The government is making it significantly more attractive for employers — particularly smaller businesses — to hire apprentices. From August 2026, a package of new and enhanced incentive payments comes into effect, removing training costs for many employers and putting cash back into their business.
If you employ apprentices or are thinking about it, this is worth understanding properly. The incentives are stackable, and the total support available has increased considerably compared to previous years.
What Is Changing and When
Two key changes take effect for the 2026–27 academic year (from August 2026):
- Full government funding for SMEs hiring apprentices aged under 25
- A new £2,000 SME Hiring Incentive (from October 2026) for non-levy employers taking on 16–24 year olds
These build on existing incentives that remain in place, meaning you may be able to stack multiple payments depending on who you hire.
Full Funding for SMEs Hiring Under-25s (from August 2026)
If you are a non-levy paying employer — typically a business with a payroll under £3 million — you will no longer pay anything towards an apprentice's training or assessment costs if the apprentice is aged under 25.
Previously, employers paid a 5% co-investment contribution for apprentices aged 22 and over. That requirement is now removed for under-25s. The government covers 100% of training and assessment costs, up to the funding band maximum for each standard.
This means:
- No upfront training fees for eligible apprentices
- You still pay the apprentice's wages — but the qualification comes at no cost to the business
- This applies to apprenticeships at any level, from Level 2 through to Level 7
This is one of the most significant funding changes for smaller employers in recent years, and removes one of the most commonly cited barriers to taking on apprentices.
£2,000 SME Hiring Incentive (from October 2026)
From October 2026, non-levy paying SMEs can claim a £2,000 cash payment for each new apprentice they hire, provided:
- The apprentice is aged 16–24
- The apprentice joined the employer within the 3 months prior to their apprenticeship start date
The payment is made in two instalments of £1,000 — typically at around 90 days into the apprenticeship, and again at 365 days. Payments are usually processed through the training provider.
This incentive is in addition to the full government training funding described above. An SME hiring a 20-year-old apprentice in October 2026 would pay nothing for training and receive £2,000 in incentive payments.
£1,000 Young Apprentice Payment (Ongoing)
This payment has been in place for some time and continues into 2026 and beyond. All employers — not just SMEs — can claim £1,000 for hiring:
- Apprentices aged 16–18
- Apprentices aged 19–24 who have an Education, Health and Care Plan (EHCP) or are care leavers
The payment is split into two instalments of £500, at approximately 90 days and 365 days into the apprenticeship.
This payment stacks with the SME Hiring Incentive. An SME hiring a 17-year-old from October 2026 could receive:
- £2,000 SME Hiring Incentive
- £1,000 Young Apprentice Payment
- £3,000 total — plus zero training costs
£3,000 Universal Credit Youth Jobs Grant (from June 2026)
From June 2026, any employer — levy-paying or not — can claim a £3,000 grant for hiring a young person aged 18–24 who has been receiving Universal Credit for 6 months or more.
This grant is separate from the apprenticeship funding system and is often paid directly to the employer in instalments. It applies where the hire helps someone move off long-term benefits and into sustainable employment.
Where the apprenticeship incentives and this grant apply to the same hire, the combined value can be substantial.
How These Incentives Stack
The table below illustrates some example scenarios for SMEs from October 2026:
| Apprentice Profile | SME Hiring Incentive | Young Apprentice Payment | UC Grant | Total Cash Incentives | Training Cost |
|---|---|---|---|---|---|
| 17-year-old | £2,000 | £1,000 | — | £3,000 | £0 |
| 20-year-old | £2,000 | — | — | £2,000 | £0 |
| 22-year-old on UC (6+ months) | £2,000 | — | £3,000 | £5,000 | £0 |
| 16-year-old with EHCP | £2,000 | £1,000 | — | £3,000 | £0 |
All figures are indicative. Eligibility conditions apply in each case.
Changes for Levy-Paying Employers
While the news for SMEs is positive, there are changes for larger, levy-paying employers that take effect from August 2026:
- If levy funds are exhausted, co-investment rises to 25% (previously 5%)
- Levy funds now expire after 12 months (previously 24 months)
- The 10% government top-up on levy accounts ends
Levy-paying employers should review their apprenticeship spending plans carefully to ensure funds are used within the new 12-month window and to budget for the increased co-investment rate if levy runs out.
No Employer NICs for Apprentices Under 25
This is not new from August 2026, but it is worth including: employers do not pay National Insurance Contributions for apprentices under 25, subject to the relevant earnings thresholds. This is an ongoing saving that compounds the value of the incentives above.
Foundation Apprenticeships and Other Support
The government is also expanding Foundation Apprenticeships and related support programmes, with some offering additional payments of up to £2,000 in certain circumstances. If you are interested in pre-apprenticeship pathways or supporting younger learners into work, ask your training provider about what is available in your area.
How Payments Are Made
Most apprenticeship incentive payments are processed through the training provider, not directly to the employer. Your provider will claim the relevant payments on your behalf and pass them to you. The Universal Credit Youth Jobs Grant operates differently and may involve your local Jobcentre or the Department for Work and Pensions.
Timing of payments is tied to the apprentice remaining on-programme. If an apprentice leaves before the payment milestones are reached, you may not receive all instalments.
What You Should Do Now
If you are an SME considering taking on an apprentice from August or October 2026 onwards:
- Check eligibility — confirm whether your business qualifies as a non-levy employer (payroll under £3 million)
- Talk to a training provider — they can confirm funding band maximums for the standards you are interested in and process incentive payments on your behalf
- Consider timing — the £2,000 SME Hiring Incentive applies from October 2026, but full funding for under-25s begins from August 2026
- Ask about stacking — if you are hiring someone on Universal Credit, you may be entitled to the UC grant on top of apprenticeship incentives
How VQ Solutions Can Help
VQ Solutions is a registered apprenticeship training provider delivering programmes in HR and People Management, Marketing, Network Engineering, and more. We work with SMEs and levy-paying employers across England and can help you understand exactly what funding and incentives are available for your business.
If you are planning to hire in 2026 and want to understand how the new incentives apply to you, get in touch with us and we will walk you through it.
Full details of eligibility conditions and payment rules are set out in the official Apprenticeship Funding Rules 2026 to 2027 on GOV.UK. Always verify with your training provider or the Apprenticeship Service, as conditions can vary by standard and individual circumstances.
