Apprenticeships for SMEs: Funding, Costs and How to Hire (2026/27 Rules)

If you run a small or medium-sized business in England, apprenticeships got noticeably cheaper in 2026. For most new apprentices aged 16 to 24, the government now pays the whole cost of training, and from October there is a £2,000 payment for hiring one.

This guide covers apprenticeships in England starting from 1 August 2026: what you pay, what you can claim, what an apprentice must earn and how to hire one. The rules change often, so check the current funding policy on GOV.UK before you commit.

How does apprenticeship funding work for SMEs in 2026/27?

If your annual pay bill is under £3 million you don't pay the apprenticeship levy. For apprenticeships starting from 1 August 2026, the government pays all the training and assessment costs for apprentices aged 16 to 24, and 95% for apprentices aged 25 or over, so you pay 5%.

That's the position in the GOV.UK funding policy (updated 29 July 2026) and the 2026 to 2027 funding rules. Age is measured when the apprenticeship training starts.

All of this is capped at the funding band maximum. Every apprenticeship standard sits in one of the funding bands, which range from £1,500 to £27,000. You negotiate the price with your training provider, and if it comes in above the band, you pay the difference in full.

Here is a simple illustration. Say you agree a price of £9,000 for an apprenticeship whose band maximum is £9,000. For a 20-year-old apprentice you pay nothing. For a 30-year-old, you pay 5%, which is £450, usually to the training provider. Neither the provider nor you may ask the apprentice to pay anything towards training or assessment.

What changed in 2025 and 2026?

The government is turning the apprenticeship levy into a wider "growth and skills levy", responsibility for apprenticeships has moved from the Department for Education to the Department for Work and Pensions, as the current funding rules note, and the rules changed several times. The biggest change for SMEs is that full funding now covers apprentices up to age 24, not 21.

Apprenticeships that started before 1 August 2026 keep the rules that applied when they started.

What incentives can an SME claim?

Most SMEs hiring a young apprentice can now claim at least one payment, and some can claim more than one. Your training provider claims them and must pass them to you within 30 working days of receiving them.

The details come from the GOV.UK funding guidance for employers and the funding rules. Three conditions trip people up:

• The 90-day rule. The hiring payment is for genuinely new hires. If the person has worked for you for more than 90 days before their apprenticeship training starts, you won't get it.
• Your PAYE scheme. The government checks eligibility against HMRC data, so the PAYE scheme the apprentice is paid through must be added to your apprenticeship service account.
• They must still be there. Each instalment is only paid if the apprentice is still on their apprenticeship (and, for the hiring payment, still employed by you) when it falls due.

Employer National Insurance relief

There's one more saving that many SMEs miss. For apprentices under 25, you pay 0% employer National Insurance on their earnings up to the Apprentice Upper Secondary Threshold, which is £50,270 a year in 2026/27, according to HMRC's rates and allowances. The normal employer rate is 15%, so on a £25,000 salary that saves about £3,000 a year.

What does an apprentice cost an SME in 2026/27?

The main cost is the apprentice's wage, because training for under-25s is now free for non-levy employers. The legal minimum is the apprentice rate of £8.00 an hour from 1 April 2026, but many employers pay more to attract strong candidates.

The National Minimum Wage rates from 1 April 2026 are:

You must pay apprentices for their normal working hours and for the training that's part of their apprenticeship. They get at least 20 days' paid holiday a year plus bank holidays, as GOV.UK's apprentice guidance sets out.

Two worked examples

These are illustrations using 2026/27 rates, not quotes.

Example 1: an 18-year-old school leaver on a level 3 apprenticeship. They work 37.5 hours a week, and you pay the apprentice rate in year one: 1,950 paid hours at £8.00 is £15,600 a year. Training costs you nothing, employer National Insurance is £0, and you could receive £3,000 in payments by the one-year mark (the £2,000 hiring payment plus £1,000 for a 16 to 18 year old). That brings the first-year cost to about £12,600, before any pension contributions.

Example 2: a 23-year-old graduate on a level 4 apprenticeship. You pay a graduate-level salary of £25,000. Training costs you nothing, you save about £3,000 in employer National Insurance, and you could receive the £2,000 hiring payment. That's roughly £5,000 less than hiring them into a normal role, plus funded training.

Remember the hidden costs too: time spent supervising and mentoring, and the hours your apprentice spends on off-the-job training rather than productive work. For a fuller picture of salary, on-costs and recruitment fees, see how much it costs to hire a graduate in the UK.

How does the apprenticeship levy work for larger employers?

The apprenticeship levy is 0.5% of an employer's annual pay bill, offset by a £15,000 annual allowance, so only employers with a pay bill over £3 million pay it. Connected companies share one allowance, and the levy is paid monthly through PAYE, according to HMRC's levy guidance.

