Apprenticeship Levy reforms: What employers need to know for 2026

Following its introduction, organisations have been on a journey with the levy, at first to understand it - then to maximise it. In that regard it has been a success story. After years in which large amounts of levy funding were returned unused, the Department for Education is expected to overspend its apprenticeships budget for the first time this year.

While rising programme starts, improved achievement rates and the higher costs associated with advanced and degree-level apprenticeships could be seen a sign of the levy working, it also brings increased financial pressure for Government. With limited fiscal headroom and growing demand, the government appears to have moved to tighten control of the system.

The announcements made throughout 2025, culminating at the Budget, reflect a clear strategic shift: prioritising early-career and entry-level training[RW5] [TR6] , improving value for money, and ensuring that rising levy receipts are more closely aligned with the government’s workforce and economic priorities.

For employers, the message is clear — adapt quickly or risk losing out.

What’s changing and when?

Effective immediately

• Boost for SMEs – Small and mid-sized employers (who do not pay the levy) now have 100% of training costs covered for apprentices under 25, removing the previous 5% co-investment requirement.

From January 2026

• Restrictions on Level 7 funding for older apprentices – New starts on Level 7 apprenticeships (master’s level programmes) for individuals aged 22 and over will no longer be funded through the levy. Existing apprentices who started before January 2026 will continue to be funded.

From April 2026

• Growth & Skills Levy replaces the Apprenticeship Levy – The reformed levy will introduce more flexible training options. The government has signalled that short-course “apprenticeship units” and foundation apprenticeships will become available from April 2026, enabling employers to address skills needs without committing to full apprenticeship programmes.

From August 2026

• Faster expiry of levy funds – Employers will have 12 months, reduced from 24, to use their levy contributions before they expire.
• Higher co-investment once levy funds are used – Employers will need to contribute 25% of training costs once their levy balance is exhausted (up from the current 5%).
• Removal of the 10% top-up – The government’s monthly top-up will be withdrawn. Employers will only be able to access the value of their own contributions.

Why is this important?

These reforms represent a significant shift in emphasis with a clearer focus on younger talent, pivoting funding away from expensive mid-career qualifications toward early-career and priority-skills pathways. Together with the new Youth Guarantee, which commits £820m to ensure every 18–21-year-old can access education, apprenticeships or job-support programmes, the reforms signal a clearer focus on tackling skills shortages and youth unemployment.

What should employers do now?

1. Audit your levy balance and pipeline – With only 12 months to spend funds, proactive planning is essential.
2. Review your apprenticeship strategy – If you rely on Level 7 programmes for leadership development, identify alternative development routes and budget implications.
3. Explore modular training opportunities – The new short-course options expected from 2026 may offer a more agile way to target specific skills gaps.
4. Engage SMEs in your supply chain – Encourage smaller partners to take advantage of fully funded under-25 apprenticeships.
5. Prepare for higher co-investment – Build the increased 25% contribution into future workforce and training budgets if you anticipate exceeding your levy allocation.

How we can help

The good news is that the levy remains a fantastic tool for organisations to develop the skills they need.

We’ve already helped more than 2,500 organisations optimise their levy usage—enabling existing teams and new recruits to gain valuable, industry-recognised qualifications at little to no additional cost.

Our Talent Solutions | Future Skills team can help you unlock the full value of the levy, navigate the upcoming reforms, and support wider workforce, training and development needs.