Apprenticeships for Small Businesses That Don’t Pay the Levy: Funding and Incentives Explained

A small business in England that does not pay the apprenticeship levy pays nothing towards training and assessment for an apprentice aged 16 to 24, and 5% for an apprentice aged 25 or over, with the government covering the rest up to the funding band maximum. On top of that, you may receive a £1,000 additional payment for 16 to 18-year-olds, a £2,000 hiring payment for new apprentices aged 16 to 24 starting from 1 October 2026, and a £2,000 foundation apprenticeship incentive.

This guide is for owners and HR managers of SMEs. It draws on the Apprenticeship funding rules for August 2026 to July 2027 (version 3), DWP’s How to take on an apprentice guidance, the Growth and Skills Levy factsheets and the levy transfer guidance. The rules state they may change at any time, so check dates before you commit.

Are you a non-levy employer?

The funding rules define a non-levy paying employer as an employer, or group of connected employers, with a collective annual pay bill of less than £3 million. HMRC confirms the levy is only due above £3 million, and connected companies or charities are assessed on their combined pay bill. Since 3 April 2023, small employers are no longer limited to 10 new apprenticeship starts, so you can recruit as many apprentices as your business needs.

What you pay towards training

Your 5% is paid to the training provider over the lifetime of the apprenticeship, on a schedule you agree. As an illustration, on a £10,000 funding band (the figure the funding rules use in their own examples), 5% is £500. The provider cannot ask you to contribute towards English and maths provision or learning support, and neither of you can ask the apprentice to pay anything.

Route 1: reserve funds in the apprenticeship service

1. Create an apprenticeship service account if you do not have one; all employers must use the service.
2. Choose the training course and start month. You need both to reserve.
3. Reserve in the finance section, up to 3 months before the expected start date, or give your provider permission to reserve on your behalf.
4. Reserve before you recruit or make the offer to an existing employee. The rules allow a reservation to be backdated by one calendar month only in exceptional cases.
5. Use it in time: a reservation expires if not used within 3 months of the start date it shows; you then need a new one.

Route 2: receive a levy transfer from a larger employer

Levy-paying employers can transfer up to 50% of their previous year’s levy funds to other businesses, a ceiling raised from 25% on 22 April 2024. Any business can receive a transfer, levy payer or not. Transferred funds pay 100% of training and assessment costs up to the funding band maximum, for the whole apprenticeship.

• Where to find them: pledges are published on a public pledge page, with criteria such as location, sector, type of apprenticeship and level. You can apply even if you don’t match all four, and apply to several pledges.
• What you need first: the standard, the number of apprentices, the work location and the expected start date.
• Deadlines: once a pledge is approved, you have 6 weeks to accept the funds, then 3 months to link them to an approved apprenticeship record.
• New starts only: transfers cannot fund someone already on an apprenticeship, except when an apprentice changes employer.
• If the sender runs short: as a non-levy employer you cover the cost through employer co-investment.
• Subsidy control: you will need to complete a Minimal Financial Assistance declaration for transferred funds.
• Bonus: a non-levy employer funded by a transfer can still receive the £2,000 hiring payment if eligible.

The incentive payments, side by side

The Growth and Skills Levy reforms factsheet lists the following and states that employers can claim more than one. Training providers claim the first three and must pass them on in full within 30 working days.

Conditions on the £2,000 hiring payment

• the apprentice is 16 to 24 at the start of training;
• the apprenticeship agreement shows a practical period start date on or after 1 October 2026;
• the apprentice is on the PAYE scheme in your apprenticeship service account, which is checked against HMRC data;
• they have not worked for you for more than 90 days before training starts, so it rewards new recruits rather than existing staff;
• it also applies to foundation apprenticeships, and the government may change or withdraw it with at least three months’ notice.

The foundation progression payment is only made if the apprentice starts a new, non-foundation apprenticeship within 6 months of completing, with the same employer. A 17-year-old foundation apprentice hired from October 2026 by a non-levy employer could therefore attract the £1,000, the £2,000 hiring payment and the £2,000 incentive, subject to each set of conditions.

Other savings for young apprentices

• No employer National Insurance contributions on eligible earnings for apprentices under 25.
• £3,000 care leaver bursary paid to eligible apprentices themselves, in three £1,000 instalments.
• Apprentice minimum wage of £8 per hour for 16 to 18-year-olds and those 19 or over in their first year.

Common mistakes SMEs make

• Recruiting first, reserving later. The funding rules expect reservations before recruitment; backdating by one calendar month is for exceptional cases only.
• Expecting the hiring payment for existing staff. The £2,000 non-levy hiring payment excludes anyone employed by you for more than 90 days before training starts.
• Forgetting the PAYE check. Hiring payments are validated against HMRC PAYE data, so the apprentice must be on the scheme added to your apprenticeship service account.
• Ignoring bank detail requests. If you don’t respond to at least three requests for bank details over three months, the provider must return the payment to the government.
• Agreeing a price above the band without realising who pays. The excess over the funding band maximum is always the employer’s cost, even for a fully funded 19-year-old.

Eligibility questions are where SMEs most often get stuck. You can check a specific case with the Apprenticeships in England knowledge base, for example “Is there extra money for taking on a 17-year-old apprentice?”, and see the paragraph each answer relies on.

Sources: Growth and Skills Levy reforms factsheet, Receive a levy transfer and the Apprenticeship funding rules 2026 to 2027.