Apprenticeship Levy 2026 Changes: What Small Employers Need to Know Before Hiring

Hiring an apprentice is about to get considerably cheaper for many small and mid-sized UK employers, following 2026 reforms to how apprenticeship training is funded. Whether or not your business pays the levy itself, the rules governing what you can claim have changed.

How the levy works

The Apprenticeship Levy is a 0.5% payroll tax that applies to employers with an annual pay bill exceeding £3 million. Every employer, levy-paying or not, gets a £15,000 annual allowance to offset against it, meaning in practice only larger employers pay it at all. Money collected is credited to the employer's digital apprenticeship service account, and the government adds a 10% top-up on top of whatever's paid in, boosting the funds available for training.

Levy funds don't last forever — they expire 24 months after entering the digital account, so employers who don't use them lose them, according to guidance summarised by Solveway.

What's new for small employers in 2026

If your business doesn't pay the levy — which covers the vast majority of small and mid-sized employers — the funding rules have become significantly more generous. From August 2026, all apprentices under 25 are 100% funded for small and mid-sized employers, removing the previous 5% co-investment requirement that businesses previously had to contribute themselves, according to Grant Thornton's analysis of the reforms.

There's also a new restriction to be aware of: new starts on Level 7 (master's-level) apprenticeships for people aged 22 and over are no longer funded through the levy, narrowing what levy funds can be spent on for larger employers with more senior training programmes.

The latest official funding rules apply to apprenticeship units starting on or after 28 April 2026, as published in GOV.UK's apprenticeship unit funding rules.

Checklist: hiring an apprentice as a small employer in 2026/27

1. Check your pay bill. If it's under £3 million a year, you're a non-levy payer and eligible for the new enhanced funding for apprentices under 25.
2. Confirm the apprentice's age at the start date. The 100% funding applies specifically to under-25s from August 2026 — over-25 apprentices may still require some co-investment, so check current rates before committing.
3. Choose an approved training provider listed on the Institute for Apprenticeships' find a provider service.
4. Set up (or check) your digital apprenticeship service account, even as a non-levy payer, since funding is administered through the same system.
5. Confirm the apprenticeship standard's funding band before agreeing training costs with a provider, as funding is capped per standard.
6. Budget for wages separately from training costs. Funding covers training and assessment, not the apprentice's salary, which you pay as their employer at or above the apprentice minimum wage.
7. Track any levy funds you do hold against the 24-month expiry window if your pay bill is near or above the £3 million threshold.

Why this matters for hiring decisions

For a small business weighing up an apprentice against a standard hire, removing the co-investment requirement for under-25s materially lowers the cost barrier to training someone from scratch, particularly in sectors like construction, hospitality and engineering where formal apprenticeship routes are well established via FSB's small business resources.

How the UK compares internationally

Germany's dual vocational training system remains the international benchmark, combining employer-based apprenticeships with vocational college attendance, coordinated nationally rather than funded through a payroll levy, as described by BIBB, Germany's Federal Institute for Vocational Education and Training. The US has no federal apprenticeship levy; funding instead comes through a mix of federal grants and state programmes coordinated by the US Department of Labor's apprenticeship office. Australia funds apprenticeships through state and territory training subsidies rather than a national payroll levy, administered via Australian Apprenticeships.

Key Numbers

• 0.5% — Apprenticeship Levy rate on pay bills over £3 million
• £15,000 — annual levy allowance every employer receives
• 100% — funding now available for under-25 apprentices at small/mid-sized employers from August 2026
• 24 months — expiry window for unused levy funds

Sources

• GOV.UK: Pay Apprenticeship Levy — what you need to know
• Grant Thornton: Apprenticeship Levy reforms — what employers need to know for 2026
• GOV.UK: Apprenticeship unit funding rules, April 2026 to 31 July 2026

Educational content only — not financial advice.