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:
- Work out if your business actually pays the levy
- Understand how the current system works
- See what the 2025 Budget has changed
- Know what to do next, whether you pay the levy or not
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
- Payroll bill here means the total pay you put through PAYE in the year for your staff, wages, salaries, bonuses, commission and so on, before tax and National Insurance. GOV.UK
- If you run several companies that are connected (for example, within a group), HMRC looks at their payroll bills together for this test. 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:
- The levy is 0.5% of your annual payroll bill,
- Minus a £15,000 allowance each tax year. GOV.UK
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)
- Payroll bill: £5,000,000
- Levy at 0.5% = £25,000
- Less allowance: £15,000
- Levy due: £10,000 over the year (collected monthly through PAYE). GOV.UK
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:
- You can still take on apprentices at any age.
- You normally pay 5% of the training and assessment costs for an approved apprenticeship.
- The government pays the other 95%, up to the funding band maximum. GOV.UK
If a large employer transfers some of their unused levy to you:
- Your 5% share is covered by the transfer, and
- The government still pays the remaining 95%. Education Hub
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:
- you do pay the levy, or
- you’re advising a client or partner who does.
How the levy “pot” works right now
For levy-paying employers in England: GOV.UK
- Your levy is collected through PAYE each month. GOV.UK
- That money shows up in your digital apprenticeship service account, adjusted for the proportion of your staff who live in England. Education Hub
- The government currently adds a 10% top-up to the funds in that English account. Education Hub
- 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:
- Any money that’s been in your digital account for 24 months expires and goes back to the Treasury. GOV.UK
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
- The minimum duration of a funded apprenticeship becomes 8 months (down from 12 months historically).
- Minimum “off-the-job” training hours are set per apprenticeship standard, rather than as a simple weekly formula.
- New “foundation apprenticeships” are introduced for 16–21-year-olds (and some 22–24-year-olds with additional needs), to create shorter, stepping-stone routes. 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:
- The Apprenticeship Levy tax continues, but the way funds are managed and spent changes from April 2026. GOV.UK
- More of the money will be steered towards younger workers and short, flexible training, not only full multi-year apprenticeships.
We’ll split the changes into:
- What happens to the levy pot for large employers
- What changes for SMEs
- 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
- Today, your English levy account receives a 10% government top-up on top of what you pay in. GOV.UK
- Under the Growth & Skills Levy, this top-up is removed. You’ll only see your own levy contributions (adjusted for English percentage).
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
- Now, levy funds expire 24 months after they enter your digital account. GOV.UK
- From April 2026, new contributions will expire after 12 months instead.
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
- At present, once levy funds are used up, the government still funds 95% of further apprenticeship training costs and you pay 5%. GOV.UK
- Under the Growth & Skills Levy, that shifts to 75% government / 25% employer once your levy pot is exhausted. NHS Employers
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:
- Today:
- Employer share at 5% = £450
- Government share at 95% = £8,550
- From April 2026 (after pot is used):
- Employer share at 25% = £2,250
- Government share at 75% = £6,750
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:
- Short courses and “apprenticeship units” in priority skills, such as digital, AI, data and engineering
- Not just full, multi-year apprenticeship programmes
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:
- Training and assessment costs for apprentices under 25 in SMEs will be fully funded from the Growth & Skills Levy pot.
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:
- Their wages, and
- Normal on-costs like employer pension contributions,
…but you avoid the training invoice that often puts smaller employers off.
Add to that:
- Many under-25 apprentices still attract no employer NIC on earnings below the upper earnings limit. Research Briefings
- There may still be £1,000 incentive payments in some cases for younger or care-experienced apprentices. Fareport Training
Worked example: junior hire vs under-25 apprentice
Let’s keep this very simple and ignore pensions for a moment.
Option 1 – Junior employee
- Salary: £23,000
- Employer NIC (approx, assuming above threshold): say £1,600
- Training budget: £1,000 on external courses
Rough total year-one cost: £25,600
Option 2 – Under-25 apprentice in an SME
- Apprentice wage: say £18,000 (above the £8.00 apprentice rate from April 2026, so competitive) GOV.UK
- Employer NIC: often £0 if under 25 and below the NIC upper earnings limit
- Training and assessment: £0 (fully funded under the new rules)
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:
- Young people (broadly 18–21) on Universal Credit and out of work for a period will be offered a guaranteed six-month paid work placement.
- The government will cover 25 hours per week at minimum wage plus some additional support.
For employers, this could mean:
- A route to bring in junior staff on subsidised placements, and
- A natural stepping-stone into longer apprenticeships or permanent roles if the match works.
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:
- Assuming “it’s just for HR”
Finance, owners and managers switch off, so the money never gets linked to real staffing and growth plans. - 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 - 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 - 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):
- Now – July 2025
- Current Apprenticeship Levy rules: 0.5% on payroll bill, £3m threshold, £15k allowance, 10% top-up, 24-month expiry, 95/5 co-investment.
- From 1 August 2025
- New funding rules for apprenticeships: 8-month minimum duration, simplified off-the-job training rules, foundation apprenticeships for young people. GOV.UK
- From 1 January 2026
- Funding for new Level 7 apprenticeships tightened to focus on younger learners and priority groups.
- From April 2026 (exact dates to be confirmed in guidance)
- Apprenticeship Levy reforms into the Growth & Skills Levy, same basic tax structure (0.5% above £3m payroll bill, £15k allowance).
- 10% top-up removed; expiry window cut to 12 months for new contributions; co-investment after the pot is used becomes 75/25 instead of 95/5.
- Short courses / apprenticeship units funded from the levy in priority skills.
- SME apprenticeships under 25 fully funded for training and assessment.
- Youth Guarantee placements begin.
- Apprentice minimum wage rises to £8.00 per hour, alongside increases in other minimum wage bands.
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)
- 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.
- 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.
- 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.
- 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.
- 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)
- 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
- 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.
- 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.
- 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.
- 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.
- 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:
- Larger employers will need to use their levy funds faster and more deliberately, and be ready for higher co-funding where the pot runs out.
- Smaller employers have a rare chance to bring in and grow under-25 talent with training fully funded, plus access to Youth Guarantee placements.
If you’re not sure whether you’re:
- Missing out on funded training, or
- Quietly wasting levy contributions that expire unused, or
- Simply want to see how apprenticeships and placements fit into your hiring, payroll and profit plans,
Book a 20-minute planning call.
We’ll walk through:
- Your current payroll bill and whether the levy or Growth & Skills Levy affects you
- Where under-25 apprentices or Youth Guarantee placements could fit into your team
- How to build all of this into your numbers, so you grow the team you need and keep your costs, cash and compliance under control.