Free apprenticeships for under-25s in SMEs: what Budget 2025 really means for you

If you run a small or medium-sized business, you’ve probably seen the Budget headlines:

“Training for under-25 apprenticeships will be completely free for SMEs.”

It sounds great, but what does “free” actually mean in practice?

In the Autumn Budget 2025, the Chancellor confirmed that training for under-25 apprenticeships in SMEs will be fully funded, as part of the new Growth & Skills Levy and Youth Guarantee package.

This guide explains, in plain English:

  • What’s changing for SME apprenticeship funding
  • What you’ll still have to pay for as an employer
  • How much an under-25 apprentice could really cost you, compared with a junior hire
  • How to decide whether apprenticeships should be part of your staffing plan

This article focuses on England. Skills and apprenticeships are devolved, so the rules in Scotland, Wales and Northern Ireland can differ.

1. Are apprenticeships really “free” for SMEs now?

Short answer:

  • The training and assessment bill for eligible under-25 apprentices in SMEs is set to be fully funded by government after the Budget changes.
  • You will still pay the wages and normal employment costs for your apprentice.

So “free” refers to the training and assessment costs you would normally share with government, not the whole cost of employing someone.

Right now (before the change takes effect):

  • If you do not pay the Apprenticeship Levy, you normally pay 5% of the training and assessment costs and government pays 95%.
  • For some younger apprentices, that 5% is already waived, more on that in a moment.

Budget 2025 goes further by removing that 5% share (often called “co-investment”) for all under-25 apprentices in SMEs, so the training part is fully funded.

2. Quick recap: how funding works today if you don’t pay the levy

Most SMEs do not pay the Apprenticeship Levy, because it only applies if your annual payroll bill is over £3m.

If your payroll bill is £3m or less and you take on an apprentice in England:

  • You choose a training provider and agree a total price for their apprenticeship training and assessment.
  • You pay 5% of that price.
  • The government pays the other 95% directly to the provider, up to the funding band maximum.

In recent years there’s been extra help:

  • The 5% employer share was already removed for under-22 apprentices in SMEs in England.
  • Now the Budget extends that relief to all under-25s in SMEs, funded by around £725m set aside for the Growth & Skills Levy and Youth Guarantee.

So you’re moving from:

“5% training bill for most apprentices”
to
“0% training bill for under-25 apprentices in SMEs”

…once the Budget changes take effect (expected from 2026 – exact start dates will be confirmed in detailed guidance).

If you want a deeper dive into how the Apprenticeship Levy and Growth & Skills Levy work overall, this sits alongside your main Apprenticeship Levy and Growth & Skills Levy guide, which covers large employers and the new funding rules in more detail.

3. What exactly did Budget 2025 change for SMEs?

The key SME announcement in Budget 2025, confirmed in the Budget speech and in Parliament, is:

Training for under-25 apprenticeships will be completely free for SMEs.

In practice, that means:

  • If you’re an SME in England (usually under 250 staff, the exact definition will follow in the detailed rules), and
  • You take on an eligible under-25 apprentice,

…then:

  • Government pays 100% of the training and assessment costs (up to the funding band).
  • You no longer pay the 5% share you do today.

This sits inside a wider reform:

  • A Growth & Skills Levy will replace the Apprenticeship Levy funding rules from 2026, funded with around £725m.
  • An £820m Youth Guarantee will support 18–21-year-olds into work, training or apprenticeships with guaranteed six-month placements.

For a small or medium-sized employer, the key takeaway is simple:

Apprenticeships for under-25s will be much more affordable than they used to be.

4. What will an under-25 apprentice actually cost my SME?

Even with free training, an apprentice is not “free labour”.

You still need to budget for:

  • Wages
  • Employer National Insurance (NIC), if it applies
  • Employer pension contributions (if they’re enrolled)
  • Normal overheads: equipment, supervision time, holiday pay, etc.

Here are two important bits of good news.

