Apprenticeship Levy and the new Growth & Skills Levy: plain-English guide for UK employers (2025/26)

If you run a UK business, you might have heard of the Apprenticeship Levy and assumed it only affects huge employers.

The 2025 Autumn Budget changes that picture.

The tax itself isn’t being scrapped, but from 2026 the way employers can use that money will change under the new Growth & Skills Levy and a Youth Guarantee. That’s good news for most small and medium-sized businesses, especially if you hire or upskill people under 25, and it’s a wake-up call for larger employers who already pay the levy. GOV.UK

This guide is written in plain English so you can:

1. Quick check: do I need to worry about the Apprenticeship Levy at all?

Who actually pays the Apprenticeship Levy in the UK?

You only pay the Apprenticeship Levy if your annual UK payroll bill is more than £3 million. GOV.UK

If your total payroll bill across connected companies is £3 million or less, you do not pay the levy.

How is the Apprenticeship Levy calculated?

If you are over the threshold:

That allowance effectively wipes out the first £3 million:

0.5% of £3,000,000 = £15,000 → completely removed by the £15,000 allowance. GOV.UK

So you only pay on the slice above £3 million.

Worked example (levy-payer)

If your payroll bill is under £3m, you can skip the tax maths, but the rest of this guide still matters, because you can use the system to fund training and apprenticeships even if you don’t pay the levy.

2. If I don’t pay the levy, what do I get out of it as an SME?

Most Heights-style clients fall into this camp: no levy charge, but you employ people and want to grow your team.

How apprenticeship funding works today for non-levy employers

Right now, if you do not pay the levy:

If a large employer transfers some of their unused levy to you:

There is extra support for younger apprentices too. For many smaller employers, training is fully funded for some 16–21-year-olds (and some 19–24-year-olds with additional needs), plus £1,000 incentive payments in certain cases.

This is all before we even get to the new Budget changes.

If you want a refresher on how this fits into the bigger picture of your numbers, your management accounts guide is the place to revisit how payroll and staffing show up in your monthly reports, not just once a year. (That guide already talks about payroll and team costs as key levers in your business.)

3. What is the Apprenticeship Levy actually doing today?

This section is for you if:

How the levy “pot” works right now

For levy-paying employers in England: GOV.UK

  1. Your levy is collected through PAYE each month. GOV.UK
  2. That money shows up in your digital apprenticeship service account, adjusted for the proportion of your staff who live in England. Education Hub
  3. The government currently adds a 10% top-up to the funds in that English account. Education Hub
  4. You use that balance to pay for approved apprenticeship training and end-point assessment with approved training providers – not wages, recruitment or general HR costs. GOV.UK

If you don’t use the funds:

You can also transfer up to 50% of your annual levy to other employers (for example, SMEs in your supply chain, charities or local partners) so they can fund apprenticeships too. Education Hub

Funding rules from August 2025

From 1 August 2025, updated funding rules apply to new apprenticeship starts in England: GOV.UK

From 1 January 2026, funding is also tightened for Level 7 (post-graduate level) apprenticeships, focusing support on younger learners. Research Briefings

These sit alongside the bigger structural changes announced in the 2025 Budget.

4. What did the 2025 Autumn Budget actually change?

The 2025 Budget sets out a package worth over £1.5 billion across two linked ideas: the Growth & Skills Levy and a Youth Guarantee. GOV.UK

At a high level:

We’ll split the changes into:

  1. What happens to the levy pot for large employers
  2. What changes for SMEs
  3. The Youth Guarantee and placements

5. How will the Growth & Skills Levy affect levy-paying employers?

If your payroll bill is over £3m, you are a levy-payer today and you stay one under the Growth & Skills Levy. The Budget and employer briefings highlight three big changes from April 2026:

5.1 Government 10% top-up removed

Effect: if you rely on the uplift to fund part of your training plan, your available budget will feel smaller unless you change how you plan and spend.

