay bill above £3 million, and to keep records for 3 years [2]. A payroll system that holds the HMRC Recognised status populates the levy fields on the EPS from the year-to-date pay bill, which removes the manual spreadsheet that many groups still keep alongside their enterprise payroll. The levy payment is also a deductible expense for Corporation Tax [2].
What the Growth and Skills Levy changes
The reform is about spending, not collection. The government's Budget of 26 November 2025 committed "over £1.5 billion" across the spending review period to the Youth Guarantee and the Growth and Skills Levy [6]. The Department for Education's employer schemes service states that, from 1 August 2026, employers "can now use funds to pay for apprenticeships, foundation apprenticeships and apprenticeship units" [3].
Skills England, an executive agency sponsored by the Department for Work and Pensions, now owns the apprenticeship standards that levy funds pay for [7]. The 2026 to 2027 apprenticeship funding rules apply to apprenticeships starting between 1 August 2026 and 31 July 2027 [8].
The main changes are summarised below, using the government's employer factsheet and funding guidance [9] [10].
| Feature | Before 1 August 2026 | From 1 August 2026 |
|---|---|---|
| What levy funds pay for | Apprenticeships | Apprenticeships, foundation apprenticeships, apprenticeship units |
| Expiry of new funds | 24 months | 12 months |
| Government top-up on monthly contributions | 10% | None on new funds |
| Training for apprentices aged 16 to 24 | Co-investment for most non-levy starts aged 22 and over | Fully funded for all employers |
| Levy payer short of funds, apprentice aged 25+ | 5% employer contribution | 25% employer contribution |
| Maximum levy transfer to other employers | 50% | 50%, covering apprenticeships and units |
Apprenticeship units
Apprenticeship units are the first route that lets levy funds pay for training that is not a full apprenticeship. The apprenticeship service describes them as "the first time levy funds can be used for non-apprenticeship training", aimed at employed learners aged 19 and over [11]. The unit funding rules set each unit at between 1 and 16 weeks and between 30 and 140 delivery hours, for learners who spend at least 50% of their working hours in England [12].
The first wave of units carries fixed funding rates published by the apprenticeship service, which shows the price range employers are spending into [11].
| Example unit (wave 1) | Delivery hours | Funding rate |
|---|---|---|
| AI Adoption, Procurement and Governance | 30 | £750 |
| Electric charging point installation and maintenance | 35 | £950 |
| Electrical fitting and assembly | 70 | £1,650 |
| Welding (mechanised) | 90 | £2,100 |
| Permanent modular building assembly | 140 | £3,200 |
Providers can claim a fixed one-off learning support payment of £150 per learner for each unit [12]. For levy payers with insufficient funds, the government pays all costs for unit learners aged 19 to 24 and 75% for those aged 25 or over [13].
Foundation apprenticeships
Foundation apprenticeships are Level 2 programmes for people aged 16 to 21, extended to 24 for those with an EHC plan, care leavers, prisoners and prison leavers, with a minimum duration of 8 months [14]. The government describes them as fully funded for both non-levy and levy-paying employers [9].
They started in construction, digital, engineering and manufacturing, and health and social care, and from April 2026 extended to catering and hospitality and to retail service, supply and administration [14]. Employers can receive an incentive of up to £2,000 per foundation apprentice, paid in three equal instalments at day 90, day 242 and when the apprentice progresses [14]. Starts remain small for now: the latest statistics record 160 foundation apprenticeship starts between August 2025 and April 2026 [1].
Shorter apprenticeships and withdrawn standards
The minimum duration of an apprenticeship was reduced from 12 to 8 months in August 2025, and adults aged 19 and over no longer need English and maths qualifications to pass [3]. The government's employer guidance gives the full range as 8 months to 6 years [15].
The 2026 to 2027 funding rules set a floor of 187 hours of evidenced delivery for any programme [16]. Sixteen apprenticeship standards, including three leadership standards, were withdrawn from levy funding from September 2026 [3].
Fund expiry and the end of the top-up
For levy payers, the expiry rule matters more than any other part of the reform. Funds that enter an apprenticeship service account from 1 August 2026 become unavailable after 12 months and are removed, while funds that entered on or before 31 July 2026 keep the old 24-month life [10]. The technical funding guide gives a direct illustration: funds that arrive in September 2026 expire in September 2027 [17].
How the 12-month clock runs
Funds are spent on a first-in, first-out basis, so the oldest money is used first and newer contributions only start to be drawn once earlier months are exhausted [17]. Levy funds enter accounts shortly after the 22nd day of each month, which is after the EPS deadline on the 19th [17] [5].
The amount that reaches the account is not the full levy paid. It is the monthly levy multiplied by the proportion of the pay bill paid to employees living in England, a percentage the government recalculates quarterly and defaults to 100% [10] [17]. Groups with staff in Scotland, Wales or Northern Ireland therefore see a smaller usable balance than the levy they pay.
