Apprenticeship Funding for Trade Businesses: The Levy, Co-Investment & Incentives (2026)

What Is the Apprenticeship Levy and Who Pays It?

The apprenticeship levy is a payroll tax introduced in 2017. It is charged at 0.5% of an employer's annual pay bill, but only employers with a pay bill over £3 million a year pay it. Every employer also gets a £15,000 annual allowance to offset against the levy, which is why the £3m threshold exists (0.5% of £3m is exactly £15,000).

In practical terms, a £3 million annual pay bill means roughly 80–100+ employees. The vast majority of trade businesses — sole traders, small electrical and plumbing firms, roofing and building companies with a handful of staff — fall a long way below this. If you have a normal-sized trade business, you almost certainly do not pay the levy. That is good news, because non-levy employers are funded generously.

Levy-paying employers spend their levy funds (plus a government top-up) through an apprenticeship service account. Non-levy employers do not pay in, but they still benefit from the same funding system — they just access it differently, as set out below.

How Non-Levy Employers Fund Apprenticeships

If you do not pay the levy, the government pays the lion's share of your apprentice's training and assessment cost. There are two scenarios, and which one applies depends mainly on the apprentice's age and your size as an employer.

100% government-funded (you pay nothing for training)

The smallest employers — those with fewer than 50 employees — get 100% of the training cost paid by the government when the apprentice is aged 16 to 21 at the start of the apprenticeship. The same full funding can also apply to apprentices aged 22 to 24/25 who have an Education, Health and Care (EHC) plan, or who have been in the care of their local authority (a care leaver). In these cases you pay £0 towards training and assessment.

95% co-investment (you pay 5%)

For everyone else — older apprentices, or larger non-levy employers — the government funds 95% of the agreed training cost and you contribute the remaining 5% as "co-investment." On a typical level 3 trade standard with a funding band of, say, £18,000, your 5% share is £900 across the whole apprenticeship (often two to four years), not per year. That works out to a few hundred pounds annually — a small figure for a fully trained tradesperson.

Crucially, the agreed training price is capped by the funding band maximum for that apprenticeship standard. The government will only ever fund up to the band maximum; if your training provider charges more, you pay 100% of the excess, so always check the price against the band.

Important: Funding Covers Training, Not Wages

This is the single biggest point of confusion. Government apprenticeship funding pays for the off-the-job training and the end-point assessment delivered by an approved training provider. It does not cover the apprentice's wages, their PPE, tools, travel, or your own supervision time. You employ the apprentice and pay their salary in full, just like any other member of staff.

So when people say apprentices are "free" or "funded," they mean the college or provider training is free or nearly free — not the labour. Your real cost is the wage, which is offset by the work the apprentice does on site once they are productive.

What Do You Have to Pay an Apprentice?

Apprentices are entitled to the apprentice rate of the National Minimum Wage, which applies if they are under 19, or 19 or over and in the first year of their apprenticeship. For 2026 the apprentice rate sits around £7.55 per hour (confirm the current rate, as it rises each April).

Once an apprentice turns 19 and has completed the first year of their apprenticeship, they move up to the standard age-related minimum wage for their age band. So an 18-year-old in year one is on the apprentice rate; a 20-year-old who has finished year one is on the full adult rate for their age.

Most established trade firms pay above the minimum. Paying a bit more than the floor improves retention, and a second-year apprentice doing real billable work is usually worth well above the apprentice rate to the business anyway. You must also auto-enrol eligible apprentices into a workplace pension and provide at least the statutory paid holiday.

The £1,000 Employer Incentive Payment

On top of funded training, employers can receive a £1,000 incentive payment when they take on an apprentice who is either aged 16 to 18, or aged 19 to 24 and has an EHC plan or has been in local authority care. It is paid by the government in two instalments — typically £500 at around 90 days and £500 at around 365 days — to help cover the extra cost of supporting a younger or more vulnerable apprentice.

The training provider usually administers this payment and passes it to you, so make sure you confirm eligibility and the payment process with them at sign-up. For a small firm, £1,000 covers a meaningful chunk of PPE, tools and early-stage supervision time.

