TLDR (too long didn’t read): What you need to know
The UK government has committed £725 million to overhaul the apprenticeship system, creating 50,000 new apprenticeships over the next three years. For small and medium-sized businesses, the biggest change is that the government will fully fund apprenticeship training costs for under-25s, removing the 5% employer contribution. New foundation apprenticeships, short courses from April 2026, and more flexibility in areas like AI, engineering and hospitality could make apprenticeships more accessible. However, time, capacity and management support remain key considerations for employers.
What is the £725 million UK apprenticeship overhaul?
In December 2025, the UK government announced a major reform of the apprenticeship system, backed by £725 million of funding over the next three years. The stated aim is to tackle youth unemployment and reverse a long-term decline in apprenticeship starts, which have fallen by almost 40% over the past decade.
The reforms are a central part of the government’s wider employment and skills agenda, led by Prime Minister Keir Starmer and the Department for Work and Pensions. Around a million people aged 16 to 24 are currently not in work, education or training, and apprenticeships are being positioned as a practical route into skilled, well-paid jobs.
For business owners, particularly SMEs, this overhaul is designed to reduce financial barriers, simplify the system, and better align training with real workforce needs.
Why this matters to SMEs
Many ambitious business owners struggle with the same challenge: finding skilled, motivated people while balancing rising costs, limited time and operational pressure. Apprenticeships have often felt like a good idea in theory, but too complex or resource-heavy in practice.
This reform directly addresses some of those concerns by:
• Removing upfront training costs for young apprentices at SMEs
• Expanding the range of apprenticeship and training options
• Increasing local support to connect businesses with candidates
For purpose-led businesses focused on long-term impact, apprenticeships can also support social mobility, local employment and sustainable growth.
The key changes business owners need to know
1. 50,000 new apprenticeships and foundation apprenticeships
The government has committed to creating 50,000 additional apprenticeship and foundation apprenticeship places over the next three years. Foundation apprenticeships are new entry-level routes, particularly aimed at sectors such as retail and hospitality. They are designed to help young people who may not yet be ready for a full apprenticeship gain work experience and core skills. For employers, this widens the talent pool and offers more flexible ways to bring young people into the business.
2. Full funding of apprenticeship training for under-25s at SMEs
One of the most significant changes is the removal of the 5% co-investment requirement for small and medium-sized businesses. Previously, SMEs were required to contribute 5% of apprenticeship training costs. Under the new system:
- The government will cover 100% of training costs for eligible apprentices under 25
- This applies to small and medium-sized businesses
- The change removes a direct cash barrier to hiring apprentices
It is important to note that this covers training costs, not wages. Employers are still responsible for paying apprentice wages and providing appropriate supervision and support.
3. New apprenticeships and short courses from April 2026
From April 2026, the system will become more flexible with the introduction of:
- Short, modular courses in areas such as AI, digital skills and engineering
- A new Level 4 apprenticeship in AI
- Greater scope to upskill existing staff, not just new hires
This is particularly relevant for growing businesses that need to adapt to technological change without committing to long, rigid training programmes.
4. A stronger local role through mayors and regional pilots
Around £140 million of the funding will support pilot schemes led by mayors and local leaders. These pilots aim to:
- Connect young people directly with local employers
- Focus on those not in education, employment or training
- Align training provision with local labour market needs
For employers, this could mean better local matching, less time spent searching for candidates, and more relevant training options.
Practical implications for business owners
Apprenticeships are cheaper, but not cost-free
While training costs are now fully funded for under-25s at SMEs, apprenticeships still require investment in:
- Management time
- Supervision and mentoring
- Off-the-job training time, usually one day a week
Industry bodies such as the CIPD have highlighted that time and capacity, not just cost, remain the biggest barriers for smaller firms. This means apprenticeships work best when they are planned strategically, not used as a short-term fix for staffing gaps.
Workforce planning becomes more important
With greater flexibility and more funding available, apprenticeships can play a more central role in workforce planning. They are particularly effective for:
- Building skills that are hard to recruit externally
- Developing loyal team members aligned with your values
- Creating clear progression pathways within the business
For VAT-registered SMEs focused on sustainable growth, apprenticeships can reduce long-term recruitment costs and improve retention.
Compliance and payroll still matter
From a financial and compliance perspective, taking on an apprentice affects:
- Payroll setup and minimum wage compliance
- Pension auto-enrolment duties, depending on age and earnings
- Cash flow planning around wages and training time
This is where good financial and advisory support can make a real difference, ensuring you access available funding while staying compliant.
Find out more about the Government’s apprenticeship overhaul here.
FAQs
The government will fully fund apprenticeship training costs for eligible apprentices under the age of 25 who are employed by small and medium-sized businesses.
The full funding applies to eligible young apprentices. However, the wider reforms include new short courses and flexible training options that can be used to upskill existing staff from April 2026.
Yes. Employers are responsible for paying apprentice wages and providing appropriate support and supervision. The funding covers training costs only.
Some changes are already in place, with further reforms, including short courses, due to roll out from April 2026.
Yes. The reforms include new apprenticeships in areas such as AI, engineering and digital skills, alongside more traditional sectors like hospitality and construction.
While funding focuses on training costs, local pilot schemes and Skills England are expected to provide improved support and guidance for employers over time.
How this fits with purpose-led business growth
For many business owners, growth is about more than turnover. It is about building a resilient team, creating opportunities and contributing positively to society. This apprenticeship overhaul supports that approach by:
- Lowering financial barriers to training young people
- Encouraging long-term skills development
- Aligning business growth with social impact
When approached thoughtfully, apprenticeships can support both profit and purpose.
Need support navigating apprenticeships and funding?
If you are considering taking on an apprentice or reviewing your workforce plans, we can help you understand the financial, payroll and compliance implications and how this fits into your wider business strategy. Current clients can get in touch with us to talk things through in a practical, no-pressure way.
If you’re new to Harland, book a discovery call with our friendly team.