The removal of the 10% top-up
Until 31 July 2026, the government added 10% to every monthly levy contribution that entered an account. That top-up no longer applies to new funds from 1 August 2026 [13] [17].
In the £4 million pay bill example above, the employer's annual levy is £5,000. Under the old rules, that example would have reached the account with a top-up and two years to spend it. Under the reformed levy, the same example reaches the account without a top-up and with half the time, which makes forecasting training spend part of the monthly payroll cycle rather than an annual exercise [10].
Transfers to other employers
Levy payers can transfer funds to other employers, including supply-chain businesses and smaller firms, up to an annual maximum transfer allowance of 50%, and that allowance now covers both apprenticeships and apprenticeship units [10]. The unit funding rules give a receiving employer 6 weeks to accept a transfer and 3 months to use it [12].
With a 12-month expiry, transfers become the main way to stop funds lapsing. Employers that cannot use their balance have a stronger reason to agree transfer arrangements early in the year rather than in the final months before expiry [17].
Co-investment and who pays for training
Co-investment is the share of training costs an employer pays when levy funds are not available. The rules now depend on whether the employer pays the levy, whether its funds have run out and the apprentice's age [10] [17].
| Employer position | Apprentice aged 16 to 24 | Apprentice aged 25 or over |
|---|---|---|
| Non-levy employer | Government funds 100% | Employer 5%, government 95% |
| Levy payer with insufficient funds | Government funds 100% | Employer 25%, government 75% |
| Levy payer with sufficient funds | Paid from levy funds | Paid from levy funds |
What co-investment costs in practice
The Department for Education uses a £3,500 funding band to show the effect: a 5% contribution costs the employer £175, and a 25% contribution costs £875 [3]. Funding band maximums run from £1,500 to £27,000, so the same percentages on the highest band cost far more [10].
Training providers receive 80% of the price in monthly instalments and 20% on completion [10]. The completion element is capped at the band maximum, which is why an employer that negotiates a price above the band pays the difference itself [17].
Level 7 apprenticeships
From 1 January 2026, Level 7 apprenticeships are funded only for apprentices aged 16 to 21, or under 25 for care leavers and people with an Education, Health and Care plan, and those aged 22 and over are no longer eligible for new starts [3]. The official statistics release confirms the change and records 33,560 Level 7 starts in 2024/25, the population most affected [1].
The 2026 to 2027 funding rules carry the same age test in their eligibility section [16]. Professional services firms that used levy funds for accountancy, solicitor and senior leader Level 7 programmes now have to fund older trainees outside the levy or use the money elsewhere.
Payments for employers that hire young apprentices
The reform adds cash incentives on top of free training for young people. The government's factsheet states that employers can receive up to £6,000 of additional payments, with a further £2,000 for non-levy employers that hire apprentices aged 16 to 24 [18].
The £2,000 hiring payment
The hiring payment is worth up to £2,000 for non-levy employers that take on 16 to 24 year-old apprentices as new employees, for practical periods starting from 1 October 2026 [19]. The funding guidance adds that the apprentice must not have been employed by that employer for more than 90 days before the start and that the employer's PAYE scheme must be added to its apprenticeship service account [10].
The factsheet states that the earliest payment arrives from January 2027, in two instalments [9]. For a small business, this means the PAYE scheme reference has to match between payroll and the apprenticeship service, a detail that an SME payroll platform holds on the employer record.
Other additional payments
Separate from the hiring payment, the funding guidance lists the following support [10] [9].
| Payment | Who qualifies | Amount |
|---|---|---|
| Additional employer payment | Apprentices aged 16 to 18, or 19 to 24 in care or with an EHC plan | £1,000 in two instalments |
| Foundation apprenticeship incentive | Each foundation apprentice | Up to £2,000 in three instalments |
| Hiring payment | Non-levy employers, new apprentices aged 16 to 24 | Up to £2,000 |
| Care leaver bursary | Apprentices aged 16 to 24 who are care leavers | £3,000 in three instalments |
The payroll reliefs that sit alongside apprenticeships
Apprentices also change the payroll figures directly. Employers must pay apprentices at least the National Minimum Wage, and the apprentice rate for those aged 16 to 18, and those aged 19 or over in their first year, is £8 an hour [20] [21]. Apprentices aged 19 or over who have completed their first year move to the age-related rate.
Zero employer National Insurance for apprentices under 25
Apprentices under 25 sit in National Insurance category H, and employers pay 0% employer National Insurance on their earnings up to the apprentice upper secondary threshold of £967 a week, £4,189 a month or £50,270 a year [22] [4]. Above that threshold the standard 15% applies [23].
The Moonworkers calculator engine shows what the category letter is worth on the 2026-27 rules. For an apprentice earning £20,000 a year, employer National Insurance is £2,250 on category A and £0 on category H, a saving of £2,250 [4]. For an apprentice earning £25,000 a year, the saving rises to £3,000 [23]. The employee's own deductions do not change with the letter: at £25,000, employee National Insurance is £994.40 on either category.
