The UK government’s November budget included some major apprenticeship funding changes. These changes mean that SMEs will have access to full funding for a wider pool of apprentices, and larger levy-paying employers will have to plan better and act faster to avoid losing funds.
Summary of changes
The budget introduced five changes to apprenticeship funding:
- 10% levy top-up abolished: Levy-paying employers will no longer receive the government’s 10% bonus on contributions
- Levy funds will expire after 12 months: Currently 24 months, giving employers half the time to use their funds before losing them to HMRC
- Co-investment split changes to 75%/25%: Levy-payers who use up their levy pot will pay 25% of additional training costs (up from 5%)
- Apprentices under 25 years old at non-levy employers will be fully funded: SMEs will pay zero training costs for apprentices aged under 25 (the current age limit for 100% funding is 21 with 95% government funding for apprentices 22 and over)*
- Apprentice minimum wage rises to £8/hour: Takes effect April 2026.
Apart from the increase to apprentice minimum wage, these changes will be implemented from 1 August 2026.
*Please note that the position with level 7 solicitor remains the same: From January, the apprenticeship is only funded (via levy or co-investment) for apprentices aged under 22.
The SME opportunity
For organisations which don’t pay the apprenticeship levy (i.e. SMEs with a payroll less than £3million), the changes are a welcome opportunity. The increase in funding for apprentices aged 22 to 24 from 95% to 100% makes apprenticeships an even more cost-effective solution to upskill new and existing members of staff.
If we consider, for example, an SME that hires an 18-year-old college leaver and puts them through the accounting apprenticeship pathway – level 2, 3 and 4 qualifications over approximately five years:
Training costs: £0
The government covers 100% of training costs across all three levels. That’s £30,000 worth of professional training at zero cost to the employer.
Apprenticeship incentive: +£1,000
Incentive payment from the government for hiring a young apprentice, which can be used for wages or other costs.
National Insurance savings: +£12,750
Employers pay no NI contributions on apprentices under 25. Based on an average salary of £22,000 across the five-year period, this saving equates to approximately £12,750.
Total benefits: £43,750
SMEs don’t just get free training – they receive an incentive payment and NI savings while developing an 18-year-old into a level 4 qualified accounting technician with five years of experience in their business. We offer a no cost recruitment service, saving a further 10% or so of year one salary.
This represents a significant saving for SMEs, particularly when compared to hiring an experienced accountant at £30,000 to £40,000+ from day one, with full NI obligations. In addition, we know from government (and our own) research that apprentices bring increased loyalty and retention, fresh perspectives and improvements to morale – factors which increase productivity and positively impact the bottom line.
If you’re an SME looking to utilise apprenticeship training for 22 to 24 year olds prior to August 2026 (for which the employer contribution is currently 5%), please speak to us as we may have a levy payer willing to make a levy transfer in order to cover these costs for you.
The levy payer imperative
For levy-paying employers the November budget means that they will need to act fast or risk losing money.
Levy funds that sit unused for just 12 months will go to HMRC – and it’s important that levy payers remember that this is their own money they’re losing, not government funding they’ve failed to claim. For an employer paying £1 million annually into the levy, that’s £1 million at risk of being lost every year.
What you must do now
Monitor regularly: Check your Apprenticeship Service account monthly. Know your balance, track expiry dates and understand your “burn rate” i.e. how fast you’re spending versus how fast funds are accumulating.
Make it a top-level priority: Using your levy effectively is not activity that should sit solely within HR functions. Apprenticeships should form a key part of your workforce development strategy that is owned at a senior leadership level.
Map all opportunities: Apprenticeships aren’t just for entry-level roles. Systematically identify where apprenticeships can address skills gaps across your entire organisation.
Upskill existing staff: Current employees can undertake apprenticeships. This is often faster to implement than external recruitment and helps you use funds before they expire.
Use levy transfers: If you can’t use all your funds, transfer up to 50% to other employers. You could consider SMEs within your supply chain, sector or local community. At Damar, we can match you with SMEs looking for additional funding, and can support the transfer of your levy funds.
Moving forward
The November budget announcements present both challenges and opportunities for employers of all sizes.
Whether you’re a levy payer or an SME, Damar can guide you through the funding rules and ensure that your apprenticeship programme will have a significant and lasting impact on your organisation.
Get in touch and let us support you on your apprenticeship journey.