A successful apprenticeship programme is built on a solid understanding of the available funding and regulatory environment. For the 2025-26 period, the UK government has introduced significant changes designed to create a more flexible, responsive, and employer-led system. Mastering these rules is the first step towards maximising the return on investment from an apprenticeship scheme.
The Evolution of Apprenticeship Funding: From Levy to Growth and Skills
For larger organisations, the primary funding mechanism remains the Apprenticeship Levy. Employers with an annual pay bill exceeding £3 million are required to contribute 0.5% of their total wage bill into a dedicated fund.
These funds are accessible through a Digital Apprenticeship Service (DAS) account and are augmented by a 10% top-up from the government.
A critical feature of this system is that any unused funds expire 24 months after they enter the account.
The most transformative development, set to roll out from April 2025, is the evolution of this system into the Growth and Skills Levy. This change signals a major policy shift towards greater flexibility and strategic autonomy for employers. Under the new rules, businesses will be permitted to allocate up to 50% of their levy funds to a broader range of non-apprenticeship training, including accredited shorter courses and upskilling initiatives.
Funding for Small and Medium-Sized Enterprises (SMEs)
For the vast majority of UK businesses that do not pay the levy, the government provides substantial financial support for apprenticeships through a co-investment model. In this arrangement, the government covers 95% of the costs of apprenticeship training and assessment, with the SME contributing the remaining 5%.
Furthermore, SMEs have a powerful opportunity to access funding through Levy Transfers. This mechanism allows large, levy-paying employers to transfer up to 50% of their unspent annual funds to other businesses, including those in their supply chain or local community.
For an SME, receiving a levy transfer can cover 100% of their apprenticeship training costs, making the programme entirely government-funded.
Key Regulatory Changes for 2025-26: A More Flexible System
The funding rules applicable to all apprenticeships starting on or after 1 August 2025 introduce several key changes aimed at increasing flexibility and personalisation.
- Minimum Duration: The minimum required duration for an apprenticeship has been reduced from 12 months to 8 months, provided all other training requirements are met.
- Off-the-Job (OTJ) Training: The previous blanket rule requiring 20% of an apprentice’s time to be spent on OTJ training is being phased out. It is being replaced by a system where each individual apprenticeship standard will have its own specified minimum number of OTJ training hours.
- Recognition of Prior Learning (RPL): There is now an enhanced and mandatory requirement for training providers to conduct a robust initial assessment of an apprentice’s prior knowledge and skills. Where relevant prior learning is identified, the content, duration, and cost of the apprenticeship must be reduced accordingly. (This formalises the concept of an “Accelerated Apprenticeship”)
- Foundation Apprenticeships: A new entry-level pathway has been introduced for young people aged 16-21, as well as for individuals up to age 24 with an Education, Health and Care (EHC) plan or care experience. These Level 2 apprenticeships are designed to provide a stepping stone into key sectors such as construction, engineering, health and social care, and digital.
The system is moving away from a rigid, one-size-fits-all model towards one that is more modular, flexible, and responsive to the specific needs of both the employer and the individual apprentice.
Financial Incentives and Practical Application
Beyond the core funding mechanisms, the government offers direct financial incentives to encourage employers to hire apprentices, particularly from younger age groups or disadvantaged backgrounds.
| Incentive Name | Value (£) | Apprentice Eligibility Criteria | Key Conditions |
| Young Apprentice Payment | £1,000 | Aged 16-18 / Aged 19-24 with an EHC plan / Aged 19-24 with care experience | Paid to the employer in two instalments at 90 days and 365 days into the apprenticeship. |
| Foundation Apprenticeship Incentive | Up to £2,000 | Aged 16-21 / Aged 22-24 with an EHC plan or care experience / Aged 22-24 and a prisoner or prison leaver | Paid in three instalments, with the final payment conditional on the apprentice progressing to a higher-level apprenticeship. |
| National Insurance Exemption | 100% of employer Class 1 NICs | Apprentice is under 25 years old and earnings are below the Upper Secondary Threshold (£967 per week in 2025) | Provides an immediate and ongoing reduction in employment costs from the first payday. |
| Care Leavers’ Bursary | £3,000 | Apprentice aged 16-24 who has been in care | Paid directly to the apprentice, but acts as a significant support for recruitment and retention of motivated candidates. |
In conclusion
The evolution of the Apprenticeship Levy into the Growth and Skills Levy grants large employers more autonomy to tailor their training investments. Simultaneously, enhanced levy transfer options and continued co-investment ensure that SMEs remain central to the nation’s skills agenda, with powerful mechanisms to access near-total funding.
By proactively engaging with these reforms, employers can build a more agile, skilled, and productive workforce, directly aligning their training programmes with the specific demands of their sector and securing a competitive edge for the future.