The relief is lost silently when payroll keeps an apprentice on category A, and it ends on the apprentice's 25th birthday, so the letter has to change on the right pay date. For developers embedding payroll in an HR or learning platform, the category letter and date of birth are both fields on the employee record in the HMRC-recognised payroll API, documented in the API reference.
Employment Allowance and connected groups
Employment Allowance lets eligible employers reduce their annual Class 1 National Insurance liability by up to £10,500 [24]. Since April 2025, employers with more than £100,000 of Class 1 liabilities can apply, but within a group of connected companies only one company can claim [25].
The connected-company test is the same idea as the levy allowance: group structures share one allowance in both cases [2] [25]. The interaction between the two reliefs and the 15% employer rate is covered in more depth in the guide to understanding employer National Insurance.
Scotland, Wales and Northern Ireland
The levy is UK-wide, but the Growth and Skills Levy spending rules apply only in England. The Welsh Government describes the Apprenticeship Levy as "a UK-wide employment tax" collected monthly by HMRC through PAYE at 0.5% on pay bills of £3 million or more [26] [27].
How the devolved nations fund apprenticeships
The funding guidance for England states that Scotland, Wales and Northern Ireland have their own arrangements, and that England funds training only where the apprentice's workplace is in England [10]. In Wales, businesses of all sizes and sectors are eligible for apprenticeship funding, and an incentive of £2,000 per disabled learner runs until 31 July 2027, capped at 10 learners per business [28].
In Scotland, apprenticeships are run by Skills Development Scotland, and in Northern Ireland employers arrange off-the-job training with approved training contractors [29] [30]. A UK group that pays the levy on a mixed workforce therefore pays the full charge through HMRC but can only draw the English share through the apprenticeship service [17].
What this means for multi-nation payroll
For payroll, the practical point is that the employee's home address drives the English percentage, while the workplace drives training eligibility [10]. Unit learners must also spend at least 50% of their working hours in England [12].
Accountants handling several group entities often reconcile these figures across clients, a task that a multi-client payroll dashboard keeps consistent from one EPS to the next. The broader background on how the original charge was designed is covered in the guide to the Apprenticeship Levy explained.
A checklist for payroll and finance teams
The reform leaves the payroll calculation unchanged but adds deadlines that depend on payroll data. The following steps follow directly from the HMRC and Department for Education guidance cited above [2] [10].
- Confirm whether the group's combined pay bill exceeds £3 million, including connected companies and charities.
- Agree the split of the single £15,000 allowance across PAYE schemes at the start of the tax year and report it on the EPS.
- Check the English percentage on the apprenticeship service account against the home addresses held in payroll.
- Forecast spending against the 12-month expiry for funds received from 1 August 2026, and plan transfers before funds lapse.
- Review National Insurance category letters for every apprentice under 25 and every employee under 21.
- For non-levy employers, add the PAYE scheme to the apprenticeship service account before hiring an apprentice aged 16 to 24, so the hiring payment can be claimed.
Work out the cost of an apprentice hire
Before taking on an apprentice, an employer can size the payroll cost with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules, including category H, to any gross salary.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category — if in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
The Growth and Skills Levy keeps the payroll mechanics of the Apprenticeship Levy intact while turning the spending side into a tighter, more varied system. The same 0.5% charge now buys short units and foundation programmes as well as full apprenticeships, but the money lasts 12 months instead of 24 and arrives without the 10% top-up. Age has become the main driver of who pays for training, with full funding for 16 to 24 year-olds and higher contributions for older learners once levy funds run out.
The next pressure point is data. Expiry dates, the English percentage, transfer allowances and category letters all depend on figures that already sit in payroll, and the employers that read those figures monthly will be the ones that spend their levy before it disappears.
Frequently asked questions
Is the Growth and Skills Levy a new tax on top of the Apprenticeship Levy?
No. The Growth and Skills Levy is the reformed name for the spending side of the Apprenticeship Levy. Employers with a pay bill above £3 million still pay 0.5% of the pay bill through PAYE, reduced by a £15,000 allowance [2]. The changes concern what the funds can pay for in England and how long they last [3].
When do Growth and Skills Levy funds expire?
Funds that enter an apprenticeship service account from 1 August 2026 expire after 12 months, and funds that entered on or before 31 July 2026 keep 24 months [10]. Funds are spent on a first-in, first-out basis, so the oldest balance is used first [17].
Can small employers that do not pay the levy use apprenticeship units?
Yes. Apprenticeship units are open to employed learners aged 19 and over, and the government states that they are fully funded for non-levy employers [9]. Each unit lasts between 1 and 16 weeks and between 30 and 140 delivery hours [12].
Do employers in Scotland or Wales pay the Growth and Skills Levy?
Employers across the UK pay the Apprenticeship Levy through HMRC if their pay bill exceeds £3 million [27]. The Growth and Skills Levy spending rules apply only in England, and Scotland, Wales and Northern Ireland run their own apprenticeship funding [10]. An employer only receives the English share of its levy in its apprenticeship service account.
