If your annual UK payroll bill is over £3 million, you already pay the Apprenticeship Levy.
Up to now, a lot of large employers have seen it as a “training tax” that HR worries about and finance writes off when funds expire.
The Autumn Budget 2025 changes that.
From 2026, under the new Growth & Skills Levy, three things happen at once:
- The 10% government top-up on your levy pot disappears
- Your funds will expire after 12 months, not 24
- Once your pot is empty, your share of extra training costs jumps from 5% to 25%
Same tax on your payroll bill. Much less room to be casual about how you use it.
This guide is for finance directors, HR leaders and operations heads in levy-paying employers who want to:
- Understand how the rules are changing
- See what that does to the numbers
- Build a simple plan so the levy becomes a useful skills budget, not a write-off
For a full overview of how the levy works for all employers (including SMEs and under-25 apprenticeships), see the main Apprenticeship Levy and Growth & Skills Levy guide on your site, this article goes deeper on the levy-payer angle.
1. Quick recap: are you a levy-paying employer?
You pay the Apprenticeship Levy if your total UK payroll bill is more than £3 million across connected companies.
- Payroll bill means everything you put through PAYE: wages, salaries, bonuses, commissions and so on, before tax and National Insurance.
- If you have connected companies (for example, a group), HMRC looks at their payroll bills together for the £3m test.
How the levy is calculated
If you’re over the threshold:
- Levy rate: 0.5% of your annual payroll bill
- Minus a £15,000 annual allowance
Because 0.5% of £3,000,000 is £15,000, that allowance effectively wipes out the first £3m of payroll. Only the slice above £3m actually costs you cash.
Example – £10m payroll bill
Let’s work this through step by step:
- Payroll bill: £10,000,000
- 0.5% of £10,000,000
- 0.5% = 0.005
- 10,000,000 × 0.005 = 50,000
- Subtract allowance: £50,000 − £15,000 = £35,000 levy
So a £10m payroll bill gives you an annual levy charge of £35,000, collected monthly via PAYE.
Right now, that £35k goes into a digital account, gets a 10% uplift and can only be spent on apprenticeship training and assessment.
From 2026, the tax side stays the same, it’s what happens after you’ve paid that changes.
2. How your levy “pot” works today
Before we look at the Growth & Skills Levy, it’s worth being clear on the current rules.
For levy-paying employers in England: E
- Your levy is collected monthly through PAYE.
- It appears in your digital apprenticeship service account, adjusted by your “English percentage” (the share of your payroll bill linked to staff in England).
- The government adds a 10% top-up to the funds in your English account.
- You use that balance to pay for approved apprenticeship training and end-point assessment, not wages, recruitment, or internal admin.
If you don’t use the funds:
- Money in your digital account expires after 24 months and goes back to the Treasury.
Once your pot is empty:
- Government still covers 95% of approved training costs
- You pay the remaining 5%, this is often called co-funding, but it simply means “your share of the training bill”.
You can also transfer up to 50% of your annual levy to other employers (for example, SMEs in your supply chain) so they can fund apprenticeships too.
In this world, a lot of large employers:
- Let HR or L&D run the apprenticeship programme
- Occasionally notice that some funds expired
- Treat the whole thing as a “cost of doing business” tax, not a core part of the skills and workforce plan
That attitude becomes a lot more expensive from 2026.
3. What changes from 2026 under the Growth & Skills Levy?
The Autumn Budget 2025 and follow-up briefings set out three big changes for levy-payers under the new Growth & Skills Levy:
- The 10% top-up is removed
- The expiry period halves, 24 months down to 12 months
- Your share of extra training costs (after your pot is used) rises from 5% to 25%
Let’s unpack each.
3.1 No more 10% top-up
Today, your levy payment into the English account gets a 10% uplift.
Back to our £10m payroll example:
- Levy charge: £35,000
- 10% top-up: 10% of £35,000 = £3,500
- Total in the digital account: £38,500 per year
Under the Growth & Skills Levy:
- Top-up disappears
- Your account simply shows the £35,000 you paid (adjusted by the English percentage)
That’s a straight reduction in available funds of £3,500 a year in this example, about 9% less in the training pot, without changing your payroll bill or levy rate.
