The Apprenticeship Levy (aka Growth and Skills Levy) for small and mid-sized businesses
How the levy works if you pay it, how apprenticeships work if you don't and the material changes landing across 2026 that every UK employer buying training should know about.
title: The Apprenticeship Levy (aka Growth and Skills Levy) for small and mid-sized businesses summary: How the levy works if you pay it, how apprenticeships work if you don't and the material changes landing across 2026 that every UK employer buying training should know about. date: 2026-07-05
The apprenticeship levy, being reformed and renamed as the Growth and Skills Levy across 2026, is one of those bits of UK training policy that gets talked about a lot and understood less often. If you run a business with a pay bill (essentially your annual wage bill) under £3 million, you probably think it doesn't apply to you. It does, just not in the way people assume. And if you pay it, the changes landing this year will affect how much time you have to spend it and how much it costs when you run out.
This guide covers three things. What the levy is and who pays it. How apprenticeships work for the ninety-eight percent of UK employers who sit below the levy threshold. And the material changes through 2026 that everyone using apprenticeship funding needs to know about.
What the levy is, in one paragraph
The apprenticeship levy is a 0.5 percent tax on the pay bill (essentially the total wage bill for the year) of any UK employer whose annual pay bill exceeds £3 million. It was introduced in April 2017 with the aim of funding a big increase in apprenticeship starts across the economy. Levy-paying employers accrue notional funds each month in a digital account, which they can spend on apprenticeship training for their own staff or transfer to other employers. Whatever isn't spent goes back to the Treasury. In 2026 the levy is being renamed and expanded as the Growth and Skills Levy, with funds usable for shorter modular training as well as full apprenticeship standards.
What it means if your pay bill is under £3 million
If your pay bill is under the threshold, you don't pay the levy and you don't have a digital account. But you can still hire apprentices, and the government subsidises the training heavily.
From the 2026 to 2027 academic year, apprenticeships for non-levy-paying employers hiring apprentices aged under 25 are being fully government-funded. That means zero cost to the employer for training and assessment. The 5 percent co-investment that used to apply has been scrapped for this group. For apprentices aged 25 and over, the previous 95 percent government contribution and 5 percent employer contribution still applies.
There is also a new cash incentive coming in October 2026. Non-levy-paying employers will be able to claim £2,000 for each new apprentice aged 16 to 24, paid after the apprentice completes their first 90 days. This applies to apprenticeships starting from 1 October 2026 where the apprentice joined the business within the previous three months.
This is the bit that surprises most small business owners. Apprenticeships are set up to be affordable for exactly the sort of business that thinks training is out of reach, and from 2026 the position for under-25 hires is even better than the 5 percent headline suggests.
Receiving transferred levy funds
Levy-paying employers can transfer up to 50 percent of their annual levy funds to other employers. The receiving employer uses those funds to pay for apprenticeship training, and it costs them nothing.
Transfers were introduced because levy payers were struggling to spend their full accrued funds. Rather than let the money return to the Treasury, they can pass it to smaller employers in their supply chain, their community or in a sector they want to support. From the smaller employer's point of view, it means running an apprenticeship funded entirely by someone else's levy money, with no employer contribution and no ongoing training cost.
Finding transferred funds takes a bit of effort. A few routes work.
Ask your existing supply chain. If you deliver services to a large corporate or a public sector body, ask whether they have unused levy funds. Many are actively looking to transfer them, particularly as the changes below tighten the window they have to spend.
Approach a Growth Hub. The regional Growth Hub network sometimes brokers levy transfers between large local employers and smaller businesses in the area.
Look at levy-sharing platforms. Services like Levy Match and 5% Club act as matchmakers between employers with unused levy funds and employers who need them.
Ask your training provider. Most established apprenticeship providers know which of their levy-paying clients have available funds and can effectively introduce the two. This is one of the quieter ways smaller businesses end up with fully funded apprenticeships in practice.
The changes landing in 2026
Several material changes hit during 2026 that affect anyone using or thinking about apprenticeship funding.
Fund expiry drops from 24 to 12 months. From August 2026, any new levy funds entering a digital account expire twelve months after they arrive, not twenty-four. Levy payers need tighter forecasting and faster decisions on how to spend.
The 10 percent government top-up is being removed. Until now, funds entering the digital account picked up a 10 percent bonus from the government. From August 2026, that top-up ends for new funds. Existing balances that already received the top-up keep it.
Co-investment for levy payers who run out of funds increases from 5 to 25 percent. If a levy payer exhausts their annual balance and wants to keep training, the employer contribution to additional training costs jumps from 5 percent to 25 percent from August 2026. This is a significant cost increase for anyone who regularly overspends their levy pot.
Level 7 apprenticeships are being defunded for new starters aged 22 and over. These are master's-level programmes commonly used for later-career leadership development. There are narrow exceptions for care leavers and those with an Education, Health and Care Plan up to age 25. For most employers, Level 7 apprenticeships stop being a viable route for developing existing senior staff.
Sixteen apprenticeship standards are being defunded from September 2026. New cohorts on these standards from that date are not eligible for levy funding. The defunded standards include Team Leader Level 3, Operations Manager Level 5 and Coaching Professional Level 5. If your development plans have relied on any of these standards, you need to know about it. Existing cohorts already started before September 2026 can complete under the existing funding rules.
Modular training and apprenticeship units. From April 2026, levy funds can be used for approved short courses in priority skills areas, not only full apprenticeship standards. Details are still emerging on what proportion of a levy balance can go towards non-apprenticeship training.
English and maths requirements have been dropped for adult apprentices. New and existing apprentices aged 19 and over at the start of their training are no longer required to hold or achieve English and maths qualifications to pass their apprenticeship. Apprentices aged 16 to 18 still need to complete the requirement.
What this means in practice
For SMEs hiring under-25s, the direction of travel is straightforward. Apprenticeships have gone from cheap to effectively free, with a £2,000 cash incentive on top from October. If your business has ever considered an apprenticeship for a younger hire and been put off by cost, the reasons for that hesitation are largely gone.
For SMEs looking to develop existing older staff through apprenticeships, the position is more mixed. The Team Leader and Operations Manager standards are gone from September, Level 7 is closing to new adult starters and Coaching Professional Level 5 is being defunded. Existing staff development via apprenticeship is a narrower opportunity than it was.
For levy payers, active management of the levy pot has never mattered more. The 12-month expiry, the removal of the top-up and the higher co-investment when funds run out all point the same way. Plan spend, use funds quickly and consider transferring any surplus to a smaller business rather than losing it.
Where to look next
Two starting points if you want to explore an apprenticeship for your business.
The government's apprenticeship guidance at gov.uk covers the current rules and funding bands in detail.
An apprenticeship training provider will walk you through the specific standard that fits your role and handle the paperwork. Skillyard indexes independent trainers and coaches. Most apprenticeship delivery goes through specialist providers rather than independents, but for non-apprenticeship training, our category pages are a good place to browse.
Levy transfers, in particular, are worth chasing. If your business is well-placed to benefit from apprenticeship funding but has been put off by the perceived cost, a transferred levy pot combined with the new SME incentive can make a young hire's development almost entirely externally funded.