Chancellor Philip Hammond announced the reforms at the Conservative Party conference and indicated further changes could occur after a consultation.
Trade body UKHospitality said the package of changes would help hospitality businesses provide fulfilling careers for its workers.
Since its introduction in April 2017, the levy has been criticised as failing to alleviate cost pressures on small companies.
A £90m Government war chest means companies will be able to use up to 25% of their levy funds to train apprentices throughout their business from April 2019.
Additional funding of £5m was announced for the independent body Institute of Apprenticeships to expand and improve courses.
Old frameworks will be discontinued so all apprenticeships operate under the same standards by the 2020-21 academic year.
Party of business
Hammond called his political party the “party of business” and said it had listened to concerns about the levy, in a speech this week.
He said: “We have set out a series of measures to allow firms more flexibility in how the levy is spent, but we know that we may need to do more to ensure the levy supports the development of the skilled workforce our economy needs.
“In addition to these new flexibilities, we will engage with business on our plans for the long-term operation of the levy.”
UKHospitality chief executive Kate Nicholls said: “With Brexit still providing a degree of uncertainty, it is good to see the Government acting to provide some support for businesses.
“One of the key challenges facing the hospitality sector, as well as other sectors, is securing the future of the workforce and driving skills and improvement.
“A package of support to help employers train, retain and improve their team members will be a welcome boost and should help hospitality businesses continue to provide great careers.”
Calls for increase
The UK Hospitality Workforce Commission 2030 report called for an urgent review into the levy and said small businesses were unable to afford funding. It called for the transfer fund to be increased from 10% to 50%.
Labour's shadow further education and skills minister, Gordon Marsden, condemned the announcement as lip service.
He said: “May's Government is failing tens of thousands of young people who would benefit from apprenticeships and the employers who would like to take them on.
“There is no action today, only a consultation and it will do little to address the shambles of Department for Education ministers missing their target of creating 3m apprenticeships by 2020 or the plummeting levels of apprenticeship starts.”
The Government said the apprenticeship scheme was “making good progress”, with 1.41m apprentices since May 2015. However, the number of apprentices starting a course this academic year fell by more than a quarter compared to last year.