UK Apprenticeship Levy: How Small Businesses Can Access Training Funds

The Apprenticeship Levy is a UK tax charged at 0.5% of an employer's annual pay bill, applying to all UK employers (England, Scotland, Wales, and Northern Ireland) with annual pay bills exceeding £3 million. Introduced in April 2017 under the Finance Act 2016, the levy aims to create sustainable long-term funding for apprenticeships and give employers greater control over training provision.

According to the UK Government's Department for Education, the levy increased funding to £2.5 billion by 2019-20—double the levels from 2010-11—with the apprenticeship budget rising to over £3 billion by 2023-24. However, the system works very differently depending on whether you pay the levy or not.

You pay the levy if:

• Your annual payroll exceeds £3 million
• You're a UK employer (any sector, any size above threshold)

The calculation:

• Rate: 0.5% of total annual pay bill
• Allowance: £15,000 annual allowance reduces liability
• Collection: Monthly via PAYE system

If your annual payroll is below £3 million, you don't pay the Apprenticeship Levy. This includes the vast majority of UK small businesses—sole traders, partnerships, limited companies, charities, and social enterprises.

Eligibility is simple: If your total annual wages are under £3 million, you're a non-levy payer. There's no employee number threshold—only payroll size matters.

What this means:

• You don't pay the 0.5% levy
• You still access government co-investment funding
• Training costs are substantially covered by government
• You qualify for additional incentive payments

Standard co-investment for non-levy payers:

• Government contribution: 95% of training and assessment costs (up to funding band maximum)
• Your contribution: 5% paid directly to training provider

100% government funding (zero employer cost):

Currently, SMEs receive fully funded training (no 5% contribution) for apprentices who at programme start are:

1. Ages 16-21 (or age 15 turning 16 between late June and 31 August)
2. Ages 22-24 with an Education, Health and Care (EHC) Plan or who are care leavers

Example costs:

The UK Government announced a significant policy shift in the Autumn Budget 2024 that transforms apprenticeship funding for small businesses.

From August 2026 (academic year 2026/27):

All SME non-levy payers will receive fully funded apprenticeship training for all apprentices aged 16-24—with employer contributions removed entirely.

Impact:

• Applies to all under-25s, not just those with EHC plans or care experience
• Part of £725 million government investment to create 50,000 additional apprenticeships
• Removes financial barriers for SMEs hiring young people
• Training costs: 100% government-funded, £0 employer cost

According to the Department for Education, this reform aims to "support small businesses in developing the skilled workforce they need" while addressing youth employment and skills gaps across England.

Accessing apprenticeship funding involves four distinct phases. Follow this process to ensure compliance and avoid funding delays.

Obtain your Employer Reference Number (ERN) and Accounts Office Reference Number (AORN). Submit at least one payroll return, even if blank.

Visit: accounts.manage-apprenticeships.service.gov.uk
Requirements:

• GOV.UK One Login credentials
• PAYE reference and AORN
• Authority to accept DfE Employer Agreement

Capabilities this unlocks:

• Reserve funding
• Choose training providers
• Advertise vacancies
• Manage payments

Search the official database

• Over 700 active apprenticeships available across 15 technical routes
• Check funding band maximum (£1,500-£27,000)
• Review duration and minimum off-the-job training hours

Use the Apprenticeship Provider and Assessment Register (APAR)

Check for:

• Active registration status
• Ofsted rating and achievement rates
• Sector-specific experience
• Employer testimonials

Reserve funds up to 3 months before planned start date through your apprenticeship service account. You can authorise your provider to reserve on your behalf. Since April 2023, there's no limit on reservation numbers.

Must cover full apprenticeship duration including end-point assessment.

Minimum wage (from April 2026):

• Apprentice rate: £8.00/hour (under-19s OR anyone in first year)
• After first year: Age-appropriate minimum wage applies (£12.71/hour for 21+, £10.85/hour for 18-20)

Skills scan identifies prior learning and reduces programme length/cost where appropriate. English and maths assessment also conducted.

Provider creates; employer, provider, and apprentice all sign before training starts.

Must include:

• All parties' details
• Job role and apprenticeship standard
• Start/end dates
• Planned off-the-job training hours
• Delivery model
• Progress review schedule

Both employer and apprentice sign before training starts. Cannot be signed by the same person representing both parties.

Digital signature solutions like Yousign enable compliant electronic signing while maintaining audit-ready evidence—particularly helpful when documents must be signed before training starts, a critical compliance requirement.

