Good news for SMEs in England: Starting in 2026, the government will fully cover apprenticeship training costs for employees under 25. This removes the previous 5% co-investment burden, making it easier for small businesses to hire and train young talent. Funded by a £725 million initiative, this change also extends National Insurance (NI) relief to under-25 apprentices, further reducing costs.
Key points:
- SMEs no longer pay for training apprentices under 25.
- NI contributions are waived for apprentices under 25.
- The £725m Growth & Skills Levy supports the scheme.
- Businesses must meet criteria: fewer than 250 employees, an annual pay bill under £3m, and apprentices under 25.
This policy aims to address digital skills shortages in areas like IT, data analytics, and digital marketing, helping SMEs grow their workforce affordably.
The Funding Gap for SME Apprenticeships
The 5% Co-Investment Requirement
Before Budget 2025, SMEs with annual payrolls under £3 million were responsible for covering 5% of apprenticeship training costs, while the government provided the remaining 95% funding. However, from 2024, SMEs in England were relieved of this 5% cost for apprentices under the age of 22. Under this system, SMEs would agree on a training price with a provider and pay 5% of the total directly. For instance, if the training cost was £4,000, the SME’s share would be £200. For five apprentices, this would amount to £1,000.
Although 5% may not seem like much, it posed a real challenge for SMEs with tight financial margins. This co-investment model was introduced alongside the apprenticeship levy in 2017. Large employers with payrolls exceeding £3 million contributed 0.5% of their salary costs, while smaller businesses, which didn’t pay the levy, were subject to this 5% contribution. For many SMEs, this upfront cost became a significant hurdle, contributing to a wider funding gap.
Budget Constraints and Skills Shortages in SMEs
Unlike larger organisations, SMEs often operate with smaller training budgets and typically lack dedicated HR or training teams to handle apprenticeship programmes. This is particularly problematic in industries like digital marketing, IT infrastructure, and data analytics, where skills shortages are severe. These fields often require specialised training providers and comprehensive courses, which come with higher costs, further straining SME budgets. While apprenticeships are a key solution for bridging skills gaps, the financial commitment can discourage smaller businesses from participating.
The Impact of Funding Challenges on Apprenticeship Uptake
The 5% co-investment rule has made many SMEs hesitant to engage in apprenticeship programmes, especially those already struggling with slim profit margins. For smaller businesses, the need to cover training costs upfront can make apprenticeships seem like an unjustifiable expense, particularly when the return on investment isn’t guaranteed.
Recognising this issue, the government took steps to ease the burden by waiving the co-investment requirement for apprentices under 22 in 2024. By 2025, this exemption was extended to include all apprentices under 25, supported by a government initiative worth approximately £725 million. These measures aim to address the financial barriers SMEs face, making it easier for them to invest in apprenticeships and tackle critical skills shortages.
Government Funding Options for SME Apprenticeships
No Co-Investment for Under-25 Apprentices
The Autumn Budget 2025 brought a significant update for small businesses in England regarding apprenticeship training costs. The government has completely eliminated the 5% co-investment requirement for apprentices under the age of 25 employed by SMEs. Previously, this full funding relief was only available for apprentices under 22, but the new policy now extends to those aged 22 to 24 as well.
If your business has an annual pay bill under £3 million, you won’t have to pay a penny for training and assessment costs for apprentices under 25. The government will cover 100% of these costs up to the maximum funding band. This change makes it easier for smaller businesses to invest in young talent without worrying about training expenses.
£725 Million Government Funding Programme
To support this initiative, the government has earmarked £725 million as part of the broader Growth & Skills Levy and Youth Guarantee package. This funding highlights the government’s focus on improving productivity and fostering long-term skills development within small businesses.
However, it’s worth noting that apprentices aged 25 and over will still fall under the previous funding model. For this group, SMEs will continue to contribute 5% of training costs, while the government covers the remaining 95%.
Eligibility Criteria and Implementation Dates
To benefit from this funding, your business needs to meet a few straightforward criteria. First, you must qualify as an SME, which usually means having fewer than 250 employees and an annual pay bill under £3 million, classifying you as a non-levy payer. The apprentice must be under 25 and can either be a new hire or an existing employee enrolled in an apprenticeship programme. Additionally, the apprenticeship should align with your business needs and be at an appropriate level, such as Level 3 or 4.
It’s important to note that these rules apply only in England, as apprenticeship policies differ in Scotland, Wales, and Northern Ireland.
While the policy has been announced and confirmed in Parliament by Chancellor Rachel Reeves, the exact implementation date is yet to be confirmed. The government is expected to release detailed funding rules and rollout procedures later in 2025. Until then, businesses are encouraged to keep an eye on updates from GOV.UK and the Department for Education.
