Apprenticeship funding explained

The levy continues to be a mandatory charge for employers with an annual pay bill exceeding £3 million. It is set at a rate of 0.5% of the total pay bill, though every employer receives a fixed annual allowance of £15,000 to offset this liability. In practice, this means only the portion of the payroll above the £3 million threshold is taxed. The funds are collected monthly by HMRC through the PAYE system and are automatically credited to the employer’s Digital Apprenticeship Service (DAS) account.

Once funds enter the digital account, they are ring-fenced for training and assessment purposes. A critical change introduced for 2026 is the reduced expiry window; funds now remain available for only 12 months, down from the previous 24-month limit. Any unused credits at the end of this year-long period are returned to the Treasury to support apprenticeship funding for smaller businesses. Furthermore, the 10% monthly top-up previously provided by the government has been withdrawn, meaning the balance in the account now reflects only the employer's direct contributions.

Under the Growth and Skills Levy, employers can now use their funds with greater flexibility. Beyond full-length apprenticeships, a portion of the levy can be directed toward "Apprenticeship Units," which are short, modular courses designed to address urgent skills gaps in areas like AI, data science, and green technology. These units can last anywhere from one week to several months, allowing for more agile upskilling without the commitment of a multi-year programme. Additionally, large employers retain the ability to transfer up to 50% of their annual levy funds to other organizations, such as supply chain partners or local charities, to support wider skills development.

When an employer’s digital account is fully depleted, they can continue to train apprentices through a co-investment model. As of 2026, the government’s contribution for this "overspill" training has been adjusted; the government now covers 75% of the costs, requiring the employer to pay the remaining 25%. This is a significant increase from the previous 5% employer contribution, placing a greater emphasis on proactive fund management and strategic planning.

As of January 1, 2026, the UK government has implemented a strategic restriction on Level 7 (master’s level) apprenticeship funding to prioritize early-career investment over mid-career upskilling. Public funding and the use of the apprenticeship levy for these high-level standards are now strictly reserved for new starters aged 21 or under at the commencement of their training, with an extension to age 25 only for care leavers or those with an Education, Health, and Care (EHC) plan. For all other individuals aged 22 and over, Level 7 apprenticeships must now be commercially funded by the employer in their entirety, though any learner who officially started their programme before the 31 December 2025 deadline remains fully funded through to completion under the previous rules.