Quick Reference: Who Pays What in 2026

The table below shows, at a glance, who pays the levy, who gets full funding, and who co-invests — by employer size and apprentice circumstances.

Figures are illustrative for England in 2026. Always confirm current rates, funding bands and eligibility with your training provider and on GOV.UK before committing.

How to Set It Up

The process is more straightforward than most owners expect, and a good training provider does most of the heavy lifting. The core steps are:

• Create an apprenticeship service account. Every employer — levy and non-levy — sets up an account on the GOV.UK apprenticeship service. This is where you reserve funding, approve the apprentice and provider, and manage payments.
• Choose the apprenticeship standard. Pick the standard that matches the role — for example the level 3 Installation and Maintenance Electrician, the level 3 Plumbing and Domestic Heating Technician, or the level 3 Gas Engineer standard. Each standard has a defined funding band maximum.
• Find a training provider. Use the "Find apprenticeship training" service to compare colleges and private providers delivering that standard in your area. Check their off-the-job training schedule (block release vs day release) and how it fits your job pipeline.
• Recruit or nominate the apprentice. You can advertise free on the "Find an apprenticeship" service, or enrol an existing junior employee. The apprentice must spend at least 20% of their time on off-the-job training.
• Sign the agreement and reserve funding. Agree the training price (within the funding band), reserve the funding in your account, and the provider invoices the government for their share — and you for the 5% co-investment where it applies.

Why It Pays to Grow Your Own Tradespeople

Skilled labour is the binding constraint on most trade businesses. Experienced electricians, plumbers and gas engineers are expensive to recruit, hard to find, and can leave the moment a better offer appears. Training your own through an apprenticeship flips that: you get to embed your standards, your paperwork habits and your customer-service expectations from day one, and apprentices who learn the trade with you tend to be far more loyal than a hire poached from a competitor.

Financially, the maths is compelling. With training funded at 95–100% and a possible £1,000 incentive, your only real outlay is a below-market wage during the period when the apprentice is least productive. By year two or three they are doing genuine billable work, and by the time they qualify you have a fully trained tradesperson who already knows your systems — at a fraction of the cost of recruiting one externally.

A Note on Scotland, Wales and Northern Ireland

Apprenticeships are a devolved matter, so the system described above applies to England. The levy is UK-wide, but how funding is delivered differs:

• Scotland: apprenticeships are administered by Skills Development Scotland (SDS), with Modern Apprenticeships and a separate contribution model.
• Wales: the Welsh Government runs its own apprenticeship programme through approved training providers.
• Northern Ireland: the Department for the Economy runs ApprenticeshipsNI.

If you operate outside England, check the relevant national body for current rates and eligibility — the funding bands, incentives and co-investment rules above will not directly apply.

Frequently Asked Questions

Do I have to pay the apprenticeship levy as a small trade firm?

Almost certainly not. You only pay the levy if your annual pay bill exceeds £3 million, which equates to roughly 80–100+ staff. The vast majority of trade businesses are well below that and do not pay it.

Is apprenticeship training really free for younger apprentices?

For employers with fewer than 50 staff, the government pays 100% of the training cost for apprentices aged 16–21 (and up to 24/25 with an EHC plan or care-leaver status). For other apprentices you pay just 5% of the agreed training price. Either way, you still pay the apprentice's wages.

How much does the 5% co-investment actually cost?

It is 5% of the total agreed training cost, capped at the funding band maximum, spread across the whole apprenticeship — not per year. On an £18,000 funding band that is around £900 total, often over two to four years.

When does the apprentice move off the apprentice minimum wage?

They move to the standard age-related National Minimum Wage once they are 19 or over and have completed the first year of their apprenticeship. Before that, the apprentice rate applies.

How do I get the £1,000 incentive?

It applies when you take on an apprentice aged 16–18, or aged 19–24 with an EHC plan or care-leaver background. It is paid in two instalments, usually administered through your training provider, so confirm eligibility with them at sign-up.