For SMEs looking to prepare in advance, working with specialist training providers like NowSkills can be a smart move. These providers offer valuable guidance on programme selection, enrolment, and administrative processes, helping businesses navigate the funding changes and plan their apprenticeship programmes effectively. This approach can ensure that businesses are ready to act as soon as the programme becomes fully operational.
National Insurance Relief for Apprentice Employers
NI Exemptions for Under-25 Apprentices
In addition to government funding for apprenticeships, SMEs can benefit from a complete exemption from employer National Insurance (NI) contributions for apprentices under the age of 25. This means you won’t pay a penny in NI on their salary, no matter how much they earn, as long as they’re under 25 and their earnings stay below the government’s apprentice upper secondary threshold. For comparison, regular employees are subject to an NI rate of approximately 15% on earnings above the threshold, a cost entirely removed for eligible apprentices. With the Budget 2025 changes, this NI relief, previously limited to under-22s, now applies to all apprentices under 25. However, it’s essential to ensure their earnings remain within the threshold to maintain this exemption. This measure significantly improves the cost-effectiveness of hiring apprentices for SMEs.
Combining Training Funding with NI Relief
When you combine this NI exemption with full government funding for training, the overall cost of employing an apprentice drops dramatically. Under the updated scheme, an SME hiring an apprentice under 25 faces zero training costs and zero employer NI contributions.
Let’s break it down: if you hire an apprentice earning £18,000 per year, your only expense is their salary. In contrast, a junior employee with the same salary level would cost over £27,000 when you factor in NI contributions and training costs, saving your business around £8,700. Even if you offer a more competitive salary of £20,000 to attract top talent, you’d still save approximately £6,700 compared to hiring a junior employee.
| Cost Element | Under-25 Apprentice in SME | Junior Employee Cost |
|---|---|---|
| Wages | £18,000 | £23,000 |
| Employer NI | £0 | £2,745 (15% above threshold) |
| Training costs | £0 (fully funded) | £2,000–£5,000+ |
| Approximate Year-One Total | £18,000 | £27,745+ |
| Savings | – | £8,700+ |
When planning your apprentice recruitment budget, keep in mind that there are no training costs or NI contributions for under-25 apprentices. To qualify, ensure your SME employs fewer than 250 people, the apprentice is under 25, and their salary stays below the upper secondary threshold. Also, make sure your payroll systems are configured to apply the NI exemption automatically and maintain accurate records of the apprentice’s age and salary to meet compliance requirements. Partnering with an approved training provider, like NowSkills, can help you navigate these funding options and design an apprenticeship programme that maximises these benefits. Use these savings to offer competitive wages and build a strong talent pipeline for your business.
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Training providers: Latest Growth and Skills Offer update and Apprenticeship Service developments
How to Access Digital Apprenticeship Funding
If you’re an SME looking to tap into digital apprenticeship funding, here’s a breakdown of how to get started and what to expect.
Choosing Digital Apprenticeship Programmes
First, pinpoint the areas in your business where digital skills are most urgently needed. For example:
- If your marketing relies on social media and online campaigns, a Digital Marketing apprenticeship could be ideal.
- Expanding your technical infrastructure or managing IT systems? An IT Infrastructure programme might be the answer.
- For companies focused on creating video, graphics, or written content, Content Creation apprenticeships are a great fit.
- And if you’re looking to make smarter use of business data, Data Analytics programmes can help.
These programmes aim to bridge digital skills gaps in the UK, blending theoretical knowledge with hands-on experience. This means apprentices can start contributing to your business from day one.
When selecting a programme, consider the apprenticeship level. Level 3 apprenticeships are great for building foundational skills, while Level 4 programmes offer more advanced training. For instance, a Level 3 Multi-Channel Marketer apprenticeship covers basic marketing techniques and introduces AI tools, whereas a Level 4 Data Analyst programme dives into advanced tools like PowerBI and Python.
The next step? Partnering with a training provider to make the process easier.
Working with Training Providers
Accredited training providers simplify the process of accessing government-funded apprenticeships, especially for SMEs that may not have dedicated HR or training teams. Providers like NowSkills specialise in delivering digital and IT apprenticeships in areas such as Digital Marketing, IT Infrastructure, Content Creation, and Data Analytics. They handle everything from programme selection to final assessments.
By working with an approved provider, you’ll get expert advice on choosing the right apprenticeship for your business needs. They manage all the admin – programme recommendations, enrolment paperwork, and funding applications – so you don’t have to.
Providers also help with recruitment, whether you’re hiring fresh talent or upskilling current employees. For example, NowSkills connects businesses with digital talent and has been delivering IT apprenticeships since 2013. Their programmes combine technical training with professional development, ensuring apprentices gain the skills and behaviours your business needs.