4.1 No employer NIC for apprentices under 25 (up to a limit)

If you employ an apprentice under 25 on an approved scheme, you do not pay employer Class 1 NIC on their earnings up to the Apprentice Upper Secondary Threshold (currently aligned with the upper earnings limit £50,270 a year, or £967 a week).

That means:

  • On most realistic apprentice salaries, your employer NIC bill is £0.
  • This saves you 15% on the slice of pay above the secondary threshold. GOV.UK

4.2 Apprentice minimum wage and real-world pay

From April 2026, the apprentice minimum wage will increase (the Budget and press coverage point to around £8.00 per hour for the apprentice rate).

In practice, many SMEs choose to pay more than the bare apprentice rate to be competitive, especially for older apprentices.

So the real cost per head will depend on:

  • The hourly rate you choose
  • How many hours they work
  • Whether they’re under 25 and under the NIC threshold

Let’s put some numbers on it.

5. Worked examples: junior hire vs under-25 apprentice

These are simplified illustrations to show the direction of travel. They ignore pensions and other benefits for now and assume England, 2025/26 rules.

Example 1 – Brand new hire: junior administrator

You need a junior administrator in your service business.

Option A – Junior employee (no apprenticeship)

  • Salary: £23,000
  • Employer NIC: roughly £2,700 at a 15% rate above the threshold (ballpark figure). GOV.UK
  • External training budget: £1,000 (ad-hoc courses)

Approximate year-one cost:
£23,000 + £2,700 + £1,000 = £26,700

Option B – Under-25 apprentice in an SME

  • Apprentice wage: £18,000 (above the expected apprentice minimum wage)
  • Employer NIC: £0 (under 25, below the apprentice upper secondary threshold)
  • Training and assessment: £0 (fully funded under Budget 2025 changes)

Approximate year-one cost:
£18,000

Difference in year one:
You save around £8,700 compared with a junior employee paid £23k with training and NIC.

Even if you decide to pay your apprentice £20,000 to be more competitive, you’d still save around £6,700 in year one compared with the junior employee example.

Example 2 – Upskilling an existing 23-year-old employee

You have a 23-year-old support worker on £24,000 and want to move them into a more technical role (for example, in operations or finance).

Without apprenticeship:

  • You send them on ad-hoc training courses costing ~£2,000 over the year.
  • You continue to pay employer NIC at 15% on their salary above the threshold. GOV.UK

With apprenticeship:

  • You put them on a Level 3 or 4 apprenticeship in the relevant area.
  • Training fees: £0 (fully funded as they’re under 25 in an SME).
  • Employer NIC: if they’re under 25 and meet the conditions, £0 on earnings up to the upper threshold.

You replace an ad-hoc £2,000 training spend and part of your NIC bill with structured, funded training and NIC relief.

This is where apprenticeships stop being “a youth scheme” and start looking like a serious tool in your cost and skills plan.

6. Is there a catch for SMEs?

There are a few practical points to be aware of.

6.1 You still need to pay a fair wage

The government only sets the minimum. If you want good people to join and stay, you’ll probably need to pay above the bare apprentice rate, especially if:

  • The job is in a competitive sector or
  • You’re asking for some prior experience or qualifications

6.2 Apprentices need support and time

You’re committing to:

  • Giving them real work that matches their apprenticeship, and
  • Allowing off-the-job learning time (for example, day release or regular learning hours), in line with funding rules.

If your team is already stretched, the main “cost” might be manager time and patience, not the wage bill.

6.3 Not every role is a good fit

Apprenticeships work best when:

  • The role has a clear skills path, for example, bookkeeping, admin, customer service, IT, marketing, operations.
  • You can keep the apprentice busy with meaningful work, not just odd jobs.

For very short-term gaps, or roles with no clear progression, a simple temp or fixed-term contract might be better.

7. How do I know if my SME qualifies?

The Budget and follow-up commentary suggest “SME” here is the usual UK definition, generally fewer than 250 staff, with turnover and balance sheet limits, but final details will be confirmed in guidance.