Provider enters apprentice details into apprenticeship service. You must log in to approve costs. The Education and Skills Funding Agency (ESFA) cannot pay your provider until you approve.

Assign a line manager or mentor, release apprentice for paid off-the-job training (minimum hours vary by standard), and support practical application of learning.

Pay at least minimum wage for all working hours including training time. Pay 5% co-investment to provider (or 0% if eligible for full funding).

Hold minimum 4 reviews per year with employer, provider, and apprentice present. Document all reviews.

Notify if apprentice leaves, becomes redundant, changes working hours, takes extended absence/maternity leave, or if business ownership changes.

Confirm minimum 8-month duration met, off-the-job training hours completed, and English/maths requirements satisfied (if applicable).

Independent assessment organisation conducts end-point assessment (EPA). Employer may verify behaviours.

Certificate issued by assessment organisation. Provider claims final 20% funding (completion payment).

Even if you don't pay the levy, you can access levy funds from companies that do—covering 100% of training costs with zero co-investment required.

Large levy-paying employers can transfer a portion of unused levy funds to other businesses (including SMEs) to pay for apprenticeship training and assessment costs up to the funding band maximum.

As of 22 April 2024, employers can transfer up to 50% of their previous financial year's levy funds (increased from 25%). Between 2019 and 2022, approximately £3.3 billion in unused levy funds expired and returned to the Treasury—transfers prevent this waste while supporting supply chains and local economies.

Key benefits for SMEs:

• 100% funding: No 5% co-investment required
• Any business can receive: Both levy-payers and non-levy payers qualify
• No relationship restrictions: Transfers can go to supply chain partners, connected companies, or completely unrelated businesses

Browse available transfer pledges: transfers.manage-apprenticeships.service.gov.uk

Large employers post pledges specifying:

• Amount available
• Optional criteria (location, sector, apprenticeship level)
• Application process

Applications auto-approve if you match 100% of criteria, or undergo manual review for partial matches.

If you have a relationship with a levy-paying employer:

1. Obtain their apprenticeship service account ID
2. Create connection in your account
3. Employer accepts connection
4. Agree apprenticeship details and costs

Regional Combined Authorities (West Yorkshire, West Midlands, North East, Liverpool) operate transfer matching schemes. Private intermediaries and training providers also facilitate connections.

Funding bands are maximum amounts government will contribute toward training and assessment costs for each apprenticeship standard.

Range: £1,500-£27,000 across 30 bands

What they cover: Training and end-point assessment costs

What they exclude: English/maths (funded separately), learning support payments, apprentice wages

The funding band maximum is set at apprenticeship start and remains fixed for the duration. You can negotiate prices below the maximum with your training provider.

Standard Incentive (16-18 year olds):

• £1,000 to employer + £1,000 to provider
• Applies to ages 16-18 at start, or 19-24 with EHC plan/care leaver status
• Payment schedule: £500 at 90 days, £500 at 365 days
• Automatic: No forms required; flows through apprenticeship service account
• Unrestricted use: Spend on salaries, uniforms, travel, any employment costs

Foundation Apprenticeship Incentive (launched August 2025):

• Up to £2,000 for employer for entry-level (Level 2) programmes
• Payment schedule: £667 at 90 days, £667 at 242 days
• £666 progression payment if apprentice completes and starts new apprenticeship within 6 months with you
• Total potential: £3,666 maximum (including provider payments)

Care Leaver Bursary (paid to apprentice, not employer):

• £3,000 for apprentices under 25 who are care leavers
• Tax-free, not counted as income for Universal Credit
• Provider informs apprentices during initial assessment

According to the Department for Education, these incentives are designed to "encourage employers to provide opportunities for young people and those from disadvantaged backgrounds, supporting social mobility and skills development."

Proper documentation protects your funding and ensures audit readiness. Recent Department for Education investigations have resulted in clawbacks of £1.2-1.4 million from organisations with inadequate evidence systems.