3.2 24-month expiry becomes 12 months
At the moment, each monthly contribution:
- Enters your account
- Sits there for up to 24 months
- Then expires if not used
Under the Growth & Skills Levy:
- New contributions are expected to expire after 12 months, not 24
In practice, this means:
- You lose the “two-year rolling window” safety net
- Levy planning becomes much closer to annual budget planning, if you don’t use it within a year, it’s gone
3.3 Your share of extra training costs jumps to 25%
Today, when your pot is empty:
- Government covers 95% of further approved training costs
- You pay 5%
From 2026:
- Government covers 75% once your pot is used
- You pay 25%
Worked example – £100k extra training after your pot is used
- Now:
- Employer share: 5% of £100,000 = £5,000
- Government share: £95,000
- From 2026:
- Employer share: 25% of £100,000 = £25,000
- Government share: £75,000
Same programme. Same people. Extra £20,000 for you.
Put bluntly:
Letting your pot run dry becomes much more expensive.
4. What about short courses and “apprenticeship units”?
The pain is only one side of the story.
The reason the government is re-branding this as a Growth & Skills Levy is that employers will have more flexible ways to spend the money, not just full multi-year apprenticeships.
Policy papers and employer guidance point to:
- Short courses that cover specific skills, especially in priority areas like digital, AI, data, engineering and green skills
- Shorter apprenticeship pathways (the minimum duration for new starts is already moving to 8 months from 1 August 2025 where appropriate)
For many levy-payers, that’s closer to how you already think about training:
- Upskilling managers on AI tools
- Rolling out a new software platform
- Filling specific skills gaps in data, cyber or automation
The difference post-2026 is:
- You’ll be under more pressure to use the money quickly, and
- You can use it for more targeted training, not just full apprenticeships
So the levy moves from “big, slow programmes HR fights to fill” to “rolling skills budget that needs a pipeline of short, high-impact activities”.
5. What does this do to your numbers? (Two simple scenarios)
Let’s pull this together in two quick scenarios.
Scenario 1 – You under-use your pot
Take our £10m payroll bill example:
- Levy: £35,000
- Current top-up: £3,500
- Pot today: £38,500 per year
Imagine you only manage to use 70% of that each year.
- Used: 70% of £38,500
- 10% of 38,500 is 3,850
- 70% is 7 × 10% → 7 × 3,850 = 26,950
- Unused: £38,500 − £26,950 = £11,550 expired every 24 months
Under the Growth & Skills Levy, assume you still only manage 70% usage and ignore small differences for simplicity:
- Pot per year: £35,000 (no top-up)
- 70% used: 0.7 × 35,000
- 10% of 35,000 is 3,500
- 70% = 7 × 3,500 = 24,500
- Unused: £35,000 − £24,500 = £10,500
So on the face of it, the amount expiring each year is similar.
But:
- You now have half the time to get from “payment” to “actual learner on a programme”
- And if your pot runs out because you front-load, your share of extra training costs is 5× higher
In other words, the cost of not having a plan goes up sharply, even if the raw expiry figure doesn’t change much.
Scenario 2 – You consciously over-commit your pot
Another way to look at this is to treat your levy as an annual budget:
- You plan to spend 110–120% of your expected yearly contributions on approved programmes
- You accept that if you overshoot, the last slice attracts 25% employer share rather than 5%
This only feels safe if you:
- Have a clear rolling pipeline of starts
- Link the training plan to your headcount and skills plan, not just “spend the pot”
That is much easier to do if levy and training planning sit inside your management accounts and rolling forecast, not in a separate HR spreadsheet.
Your existing article on why management accounts matter for growing UK SMEs already covers the idea of building people and payroll into your month-end pack, this is another reason to do it.
6. Why this belongs in your rolling forecast, not just HR
For levy-payers, the Growth & Skills Levy is no longer just a compliance tick-box.
From 2026, it affects:
- Total cost of training (because your share jumps to 25% if you run out of pot)
- Timing of spend (because funds expire after 12 months)
- Mix of programmes (because short courses and units become a bigger part of the picture)
That means it should sit alongside:
- Payroll
- Other staff development budgets
- Your rolling cash and profit forecast
In practice, that looks like:
- Adding a line for “levy inflow” linked to payroll in your forecast
- Adding a line for “levy-funded training” that shows when you expect to use the pot
- Showing “employer-funded training” separately, both the 25% share after the pot is empty and any non-levy-funded development
If you’re already using a 52-week rolling forecast or a 12-month cash and profit forecast, this is just a case of adding a couple of rows and linking them to your staffing and training plan.