In plain English, you’re likely to qualify if:

  • Your payroll bill is under £3m (so you don’t pay the Apprenticeship Levy)
  • You have a base in England and employ the apprentice in England
  • Your apprentice is under 25 and on an approved apprenticeship standard

When the detailed rules are published, training providers will be able to confirm eligibility. For now, you can:

  • Talk to your preferred provider about which standards fit your roles
  • Sketch out which roles in your org chart could sensibly be apprenticeships from 2026 onwards

8. How should I build this into my numbers?

This is where you move from “nice policy” to “practical plan”.

8.1 Put apprenticeships into your hiring and payroll plan

When you review your hiring plan for the next 12–24 months:

  • Mark any junior or support roles that could be apprenticeships instead.
  • For each, compare:
    • Full employee cost (salary + NIC + training)
    • Under-25 apprentice cost (salary only, with NIC relief and funded training)

This is a natural extension of the work you’re already doing in your management accounts looking at payroll as a percentage of revenue and planning headcount by role, not just total staff numbers.

8.2 Reflect it in your bookkeeping and cashflow

To keep it simple in your bookkeeping system:

  • Treat apprentice wages as part of your normal payroll.
  • Record any incentive payments or grants separately so you can see the real cost per head.
  • There should be no training invoices for under-25 apprentices if everything is set up correctly.

If you’re not confident your bookkeeping is set up to handle this cleanly, your DIY bookkeeping checklist and management accounts playbook are a good starting point, both talk about making sure payroll, training and overheads are coded in a way that actually helps you make decisions, not just please the taxman.

9. FAQs, SMEs and free under-25 apprenticeships

Q1. When will apprenticeships actually become free for under-25s in SMEs?
The Budget 2025 speech and supporting documents confirm that the government will make training for under-25 apprenticeships “completely free for SMEs”, funded through the new Growth & Skills Levy. The change is expected to take effect from 2026, alongside the wider levy reforms, but the exact start date will be set out in detailed guidance.

Q2. Does “free” mean I don’t pay anything for my apprentice?
No. “Free” refers to training and assessment costs, the bit you currently share with government. As an SME, you will still pay your apprentice’s wages, any employer pension contributions, and normal overheads like equipment and supervision.

Q3. Do I still get help if my apprentice is over 25?
Yes, but not at the same level. The government will continue to fund 95% of training costs for eligible apprentices when you don’t pay the levy, you pay the remaining 5%. The “completely free” offer is focused on apprentices under 25 in SMEs.

Q4. Is there any tax or NIC saving from taking on an apprentice under 25?
Yes. Employers do not pay Class 1 employer National Insurance on earnings up to the Apprentice Upper Secondary Threshold for apprentices under 25 on an approved scheme. That can save you 15% on a chunk of their salary, on top of the funded training.

Q5. Where can I find the official rules?
Key documents include the “Employing an apprentice: get funding” page on GOV.UK (which explains the current 5%/95% split), the apprenticeship funding rules 2025 to 2026, and the Budget 2025 document and speech for the new Growth & Skills Levy and Youth Guarantee announcements.

10. Want help deciding if apprenticeships make sense for your SME?

For many SMEs, Budget 2025 quietly changed the maths:

  • Training for under-25 apprentices will be fully funded, instead of 95% funded.
  • Employer NIC relief makes the wage bill lighter than you might expect.
  • You can use apprenticeships to fill real roles, not just “extra” ones.

If you’d like to:

  • Check whether these changes apply to your business,
  • Compare the cost of apprentices vs standard junior hires in your numbers, and
  • Build apprenticeships into your staffing and cashflow plan without getting lost in the rules,

Book a 20-minute planning call.

Book a 20-minute planning call.

We’ll walk through:

  • Your current payroll bill and hiring plans
  • Which roles could sensibly be filled by under-25 apprentices
  • What the real year-one and year-two costs look like in your business

So you can decide, with clear numbers, whether “free” under-25 apprenticeships are a good move for your SME, or just a nice headline.