5.2 Expiry window cut from 24 months to 12 months

Effect: you will have half the time to turn contributions into live apprenticeship or training starts before the money disappears.

5.3 Co-investment rises once your levy pot is empty

Effect: going beyond your levy balance becomes five times more expensive on a percentage basis.

Worked example: how your costs can jump

Imagine you spend your whole levy pot and then want to start an extra apprenticeship that costs £9,000 in training and assessment:

Same course. Same apprentice. Extra £1,800 for you to fund.

5.4 More flexibility: short courses and “apprenticeship units”

The upside: the Growth & Skills Levy gives more flexible ways to spend the money.

Under the reforms, levy funds will be able to pay for:

For many employers, this is closer to how they already think about skills:

“We need this person to pick up these skills in the next few months”
rather than “We’re ready to commit them to a 2-year apprenticeship”.

It’s worth starting to map which skills gaps you’d fill with short courses so you are ready when the detailed rules land.

6. How will the changes affect non-levy SMEs?

This is where the 2025 Budget is most positive for typical UK SMEs.

Free training for apprentices under 25 in SMEs

Budget coverage and youth policy briefings confirm that:

In simple terms:

If you are an SME in England and you take on an eligible apprentice under 25,
the government will cover 100% of the training and assessment bill,
up to the funding band limit.

You still pay:

…but you avoid the training invoice that often puts smaller employers off.

Add to that:

Worked example: junior hire vs under-25 apprentice

Let’s keep this very simple and ignore pensions for a moment.

Option 1 – Junior employee

Rough total year-one cost: £25,600

Option 2 – Under-25 apprentice in an SME

Rough total year-one cost: £18,000

You save around £7,600 in year one and still get a structured training pathway, provided you can give them the support they need.

This is exactly the sort of decision that belongs in your hiring and payroll planning, not just in HR. When you’re planning payroll in your management accounts, you can actively model: “What if we fill this role with an apprentice instead?” (Your DIY bookkeeping checklist and management accounts playbook already talk about keeping payroll under control, this is one way to do it while still investing in people.)

7. The Youth Guarantee: six-month placements for young people

Alongside the Growth & Skills Levy, the Budget introduces a Youth Guarantee backed by about £820 million. GOV.UK

The headlines:

For employers, this could mean:

Specific rules about how you access and manage these placements will follow, but it’s worth being aware that this sits alongside the free under-25 apprenticeship training for SMEs.

8. Common mistakes we see with the Apprenticeship Levy

Whether you pay the levy or not, these are the traps we see again and again:

  1. Assuming “it’s just for HR”
    Finance, owners and managers switch off, so the money never gets linked to real staffing and growth plans.
  2. Letting levy funds quietly expire
    Large employers pay in every month, but with a 24-month window (moving to 12 months), a chunk simply times out and goes back to the Treasury. GOV.UK
  3. Ignoring the SME benefits
    Smaller employers assume “we don’t pay the levy, so this isn’t for us” and miss out on 95%-funded training now, and fully-funded under-25 apprenticeships from 2026. GOV.UK
  4. Not joining the dots with cash and capacity
    Decisions about apprenticeships and placements aren’t built into management accounts, so owners can’t see clearly how hiring choices affect cash, delivery capacity and profit.

Fixing these doesn’t need a huge project, it just needs the levy and Growth & Skills Levy to be pulled into the same conversation as payroll, sales and cash, instead of sitting in a separate silo.