7. 90-day plan for levy-paying employers
Here’s a simple 90-day plan to get ahead of the Growth & Skills Levy changes.
Month 1 – Get the facts
- Pull your levy data
- Annual payroll bill and levy paid
- Current digital account balance
- How much has expired in the last 24 months
- List your programmes
- Current apprenticeships (by standard, level, length, cost)
- Planned starts in the next 12–18 months
- Check governance
- Who actually owns levy planning – HR, L&D, finance, or a mix?
- How often does it come to the table (if at all)?
Month 2 – Model “as is” vs “2026 rules”
- On a single page, sketch two views:
- Today’s rules: 10% top-up, 24-month expiry, 95/5 share after the pot is empty
- 2026 rules: no top-up, 12-month expiry, 75/25 share after the pot is empty
- For each, estimate:
- How much expires each year if you change nothing
- How much employer share you’d pay on extra training (5% vs 25%)
This doesn’t need to be perfect – even a rough sketch will show where the pain is.
Month 3 – Build a simple skills and spend plan
- Agree a target for pot usage (for example “at least 95% of new contributions used within 12 months”)
- Prioritise programmes
- Must-have apprenticeships (regulatory, safety-critical, pipeline roles)
- Short, targeted courses in digital, AI, data, tech, leadership
- Align with headcount plans
- Make sure planned apprenticeships and courses line up with hires and role changes
- Add to your management accounts rhythm
- Put levy and training updates on the same monthly or quarterly timetable as your management pack review, so it’s impossible to forget
8. FAQs, levy-paying employers and the Growth & Skills Levy
Q1. Is the Apprenticeship Levy tax itself changing in 2026?
No. The core tax remains the same, 0.5% of your annual payroll bill above £3m, with a £15,000 allowance. What changes is how the money is managed and spent under the Growth & Skills Levy: the 10% top-up is removed, funds expire after 12 months, and your share of extra training costs rises to 25% once your pot is empty.
Q2. When will the 12-month expiry and 25% employer share actually start?
The Autumn Budget confirms the shift to a 12-month expiry period and 75/25 co-funding split for levy-payers once funds are exhausted. These changes are expected to come in from 2026, alongside the Growth & Skills Levy, with exact operational dates set out in future guidance.
Q3. Can we still transfer unused levy funds to SMEs?
Yes. The ability to transfer a portion of your levy to other employers (such as SMEs in your supply chain) remains part of the system, though the detailed limits and rules may be updated as the Growth & Skills Levy beds in. Transfers will continue to be a key tool to avoid wasted funds and support the wider skills system.
Q4. What kinds of short courses will we be able to fund?
Policy documents and employer guidance point to levy funds being usable for short, targeted training and “apprenticeship units” in priority skills, such as digital, AI, data, engineering and green skills, alongside full apprenticeships. Exact course types and rules will be confirmed as the Growth & Skills Levy is implemented.
Q5. How does this affect non-levy SMEs?
If your payroll bill is £3m or less, you don’t pay the levy at all, but you benefit from related reforms. From 2026, training and assessment for under-25 apprentices in SMEs will be fully funded, meaning no training bill (you only pay wages and on-costs). That’s covered in more detail in your spin-off article on free under-25 apprenticeships for SMEs.
9. Want help turning this into a plan, not just a policy note?
For levy-paying employers, the Growth & Skills Levy is a clear nudge:
- Use your levy pot quickly and deliberately, or
- Accept that you’ll pay more of the training bill yourself
The good news is, when you line levy flows up with:
- Your payroll and headcount plans
- Your skills strategy
- Your management accounts and rolling forecast
…you can turn what feels like a tax into a focused skills budget that actually supports growth.
If you’d like help to:
- Map your current levy position and expiry risk
- Model what the 12-month expiry and 25% share do to your numbers
- Build a simple 12- to 24-month training and hiring plan that makes the most of the new rules
Book a 20-minute planning call.
We’ll walk through your payroll bill, levy data and growth plans, and turn the Growth & Skills Levy from “another policy headache” into a clear, numbers-driven plan you can explain to your board.