The Apprenticeship Levy and Small Trades Businesses Explained

Summary

The Apprenticeship Levy, introduced in April 2017, is frequently misunderstood by small trades businesses who assume it's a tax they're liable for simply because they employ staff and might take on an apprentice. It isn't. The levy is specifically a large-employer charge: 0.5% of total annual pay bill, with a £15,000 annual allowance that offsets the charge — meaning in practice only employers with a pay bill above roughly £3 million per year end up paying anything. A typical small or medium trades business, even one with ten or twenty employees, sits nowhere near that threshold and pays no Apprenticeship Levy at all.

What the levy does is fund a national pot that non-levy-paying employers can draw from to train apprentices through a co-investment model: the government funds the large majority of the agreed training cost for an apprenticeship standard, and the employer pays a small percentage directly to the training provider. This means a small trades business can take on an apprentice and access substantial government-funded training support without ever having paid into the levy that funds it — the levy's existence as a large-employer charge is precisely what makes this subsidised training available to everyone else.

This is a different scheme from the CITB Levy, which is a separate, construction-sector-specific charge with its own (much lower) threshold that can apply to small trades businesses directly — see citb levy and grants for how that distinct levy works and how the two interact for construction employers.

Key Facts

• Levy rate — 0.5% of an employer's total annual pay bill (gross pay subject to employer Class 1 NICs).
• Annual allowance — £15,000 per year offsets the charge, meaning the levy is effectively only paid on pay bill above roughly £3 million a year.
• Who actually pays it — only large employers; most small and medium trades businesses have a pay bill well below the effective threshold and pay nothing.
• Funding for non-levy payers — the government funds a significant majority of apprenticeship training costs for non-levy-paying employers under a co-investment model, with the employer paying a smaller percentage directly to the training provider. ****
• Apprenticeship Service digital account — levy-paying employers manage their funds through this account; non-levy payers interact with funding through their chosen training provider instead.
• Levy transfer — levy-paying employers can transfer up to 25% of their annual levy funds to other employers (including small subcontractors or supply-chain partners), which can be a route for a small trades business to get an apprenticeship funded with no co-investment cost at all if a larger partner firm transfers funds to them.
• Funding bands — each apprenticeship standard (e.g. an electrotechnical or plumbing apprenticeship) has a set government funding band cap; training providers' charges above that cap are not government-funded.
• Not the same as the CITB Levy — the CITB Levy is a separate construction-industry-specific charge with a much lower entry threshold (based on wage bill, not the £3m Apprenticeship Levy threshold) and funds its own grant scheme; see citb levy and grants.
• UK-wide tax, devolved funding — the levy itself is collected UK-wide via PAYE, but the funding systems for spending it on apprenticeships are devolved — England uses the Apprenticeship Service model described here, while Scotland, Wales, and Northern Ireland run their own apprenticeship funding systems financed via the Barnett formula.
• 5% co-investment rate (historical reference point) — the non-levy-payer co-investment rate was reduced from 10% to 5% in 2019, meaning employers pay 5% and government funds 95% of the training cost up to the relevant funding band, though this figure should be checked against the current rate before quoting it to a client. ****

Quick Reference Table

Detailed Guidance

Why most small trades businesses never see the levy directly

The £3 million pay bill threshold (after the £15,000 allowance is applied against the 0.5% charge) is far above what the overwhelming majority of trades businesses — sole traders, small partnerships, small limited companies with a handful of employees — will ever reach. For most small trades businesses, "the Apprenticeship Levy" is simply not something that appears on their own payroll costs; its relevance to them is entirely as the funding source behind the training subsidy they can access.

How a small trades business actually accesses apprenticeship funding

A small trades business wanting to take on an apprentice doesn't interact with the levy system directly — it registers the apprenticeship with a training provider (often a local college or specialist trade training provider), who handles the funding application through the government's co-investment system. The employer typically pays a modest percentage of the agreed training cost directly to the provider, with government funding covering the rest up to the standard's funding band cap. This is worth knowing precisely because many small trades employers assume apprenticeship training is either fully free or prohibitively expensive, when in practice it's heavily subsidised at a known, budgetable cost.

The levy transfer route — an underused option for small firms

Large levy-paying employers can transfer up to 25% of their annual levy funds to other employers, and some actively look for apprentices to fund this way as part of supply-chain development or corporate social responsibility commitments. A small trades business with a relationship to a larger contractor, housebuilder, or utility company it subcontracts for may be able to get an apprenticeship fully funded via a transfer, with no co-investment payment at all — worth raising directly with larger commercial partners rather than assuming it isn't available to a small firm.

Don't confuse this with the CITB Levy

Construction employers can be liable for the separate CITB Levy — a charge based on wage bill with a much lower threshold that catches many small construction businesses the Apprenticeship Levy never would — which funds its own, distinct grant system for training. A small trades business can be exempt from the Apprenticeship Levy while still being liable for the CITB Levy; see citb levy and grants for that scheme's specific mechanics, thresholds, and grant process.

Frequently Asked Questions

Does my small trades business have to pay the Apprenticeship Levy?

Almost certainly not, unless your annual pay bill exceeds roughly £3 million (0.5% of pay bill, less a £15,000 allowance). The large majority of small and medium trades businesses fall well under this threshold.

If I don't pay the levy, can I still get government help to fund an apprentice?

Yes — this is the co-investment model: the government funds the large majority of the training cost for an apprenticeship standard, and you pay a smaller percentage directly to the training provider, regardless of the fact you've never paid into the levy.

Can a bigger company I subcontract for help pay for my apprentice's training?

Potentially, yes — levy-paying employers can transfer up to 25% of their levy funds to other employers, which can fully fund an apprenticeship with no co-investment cost to the receiving small business. It's worth asking any larger commercial partner directly whether they have unspent levy funds available to transfer.

Is the Apprenticeship Levy the same as the CITB Levy construction employers pay?

No — they are two entirely separate levies with different thresholds, different collection mechanisms, and different funding purposes. A construction business can be liable for the CITB Levy while being far too small to ever pay the Apprenticeship Levy.

Regulations & Standards

• Apprenticeship Levy (introduced via Finance Act 2016 provisions, administered under HMRC PAYE) — the statutory basis for the 0.5% charge and £15,000 allowance.

• Apprenticeships, Skills, Children and Learning Act 2009 (as amended) — underlying framework for apprenticeship standards and funding administration in England.

• Industrial Training Act 1982 — separate statutory basis for the CITB Levy, distinct from the Apprenticeship Levy.

• GOV.UK — Pay Apprenticeship Levy — official guidance on levy calculation and the £15,000 allowance.

• GOV.UK — Apprenticeship funding rules and co-investment — current funding bands and co-investment rate for non-levy payers.

• citb levy and grants — the separate, construction-specific CITB Levy and its grant scheme, distinct from this levy.

• apprenticeships — the practical process of taking on an apprentice: co-investment, off-the-job training rule, ESFA registration.

• trade qualifications — apprenticeship routes compared against NVQ and direct-entry qualification paths.

• taking on staff — wider employer obligations when taking on any employee, including an apprentice.