9. Timeline: when do these changes hit?

Here’s a simple view of what’s happening over the next couple of years (for England):

The Budget document itself is clear that “more details on the wider Youth Guarantee and Growth and Skills Levy package will be announced shortly”, so some specifics may shift as guidance is published. GOV.UK

10. What should I do now? (plain-English action list)

If your payroll bill is £3m or less (non-levy SME)

  1. Confirm your position
    • Double-check your total payroll bill across any connected companies. If you’re under £3m, you’re not paying the levy, but you can still use the system.
  2. Identify roles that could be apprenticeships
    • Think about support roles, junior roles, and progression routes in admin, finance, tech, operations and marketing.
    • Shorter foundation apprenticeships and free under-25 training are designed for exactly these.
  3. Plan ahead for under-25 recruitment
    • If you’re planning to hire in the next 12–24 months, consider whether those roles could be filled by young apprentices instead of only experienced hires.
    • Remember: for SMEs, training and assessment should be fully funded for under-25s once the reforms go live.
  4. Get your bookkeeping and reporting ready
    • Make sure your bookkeeping routines can handle apprenticeships cleanly, wages in payroll, any incentives recorded properly, training costs where they apply. Your DIY bookkeeping checklist is a good starting point.
    • Build apprentices and placements into your management accounts, so you can see payroll, training and delivery capacity in one place each month.
  5. Talk to training providers early
    • Good providers are already planning their 2026 delivery. Getting a feel for standards, start dates and entry criteria now will put you ahead of the rush.

If your payroll bill is over £3m (levy-payer)

  1. Map your current levy position
    • What do you pay in levy each year?
    • How much of your digital account balance is being used?
    • How much has expired in the last 24 months? GOV.UK
  2. Re-plan for 12-month expiry
    • Assume new contributions from April 2026 onwards will expire after 12 months, not 24.
    • Build a simple timetable of apprenticeship and short-course starts so you line up enough demand to use the pot in time.
  3. Review your programme mix
    • Which programmes are “must keep”? Which are “nice to have”?
    • If you expect to go beyond your pot, remember co-investment jumps to 25% factor that into budgets.
  4. Plan how you’ll use short courses
    • Start identifying specific skills gaps where a short, targeted course would help (for example, AI tools, data literacy, new software).
    • These may give you more value per pound of levy than a long, generic programme.
  5. Consider levy transfers as part of your strategy
    • If you consistently can’t use all your levy, think about a simple policy for transfers to SMEs in your supply chain or local area.
  6. Bring this into your management reporting
    • The Growth & Skills Levy shouldn’t sit in a silo, it’s part of your overall cost of developing your people.
    • Link it into your management accounts and monthly review timetable (the same one you use for payroll, gross margin and cashflow), so it doesn’t become a last-minute rush.

11. FAQs

Q1. Is the Apprenticeship Levy being scrapped in 2026?
No. The tax itself continues, employers with a payroll bill over £3m will still pay 0.5% of that bill, minus a £15,000 allowance. What’s changing is how the money is managed and spent under the new Growth & Skills Levy from April 2026.

Q2. Do I pay the Apprenticeship Levy if my payroll bill is under £3m?
No. If your total UK payroll bill across connected companies is £3m or less, you do not pay the levy. You can still access funded apprenticeships under the 95%/5% co-investment model, and from 2026, under-25 apprenticeships in SMEs will have their training fully funded.

Q3. When do the Growth & Skills Levy changes start?
The main changes, shorter 12-month expiry, removal of the 10% top-up, higher co-investment once your pot is empty, and more flexible use of funds, are due to start from April 2026. The Budget confirms the direction of travel, with detailed guidance to follow.

Q4. Will apprenticeships be free for SMEs?
From 2026, the government has committed to fully fund training and assessment for eligible under-25 apprentices in SMEs. You will still pay wages and normal on-costs, but the training bill should be covered up to the funding band limit.

Q5. What is the Youth Guarantee and how does it affect employers?
The Youth Guarantee is a new programme backed by about £820m to support 18–21-year-olds on Universal Credit into work, including guaranteed six-month paid placements where the government covers 25 hours per week at minimum wage. For employers, it means an opportunity to bring in subsidised junior staff and potentially move them into apprenticeships or permanent roles.

12. Want help mapping this to your business?

The rules are changing, and the fine print will keep evolving as guidance is published, but the direction is clear:

If you’re not sure whether you’re:

Book a 20-minute planning call.

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We’ll walk through: