For many businesses, the phrase apprenticeship levy for SMEs sounds like something that only matters to very large employers. In practice, it matters to smaller businesses too, especially those that want to access transferred levy funds from larger organisations or make better use of training support already in the system. That is worth attention now because levy funds still expire after 24 months if they are not used, while the wider move towards the Growth and Skills Levy is starting to reshape the training market. The current rules for apprenticeship funding in England still apply for starts between 1 August 2025 and 31 July 2026, and levy-paying employers can still transfer up to 50% of their annual funds.
There is also a commercial reason not to leave this on the shelf. Apprenticeship starts in England rose to 353,500 in 2024/25, up 4.1% on the previous year, so demand has not gone away. At the same time, SMEs accounted for 37% of apprenticeship starts in the latest employer-size breakdown, which shows how important smaller employers remain to the system.
If you are an SME, the opportunity is usually not about paying the levy yourself. It is about understanding how transferred funding works, what training is actually eligible, and how to keep records strong enough to avoid delays, missed claims or wasted management time.
Why apprenticeship levy for SMEs still matters
The levy itself is charged at 0.5% of annual pay bill, with a £15,000 allowance, so only employers with pay bills above £3 million normally pay it directly. For smaller employers, the more relevant point is that government funding and levy transfers can still cover apprenticeship training and assessment costs, subject to the funding rules. Non-levy employers usually pay 5% of eligible training and assessment costs, with government covering the remaining 95%, unless the apprenticeship is funded through a levy transfer, in which case the transferred funds can cover 100% of eligible training and assessment costs up to the funding band maximum.
That makes the apprenticeship levy for SMEs relevant in two ways. First, you may be able to reduce the upfront cost of bringing in or developing staff. Second, you may be able to access funding that would otherwise disappear from another employer’s account once it reaches the expiry point. HMRC’s guidance remains clear that unused levy funds expire 24 months after entering the apprenticeship service account, although the oldest funds are used first to help reduce waste.
For businesses already dealing with recruitment pressure, succession planning or skills shortages, that is worth treating as a live funding route rather than a policy background issue.
What counts as eligible training and what does not
This is where many claims go wrong. Levy funds and transferred levy funds are tightly ringfenced. They can be used for apprenticeship training and end-point assessment, up to the funding band maximum for the chosen standard. They cannot be used for wages, travel, subsistence, workwear, managerial time, or general business overheads. Supplies of training or end-point assessment paid by government funding, including the levy, are exempt from VAT under the current rules.
In practical terms, that means you should separate the funding conversation into two parts:
- Eligible costs: Training and assessment attached to an approved apprenticeship standard.
- Ineligible costs: Salary, travel, equipment not covered by the standard, and internal administration time.
That distinction matters because a business can assume it has secured “fully funded” training, only to find that employment costs still sit entirely with the employer. For some SMEs that is still a good investment. For others, it changes the economics and timing of a hire.
If you are already reviewing staff costs and training budgets, it makes sense to line this up with your wider payroll and pensions processes and your regular bookkeeping records so the numbers are visible from the start.
How levy transfers work in practice
A levy-paying employer can transfer up to 50% of its annual levy funds to another employer. That increased allowance has applied since 22 April 2024 and remains part of the current system. The transfer must cover 100% of eligible training and assessment costs, up to the funding band maximum. This can happen through a direct transfer arrangement or via an approved pledge application through the apprenticeship service.
For SMEs, the main points are straightforward:
- Availability: You need a willing levy-paying employer or access to an approved transfer opportunity.
- Timing: Expiry still matters because unspent funds can disappear after 24 months.
- Scope: The transfer only covers eligible apprenticeship costs, not broader staff development spend.
- Process: Both parties usually need to approve the arrangement through the apprenticeship service.
A simple example helps. Suppose a larger business in your supply chain has funds due to expire and wants to support skills development among smaller partner firms. Your business identifies an eligible apprenticeship standard, agrees the training provider and cost, and applies for the transfer. If approved, the transfer can fund the training and assessment costs in full up to the relevant band. You still carry salary and operational costs, but your cash cost of training may fall sharply.
Record-keeping is often the difference between a smooth claim and a stalled one
Good record-keeping does not make the rules more generous, but it does make the process easier to defend and easier to manage. In our experience, the avoidable problems are usually basic: unclear start dates, weak employee documentation, poor cost breakdowns, and missing approval trails between employer, provider and apprenticeship service account.
A sensible approach includes:
- Training evidence: Keep the apprenticeship agreement, training plan and confirmation of the chosen standard together.
- Cost evidence: Record the agreed training price and check it against the funding band maximum before sign-off.
- Approval trail: Retain screenshots, emails or service-account records showing when the transfer was approved.
- Payroll link: Make sure learner status, employment dates and pay records match what the provider and service account show.
This is also where many SMEs benefit from outside support. The claim itself sits in a training framework, but the business case sits in finance. If the records are scattered across HR, operations and payroll, it is easy for a promising funding opportunity to drift.
What SMEs should do now
The current apprenticeship levy for SMEs position is still usable, but it is not static. The Autumn Budget 2025 confirmed government investment in jobs and skills, while separate policy updates have pointed towards wider Growth and Skills Levy reforms, including more flexible training routes and further changes from 2026. That means there is little benefit in waiting for a “better” system if you already have a genuine apprenticeship need and a possible funding route.
The more practical course is to review your hiring and training plans now, identify whether an approved apprenticeship standard fits, and check whether levy transfer funding could support it. For some businesses, the answer will be no. For others, it can reduce training cost, support retention and help build capability in areas where recruitment is hard.
If you are weighing up the apprenticeship levy for SMEs, we can help you review the numbers, sense-check eligibility, and make sure the funding opportunity fits your wider staffing and cashflow plans. If that is on your agenda, contact us and we will help you assess the commercial case before funds or opportunities expire.