What the Apprenticeship Levy Is, and Whether Your Firm Pays It

The apprenticeship levy is a payroll charge of 0.5% of an employer's annual pay bill, reduced by a £15,000 annual allowance. Because £15,000 is exactly 0.5% of £3 million, the allowance fully offsets the levy up to a pay bill of £3 million, which means in practice the levy is paid only by employers with an annual pay bill over £3,000,000. Larger law firms therefore pay it; smaller firms do not.

That does not leave smaller firms outside the apprenticeship system. A firm below the threshold has no levy pot but can still take on apprentices through government co-investment or by receiving a levy transfer from a larger firm. This guide signposts each of those routes, explains how the pot works for a payer, and sets out how levy funds can support a solicitor or SQE apprenticeship, including the live restriction on Level 7 funding that took effect from January 2026.

One framing point before we start: the levy is a payroll levy collected through PAYE, separate from corporation tax and separate again from the question of whether training costs are tax-deductible. The deductibility of SQE fees is a different matter, covered on our guide to whether SQE training costs are tax deductible for trainees. We keep the two in separate boxes throughout.

How the Levy Is Calculated (the Pay Bill, the 0.5%, the £15,000 Allowance)

The pay bill is all payments to employees that are subject to employer (Class 1 secondary) National Insurance contributions, such as wages, bonuses and commissions. This is the same base your payroll already uses for employer NIC, so the figure is readily available. For 2025/26, employer secondary Class 1 NIC is charged at 15% on earnings above the £5,000 secondary threshold; the levy uses the underlying pay-bill amount, not the NIC charged on it.

The levy is 0.5% of that pay bill, reduced by the £15,000 annual allowance, which is spread across the year at £1,250 a month. Two points catch firms out:

  • Partners are not in the pay bill. A genuine partner or LLP member is taxed on their profit share, which is not earnings subject to employer NIC, so partner drawings do not form part of the pay bill. The levy bites on employed staff costs.
  • Groups share one allowance. Connected companies and employers with multiple PAYE schemes share a single £15,000 allowance and divide it between them. A group cannot claim £15,000 per entity.

The worked example later in this guide shows how the allowance turns the headline 0.5% into a charge that bites only above £3 million.

A point that often surprises firms whose staff costs are growing: it is the pay bill, not headcount, that decides whether you pay. A firm of relatively few but well-paid fee earners can cross £3 million on a modest headcount, while a firm with many lower-paid support staff may stay below it. Bonuses and commissions count, so a strong bonus year can push a firm over the threshold for that year even if base salaries did not change. If your pay bill is close to £3 million, it is worth forecasting it before the year starts, because HMRC expects employers who anticipate crossing the threshold to operate the levy through PAYE from the outset rather than reconciling it after the event.

The levy is also distinct from your employer NIC liability, even though both are calculated on the same pay-bill base. The 15% secondary Class 1 NIC (2025/26) on earnings above the £5,000 threshold is a separate charge; the 0.5% levy sits on top, reduced only by its own £15,000 allowance (not by the Employment Allowance, which is a different relief for employer NIC). Do not net the two reliefs against each other: they apply to different charges.

The Apprenticeship Service Account and How the Pot Is Spent

Levy payments appear in the firm's online apprenticeship service account (the England system), and can be drawn down to pay approved training providers for approved apprenticeship standards. The firm chooses which apprenticeships to fund, selects a provider, and the funds flow from the account to the provider as the training is delivered.

Two practical features matter. First, the funds are intended to be used within a limited window: the rules commonly describe levy funds as expiring after a period on a first-in, first-out basis if they are not spent (the precise window is set by the current apprenticeship-funding rules, so check the present position rather than relying on a fixed figure). The takeaway is that a firm should plan its apprentice intake so the pot is used, not allowed to lapse. Second, the service account is an England-only mechanism: Scotland, Wales and Northern Ireland fund apprenticeships through their own devolved arrangements, even though the levy charge itself is UK-wide.

For a law firm, the most common reason a pot goes to waste is simply that nobody owns it. The levy is paid automatically through PAYE, the funds accumulate quietly in the service account, and unless someone (often the COFA, finance director or HR lead) is actively planning apprentice intake against the balance, the oldest funds can expire unused. Treating the pot as a budget line to be deployed, with a named owner and a forward view of which roles could be filled by apprentices, turns a sunk payroll cost into funded training. A firm with multiple offices in England should also note that there is one service account for the employer, not one per office, so the planning is firm-wide.