1. Apprenticeship Agreement (employer-apprentice)

• Signed by both parties before training starts
• Includes standard details, dates, planned off-the-job hours
• Cannot be signed by same person as both employer and apprentice

2. Training Plan (employer-provider-apprentice)

• All three parties sign before training starts
• Includes delivery model, progress review frequency, complaints process
• Must be complete within 42 days

3. Training Provider Contract:

• With provider on Apprenticeship Provider and Assessment Register (APAR)
• Negotiate price within funding band maximum
• Payment schedule agreed for any co-investment

4. ESFA Employer Agreement:

• Accepted when creating apprenticeship service account
• Legally binding contract with Department for Education
• Key obligations: comply with funding rules, pay co-investment, maintain evidence, submit to audit

Providers must retain evidence of:

• Learner eligibility (identity, right to work, residency, employment contract, PAYE records)
• Programme eligibility (prior learning assessments, skills scans)
• Compliance documents (signed agreements, training plans)
• Learning delivery (quantifiable, time-stamped off-the-job training evidence)
• Progress reviews (records of tripartite reviews, minimum 4 annually)
• Assessment evidence (EPA contracts, gateway evidence, assessment outcomes, achievement records)
• Financial evidence (employer co-investment payment records, additional payment eligibility evidence)

Retention period: Minimum 6-7 years to cover potential audit cycles.

While the Apprenticeship Levy is collected UK-wide, funding systems vary significantly across England, Scotland, Wales, and Northern Ireland. Your apprentice's residence location determines which system applies—not your business headquarters location.

For non-levy payers (SMEs):

• Access government co-investment funding (95-100%)
• Reserve funds via apprenticeship service account
• Training fully funded for ages 16-24 from August 2026
• Digital account tracks all funding and payments

For levy-payers:

• Levy credited to digital account + 10% government top-up (until April 2026)
• Funds available for 24 months (reducing to 12 months from April 2026)
• Can transfer up to 50% to other employers

Scotland (Skills Development Scotland):

• Training fully funded for all employers regardless of size
• Modern Apprenticeships accessed via Skills Development Scotland (SDS)
• No digital account system
• Employers pay apprentice wages only

Wales (Welsh Government system):

• Training fully funded for all employers (any size, any sector)
• Work directly with approved Welsh training providers
• No digital account system
• Government covers "most training costs"

Northern Ireland (ApprenticeshipsNI):

• Department for the Economy pays full cost of directed off-the-job training (Levels 2, 3, Higher Level)
• Employers pay wages (minimum 21 hours/week including day release)
• Completion incentive payments: £670-£2,008 depending on complexity, level, age
• No digital account system

• Minimum duration: Reduced from 12 months to 8 months (from 1 August 2025)
• Off-the-job training: Each standard now has published minimum hours (no longer calculated as 20% of working hours); minimum floor 187 hours
• English & maths (19+): Optional (employer decision) from February 2025; previously mandatory; assessment not required for completion
• Level 7 restrictions: From 1 January 2026, government funding withdrawn for new Level 7 apprentices aged 22+ (except ages 16-21 or ages 22-24 with EHC plan/care leaver status)
• Foundation apprenticeships: Launched 1 August 2025 in construction, engineering, digital, health/social care sectors
• Apprenticeship units: Launching April 2026 – short, flexible training courses in AI, digital, engineering (5-10 initially)

For SMEs (non-levy payers):

• Full funding for apprentices under 25 (100% government contribution, zero employer co-investment)
• £725 million investment to create 50,000 additional apprenticeships

For levy-paying employers (annual payroll >£3 million):

• Removal of 10% levy top-up: Employers will only receive amount they pay in
• Levy fund expiry reduced from 24 months to 12 months: Faster use-it-or-lose-it timeline
• Co-investment rate changes to 75% government / 25% employer (currently 95%/5%): Once employer's digital account depleted

EPA principles (announced February 2025):

• All standards being reviewed and rewritten on rolling basis
• Goal: More proportionate, less duplicative assessment
• Behaviours removed from formal assessment – employers verify via performance management
• Three assessment types: mandatory qualification-only; standard low-prescription (potentially sampling-based); exceptional additional prescription (high-risk roles)
• Timeline: All standards reviewed by August 2026

Over 700 existing standards (150 never used) will be streamlined and reduced, focusing on:

• Skills shortages
• Regional needs
• SME access
• Young people opportunities

The UK Apprenticeship Levy system offers substantial opportunities for small businesses, particularly with the August 2026 reform providing fully funded training for all under-25 apprentices at non-levy paying businesses.

While the system involves administrative steps—registration, provider selection, funding reservation, contractual documentation—the financial benefits are compelling: 95-100% training costs covered, plus incentive payments of £1,000-£3,666 depending on apprentice circumstances.

The key to success lies in three areas: choosing reputable training providers with strong track records, maintaining comprehensive documentation from day one (the primary cause of funding clawbacks), and understanding the specific requirements for your UK nation.

With proper preparation and compliance, apprenticeships become a strategically valuable recruitment and development tool—allowing you to build skilled teams while minimising training costs.