HOW DOES APPRENTICESHIP FUNDING WORK?
All apprenticeships are given a government-set funding band value. The actual cost can vary for several reasons, so before an apprenticeship starts, the employer and training provider will agree a total cost for the training. Funding is available up to the funding band value via the apprenticeship funding system.
There are two main types of apprenticeship funding:
- LEVY FUNDING – for large employers paying the apprenticeship levy tax
- NON LEVY FUNDING – for smaller employers who do not pay the levy
LEVY FUNDING
Each month, the employer pays the apprenticeship levy tax to the HMRC, which is set aside and accumulates in the employer’s own ‘levy pot’. These funds can only be used to pay for apprenticeship training for their staff.
The employer creates a digital account with the government apprenticeship service and they can see how much funds they have accumulating in their ‘levy pot’.
The employer decides to employ an apprentice (or opts for an existing employee to commence apprenticeship training) and engages the services of a training provider.
Apprenticeship training commences and funds are drawn automatically from the employer’s ‘levy pot’ to the training provider via the Department for Education (DFE). Funds are drawn in equal monthly payments to cover the planned length of the apprenticeship.
If an employer has used all the funding in their ‘levy pot’, they can still enrol apprentices, in which case the non-levy rules regarding Government-Employer Co-investment will apply.
NON LEVY FUNDING
This is referred to as ‘Government-Employer Co-investment’. The government via the DfE will pay 95% of the agreed cost (up to the funding band value), leaving the employer with just a 5% contribution to pay.
Once the total cost for the apprenticeship is agreed between the employer and the training provider, the training provider will invoice the employer for the 5% contribution. The contribution is an employer cost and must not be passed onto the apprentice.
The 5% employer contribution can be paid either in full within 30 days of the invoice date, or by direct debit in equal payments over the first 10 months of the apprenticeship. We utilise the ‘go cardless’ platform to manage our direct debit payments.
Government incentives for employers
The government currently offers financial incentives to employers who take on eligible young apprentices.
£1,000 incentive payment
Employers can receive a £1,000 incentive payment if they employ an apprentice who is aged 16 to 18 at the start of their apprenticeship.
This also applies to apprentices aged 19 to 24 who have an Education, Health and Care (EHC) plan or who have been in care.
The £1,000 payment is made in two instalments:
- £500 once the apprentice has been in learning for 90 days
- £500 once the apprentice has been in learning for 365 days
The payment is made to the training provider by the government, and VTS will then pass this on to the employer within 30 working days.
If the apprentice leaves their apprenticeship before the payment is due, the payment will not be made.
£2,000 hiring payment for non-levy employers
From 1 October 2026, eligible employers who do not pay the apprenticeship levy can receive a £2,000 hiring payment when they recruit a new apprentice aged 16 to 24.
The apprentice must have started their employment with the employer within the three months before starting their apprenticeship.
The payment is made in two instalments through the training provider, subject to the government’s eligibility and payment rules.
Fully funded training for 16–24-year-olds
From 1 August 2026, the government will fully fund the apprenticeship training and assessment costs, up to the maximum funding band, for eligible apprentices aged 16 to 24.
This means eligible non-levy employers will not have to pay the usual employer contribution towards the cost of the apprenticeship.
This can also apply to levy-paying employers where there are not enough funds in their apprenticeship service account.
If you are unsure what funding or incentives may be available for your apprentice, please contact us and we will be happy to discuss this with you.
FURTHER INFORMATION
The funding methods described above relate only to the cost of the mandatory, vocational elements of the apprenticeship. In addition to this and for both levy and non-levy paying employers, the DfE provides additional funding directly to the training providers for:
- All maths and English provision
- Any additional approved learning support
- Any disadvantage uplift applicable to either the delivery or home address area
EMPLOYERS – you can read the full funding guidance at https://www.gov.uk/guidance/apprenticeship-funding-rules-for-employers