If Your Firm Is Below the £3 Million Threshold (Co-Investment)

A non-levy-paying firm does not have a pot, but it can still take on apprentices. Under government co-investment, the government funds the large majority of the approved training cost and the employer pays a small co-investment share. This is the route most small and mid-sized law firms use to fund an apprentice.

We do not state a fixed co-investment percentage here, because the split and any full-funding categories (for example for certain younger apprentices or smaller employers) are set by the current rules and have changed over time. Confirm the present co-investment percentage and any full-funding eligibility at gov.uk before you budget for an apprentice. The headline point for a small firm is simple: you do not need to pay the levy to take on an apprentice.

For a small or mid-sized law firm, co-investment can make an apprentice surprisingly affordable: the firm pays the apprentice's salary (a normal employment cost it would bear for any junior hire) plus a small share of the training cost, with the government meeting the large majority of the training. The employer co-investment share, where one applies, is itself a deductible business cost like any other staff-training expense. The point to check at source is whether the apprentice falls into a category that attracts full government funding, in which case the firm's training-cost contribution may be nil, leaving only the salary to fund. Because these categories and percentages move, build your budget on the current rules rather than on what a colleague did a year or two ago.

Levy Transfers (Now Up to 50%)

A levy-paying firm can transfer a percentage of its annual funds to other employers. The transfer limit was raised from 25% to 50% of the previous financial year's apprenticeship levy funds, with effect from 22 April 2024. So a large firm can fund a smaller firm's apprentices from its pot, for example a firm in its network, a referral partner, or a smaller practice in a group or supply-chain relationship.

Transfers are arranged through the apprenticeship service account, and the receiving employer applies the funds to approved apprenticeship training. For groups, networks and ABS structures with a large levy payer and smaller connected practices, the 50% transfer is a useful way to route unused pot capacity to where the apprentices actually are, rather than letting the funds expire.

A few practical points on transfers. The transferring firm commits to funding the agreed apprenticeship for its full duration, so a transfer is a multi-year undertaking, not a one-off gift of cash; the funds flow to the receiving employer's provider as the training is delivered. The 50% limit is measured against the previous financial year's levy funds, so a firm that has only just crossed the threshold has a smaller transferable base. And a transfer is still spent on approved standards under the same rules as the firm's own pot, including any eligibility restrictions on the apprenticeship chosen. For a law firm group, the transfer mechanism can be a tidy way to fund apprentices at a smaller member practice without that practice having to find the cost from its own profit, provided the funding commitment is planned and the eligibility checked.

The Level 7 Solicitor Apprenticeship and the SQE Route

The Level 7 solicitor apprenticeship is a route to qualifying as a solicitor that takes a recruit through to qualification, with the SQE assessments forming part of the end-point assessment. The apprentice works at the firm and trains alongside, and the training, including SQE preparation, can be paid from levy funds or co-investment where the apprentice is eligible.

It is an alternative to the traditional degree plus self-funded SQE path. For a firm, it offers a way to build a qualified-solicitor pipeline while spreading the cost through the apprenticeship-funding system rather than meeting it entirely out of profit. The Institute for Apprenticeships and the SRA publish the solicitor (level 7) standard and the qualification detail, which is the right place to confirm the current content and assessment structure.

From a finance and planning perspective, the attraction is that an apprentice is an employee earning a salary (which forms part of the firm's pay bill, and so feeds the very levy that can fund their training), while the training and assessment are paid from the levy pot or co-investment rather than as a separate cash outlay. That can make the all-in cost of growing your own solicitors more predictable than recruiting qualified laterals or funding a self-paid route. The trade-off is the time commitment: an apprenticeship is a multi-year programme with off-the-job training requirements, so the firm needs to plan supervision and case mix around it. The right framing is to treat it as a deliberate talent-pipeline investment that the levy helps fund, not as a free qualification, and to confirm that the apprentice you have in mind is eligible under the current rules before you build a budget around it.

The Level 7 Funding Restriction (Date-Sensitive)

This is the section to be honest about, because the funding picture is in flux. Government funding for the Level 7 solicitor apprenticeship was restricted from January 2026. Broadly, government and levy funding for level 7 is being limited to younger apprentices and specific eligibility groups, but the detail has moved, so we do not state a precise age band as settled fact.