Additionally, training providers offer ongoing support and mentoring throughout the apprenticeship, helping apprentices succeed while ensuring your business benefits from government funding. For apprentices under 25, the government covers 100% of training costs up to the funding band limit, and employers also enjoy National Insurance relief, significantly lowering overall costs.
Steps to Enrol Apprentices
Once you’ve identified the right apprenticeship programme and provider, follow these steps to enrol your apprentice:
- Step 1: Research and contact accredited providers specialising in the digital apprenticeship you need. Verify that they offer government-funded programmes and have experience working with SMEs.
- Step 2: Discuss your digital role and candidate needs with the provider. Let them know if you need help recruiting or if you plan to train an existing employee.
- Step 3: Confirm the programme details and funding eligibility. Under the 2025 scheme, if your apprentice is under 25 and your business has an annual pay bill under £3 million, the government covers 100% of training costs up to the funding band limit. The previous 5% co-investment requirement no longer applies.
- Step 4: Recruit or nominate your apprentice with the provider’s support. Ensure they meet eligibility criteria, such as age, qualifications, and residency requirements.
- Step 5: Complete the enrolment paperwork, with your provider handling registration and funding documentation. Ensure the employment contract clearly outlines the apprenticeship terms.
- Step 6: Once enrolled, the apprentice begins their programme. Typically, they’ll spend one day a week on formal off-the-job training, applying their new skills in your business the rest of the time.
Throughout the process, your training provider will handle the admin, leaving you free to focus on integrating the apprentice into your team. Thanks to the £725 million Growth & Skills Levy, funding for under-25 apprenticeships is readily available for SMEs. Combine this with National Insurance exemptions, and digital apprenticeships become an affordable way to grow your team while addressing your organisation’s digital needs.
Conclusion
Government funding has reshaped the landscape of SME apprenticeships in the UK. By eliminating the 5% co-investment requirement for apprentices under 25, financial barriers have been significantly reduced for small and medium-sized enterprises. With the introduction of the £725 million Growth & Skills Levy, eligible apprenticeships now receive 100% funding up to the funding band maximum. This makes apprenticeships an affordable and effective way to develop a skilled workforce.
These changes do more than just cut costs – they also free up resources that businesses can reinvest in growth. For example, SMEs hiring an under-25 apprentice with a salary of £18,000 per year can save approximately £8,700 in the first year compared to hiring a junior employee earning £23,000, thanks to full training funding and National Insurance relief. These savings can be channelled into business expansion, hiring new staff, or improving employee benefits, turning apprenticeships into a strategic advantage rather than a financial burden.
The support doesn’t end with funding. Accessible resources and expert training providers ensure that implementing apprenticeship programmes is straightforward. SMEs can rely on these providers to handle programme selection, enrolment, and funding processes, allowing businesses to focus on integrating apprentices into their teams. For those addressing digital skills gaps, providers like NowSkills offer accredited programmes in areas such as Digital Marketing, IT Infrastructure, Content Creation, and Data Analytics, equipping apprentices with practical skills that can be applied immediately.
FAQs
How does the new government funding for apprenticeships impact SME hiring?
The latest government funding for apprenticeships is a game-changer for SMEs, helping to lower the financial hurdles of hiring and training apprentices. Eligible businesses can tap into this funding to cover a large part – or even the entire cost – of apprenticeship training programmes. This means SMEs can concentrate on building a skilled workforce without being burdened by hefty expenses.
NowSkills partners with SMEs to make the process straightforward. Whether it’s recruiting fresh apprentices or upskilling existing staff through government-backed programmes, NowSkills provides practical solutions tailored to the unique needs of each business.
What are the eligibility requirements for SMEs to access apprenticeship funding in the UK?
In the UK, small and medium-sized enterprises (SMEs) with an annual payroll under £3 million can tap into government funding to support apprenticeship programmes. This funding significantly reduces the financial burden, as employers are only required to cover 5% of the apprenticeship training costs, while the government takes care of the remaining 95%.
To qualify, the apprenticeship must align with approved standards and be delivered by an accredited training provider. This funding isn’t just for hiring new apprentices – it can also be used to enhance the skills of your current employees. For more tailored advice, it’s worth checking the official government guidelines or consulting a trusted training provider such as NowSkills, who can help you navigate the process step by step.
How can SMEs make the most of National Insurance relief for apprentices under 25?
SMEs can make the most of National Insurance (NI) relief for apprentices under 25 by meeting the requirements and correctly claiming the relief. This NI relief allows employers to avoid paying Class 1 secondary National Insurance contributions on earnings up to £967 per week for eligible apprentices under 25.
To benefit from this, ensure your apprentice is under 25, part of a government-approved apprenticeship programme, and earning within the qualifying threshold. Collaborate with your payroll provider to ensure the relief is applied accurately, and maintain detailed records of your apprentice’s status and training programme. This not only helps reduce costs but also supports the growth of skilled professionals in your business.
