If you run a business in the UK, you may already be familiar with the Apprenticeship Levy. This tax has funded apprenticeship training since 2017. However, following the November 2025 Autumn Budget, the government has confirmed that the new Growth and Skills Levy will be replacing it, beginning its phased rollout in April 2026.
This new levy should make workforce training more flexible and accessible for businesses of all sizes.
What is the Apprenticeship Levy?
The Apprenticeship Levy is a tax on employers with an annual pay bill over £3,000,000. Eligible companies contribute 0.5% of their payroll to fund apprenticeship training.
Smaller businesses below the threshold do not pay the levy, but can access apprenticeship funding through the con-investment model. This is where the government currently covers 95% of apprenticeship training costs and the employer pays the remaining 5%.
The purpose of the levy has been to upskill the workforce. However, many employers have struggled to use their levy funds before they expired. This resulted in unused contributions, which would be return to central government.
How Does the Apprenticeship Levy Work?
Levy-paying employers must set up an Apprenticeship Service account to access and manage their levy funds. Under the current system, levy funds are only usable for approved apprenticeship training and they expire after 24 months, if unused.
The complexity and apprenticeship-only restrictions have made the system difficult for many employers, particularly smaller organisations.
What is Changing in 2026?
Following the Autumn Budget 2025, the government has announced the transition to the Growth and Skills Levy, with several confirmed changes and phased reforms.
1. More Training Options
Employers will be able to fund a broader range of training, not just full apprenticeships. This includes short courses, modular programmes and targeted upskilling; especially in areas such as engineering and AI.
2. Improved Support for Smaller Businesses
The co-investment model will continue, but with some new changes. From April 2026, SMEs will no longer pay the 5% contributions for apprentices aged under 25, as these will be fully government-funded. The application process is also undergoing a redesign to reduce administrative barriers for SMEs.
3. Updated Levy Rules
Several structural changes are planned as part of the new system:
- Levy funds under the Growth and Skills Levy will expire after 12 months, rather than 24.
- The 10% government top-up will no longer apply.
- When levy-paying employers exhaust their funds, the co-investment rate will change to 75% government and 25% employer.
4. Support for Skills in High-Demand Sectors
The new levy aims to better target current and emerging skills needs. While not limited to specific “priority sectors”, the government has signalled strong support for training in:
- Digital skills
- Green and low-carbon technologies
- Engineering
- AI and Data Analytics
These areas will especially benefit from the modular “Apprenticeship Unit” approach.
Why Do These Changes Matter?
The Growth and Skills Levy gives businesses more control and flexibility:
- Employers can choose training that directly benefits their workforce, not just full apprenticeships.
- Short, targeted training becomes easier to access and fund.
- SMEs will face fewer financial and administrative barriers when training younger apprentices.
- The new system intends to give employers a greater ability to address specific skills gaps in their business.
What Does This Mean for Your Business and Employees?
For small and medium-sized businesses, these changes could significantly improve access to funded training. You will be able to invest in more varied and targeted courses.
For example: Short digital marketing courses or operational efficiency training, without navigating the rigid apprenticeship requirements of the old system.
Employees will gain access to a wider range of training opportunities, including:
- Shorter upskilling programmes
- Industry-relevant modular training
- Opportunities in high-growth areas such as AI or green technologies
Who Needs to Pay the Apprenticeship Levy (For Now)?
The Apprenticeship Levy applies to employers with an annual pay bill exceeding £3,000,000. This includes payments such as wages, bonuses and commissions. Employers must report and pay the levy each month through their PAYE system. Some sectors, such as recruitment agencies and schools, have specific rules on how they must handle the levy.
How to Use Your Levy Allowance
Each employer receives a £15,000 annual levy allowance, which reduces the total levy owed. Companies connected to other businesses or charities must share a single £15,000 allowance between them. Businesses can use levy payments to fund eligible training programmes, but they cannot carry them over to the next tax year and they will expire after 24 months.
Under the Growth and Skills Levy, the expiry period will reduce to 12 months.
Reporting and Paying the Levy
Employers must report how much levy they owe each month to HMRC. Businesses that unexpectedly exceed the £3,000,000 threshold must start reporting immediately. Businesses make payments monthly as part of their PAYE bill. HMRC will refund any overpaid levy as a PAYE credit.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.