The practical instruction is therefore: treat level 7 funding as a live, date-tagged change and confirm current eligibility with the training provider, the Institute for Apprenticeships and gov.uk before you commit to fund a level 7 apprentice from your pot. A firm that budgeted on the pre-2026 position and did not re-check could find a planned funding route narrowed or closed for an ineligible apprentice. Getting the current eligibility right, rather than assuming it, is part of planning the levy properly.

The Levy Is Not the Same as the Tax-Deductibility of Training Costs

Draw this line explicitly, because the two are easily blurred:

  • The levy is a payroll charge, and the pot funds approved apprenticeship training. The levy payment itself is a deductible business cost, because it is a payroll cost incurred wholly and exclusively for the trade (ITTOIA 2005 s.34, or CTA 2009 for a company).
  • The deductibility of training fees (SQE and other courses), whether employer-paid, reimbursed, or self-funded by a locum, is a separate question with its own rules, covered on our SQE training costs guide.

Note one consequence: training funded from the pot is paid with levy or government money, not a fresh firm expense, so you do not deduct the same cost twice. The levy is the deductible payroll charge; the funded training is paid from the pot.

A Worked Example: Does the Firm Pay, and What Can the Pot Do?

Illustrative only, not advice; figures date-tagged 2025/26.

Firm A, pay bill £2.4 million. The gross levy would be 0.5% of £2.4 million, which is £12,000. The £15,000 allowance more than covers it, so no levy is payable. Firm A is below £3 million. To take on a solicitor apprentice it would use government co-investment (confirm the current employer share at gov.uk) or seek a levy transfer from a larger firm.

Firm B, pay bill £4 million. The gross levy is 0.5% of £4 million, which is £20,000. Less the £15,000 allowance, Firm B pays £5,000 of levy across the year, reported through PAYE. That £5,000 sits in Firm B's apprenticeship service account.

Using the pot. Firm B uses funds in its account to pay an approved provider for a Level 7 solicitor apprentice's training and SQE preparation, subject to the apprentice meeting the current eligibility rules (remember the January 2026 level 7 restriction). Firm B could also transfer up to 50% of its annual funds to a smaller firm in its network. The £5,000 levy is a deductible payroll cost for Firm B; the training paid from the pot is funded by levy money, not a separate deduction. The lesson: the £15,000 allowance means you pay only on the pay bill above £3 million, and the pot should be spent on real apprentices, not left to lapse.

Planning the Levy for a Law Firm

For a levy payer: budget the 0.5% charge into your payroll forecast, claim the £15,000 allowance correctly across your PAYE schemes (and share it properly if you are part of a connected group), plan your apprentice intake so the pot is used not lapsed, and consider transfers where you have spare capacity. The payroll operation behind all of this sits with the function described in our guide to law firm payroll services.

For a non-payer: use co-investment or seek a transfer from a larger firm, and tie any apprenticeship to your talent pipeline and SQE strategy. For either, fold the levy cost into the firm's wider working-capital planning, which we cover in law firm cash flow management. The levy is a known, monthly payroll cost; it should be planned, not discovered.

Checklist

  1. Work out the pay bill and whether you cross £3 million per year.
  2. If you pay the levy, claim the £15,000 allowance correctly and do not let the pot lapse.
  3. If you are below £3 million, use co-investment or seek a transfer (up to 50% from 22 April 2024).
  4. Match apprenticeships (including the Level 7 solicitor apprenticeship) to your firm's pipeline.
  5. Check current Level 7 funding eligibility, which was restricted from January 2026.
  6. Treat training-cost deductibility as a separate question from the levy mechanism.

If you are working out whether your firm pays the levy, how to use the pot, or how to fund a solicitor apprentice against the current rules, our team helps law firms plan the levy and the apprenticeship-funding route alongside the rest of their payroll and cash flow.

This page is one of four Cluster E companions on funding the firm's obligations: tax loans for law firm partners and funding the bill, secondment of solicitors and its VAT and tax treatment, and financing PII premiums and the tax treatment of premium finance.

Specialist Note

The levy mechanics (0.5%, the £15,000 allowance, the £3 million threshold and the 50% transfer) are stable, but the funded-training rules around them, the fund-expiry window, the co-investment percentage and the Level 7 funding eligibility from January 2026, move and are date-sensitive. Use this guide for the structure, and confirm the current funding rules at source before you commit. A legal-sector-specialist accountant can model the levy against your pay bill and align the apprenticeship-funding route with your firm's qualification strategy.