Several levy rules changed from August 2026:

• New funds entering an account from August 2026 expire after 12 months, down from 24. Funds already in the account keep the 24-month expiry.
• The automatic 10% government top-up on new funds has been removed.
• If a levy payer runs out of funds, the government pays everything for apprentices aged 16 to 24, and 75% for those aged 25 or over, leaving the employer to pay 25%.

The transfer rule matters to SMEs too. Levy payers can transfer up to 50% of their annual funds to other employers, and a non-levy employer that receives transferred funds can still qualify for the £2,000 hiring payment. If a large customer or partner pays the levy, it's worth asking whether they pledge transfers.

How much off-the-job training does an apprentice need?

The funding rules no longer use a flat 20%. Since 1 August 2025, each apprenticeship standard has its own published minimum number of off-the-job training hours, listed on Skills England's page for that standard, and no programme may fall below 187 hours of training.

Under the 2026 to 2027 funding rules, the published figure is the minimum for an apprentice with no relevant prior learning. It can only be reduced where the provider's initial assessment shows the apprentice already has some of the skills. The practical period must also last at least 8 months.

You'll still see "20%" in places: GOV.UK's guidance for apprentices describes training time as at least 20% of normal working hours, and apprenticeships that started before August 2025 keep the old calculation. For new starts, plan around the hours published for your standard.

Off-the-job training must teach new skills relevant to the apprenticeship and happen within paid working hours. If it has to happen outside them, the apprentice must agree and be compensated, for example with time off in lieu. English and maths study doesn't count towards the hours; it comes on top.

How do you hire an apprentice? Step by step

Hiring an apprentice follows six official steps on GOV.UK, plus a few practical ones. Allow a few weeks for the training provider and funding steps before your start date.

1. Choose the apprenticeship. Find the standard that matches the job, check its level, its published off-the-job hours and its funding band.
2. Find a training provider. Use Find apprenticeship training if you're an employer to search by course and location. Only providers on the government's approved register can be funded. Ask each one how they deliver training, how often they review progress and what they charge.
3. Check your funding and create an account. Set up an apprenticeship service account, add the PAYE scheme you'll pay the apprentice through, and reserve funding once you have a start date.
4. Advertise the role. Your provider can post it on the government's Find an apprenticeship service. You can also reach students and graduates directly with GradWorx Attract, which lists your role on the GradWorx jobs board, including its apprenticeships section, from £250 for 30 days, ex VAT. Our graduate job description template works for apprenticeship adverts too.
5. Select and offer. Interview, make an offer and complete a right to work check. Apprentices must have the right to live and work in the UK for the whole apprenticeship.
6. Sign the paperwork. Give the apprentice an employment contract, then sign an apprenticeship agreement and a training plan with them and the provider.
7. Support them. Name a mentor, protect the off-the-job time, and hold regular reviews with the provider. The first incentive instalments fall due 90 days after the start.

If you'd rather not employ the apprentice yourself, GOV.UK notes that a flexi-job apprenticeship agency can employ them while they work in your business.

Can you hire a graduate as an apprentice?

Yes, and at an SME it can be one of the best-value ways to hire a graduate. Funding covers an apprenticeship at the same or a lower level than a degree the person already holds, as long as it teaches significant new skills and the content is materially different from their previous study.

For a non-levy employer, a graduate aged 22 to 24 on a level 4, 5 or 6 apprenticeship costs nothing in training fees from August 2026, can attract the £2,000 hiring payment and earns you employer National Insurance relief. The main limit is level 7: since 1 January 2026 it's only funded for apprentices who start aged 16 to 21, or 22 to 24 with an EHC plan or care experience.

The trade-off is time: a graduate apprentice spends part of every month training, so they take longer to become fully productive than a direct hire. To decide which route suits the role, read our comparison of graduate schemes, graduate jobs and apprenticeships, and for the wider hiring process see how to hire graduates in the UK.

If you'd like help finding the right person, GradWorx Match uses Grace, GradWorx's AI, to identify and explain the graduates you should be talking to, for £795 per role, ex VAT.

Do the rules differ in Scotland, Wales and Northern Ireland?

Yes. The levy is collected UK-wide by HMRC, but apprenticeship funding is devolved. The funding, incentives and apprenticeship service in this guide apply to England only, and GOV.UK confirms that Scotland, Wales and Northern Ireland have their own arrangements.

• Scotland: Skills Development Scotland runs Foundation, Modern and Graduate Apprenticeships. Start at apprenticeships.scot.
• Wales: employers can find support through Business Wales.
• Northern Ireland: apprenticeships, including Higher Level Apprenticeships, are covered on nidirect.

English funding follows the apprentice's main workplace: if they spend at least half their time at a workplace in England, the English rules apply, wherever they live. The National Minimum Wage, including the apprentice rate, applies across the whole UK.