By Ben Pindar, PR

The Government’s new Apprenticeship Levy, while full of good intentions, is threatening to have unforeseen consequences for recruitment agencies.

The levy, which comes into force on 6th April, aims to create a national funding pot for training as well as three million new apprenticeships by 2020.

However, the big issue is that the way of working in the UK has transformed; we have seen a colossal increase in the number of freelance consultants and contractors who enable businesses to access the skills they need on an ad hoc basis without having to worry about the implications of full-time employment.

At the heart of this massive and mobile flexible workforce is a thriving recruitment agency sector that coordinates this five million-strong army of skilled people. And because many agencies – even the small agencies – manage the payroll of thousands of temporary workers, they could soon be hit with this new levy, with little hope of claiming anything back.

What is the Apprenticeship Levy?

The new Apprenticeship Levy will require employers from both the public and private sector with an annual pay bill of over £3m to hand over 0.5% of their annual salary costs.  The levy will be collected by HMRC on a monthly basis through Pay as You Earn (PAYE).

There is an allowance of £15,000 to offset against the bill and employers can then claim money back from the national apprenticeship fund for “quality” training programmes that last for at least a year. The Government also pays into the fund and that means businesses can claim back £1.10 for every £1 they pay into the levy.

Tax chiefs say this levy will only affect 2% of businesses in the UK, but this doesn’t consider the nature of recruitment agencies with large payrolls of temporary workers, meaning the figure could be much higher.

What is the challenge for recruitment agencies?

While most businesses will be able to claim back the money they have to pay, it is going to be extremely difficult for recruitment agencies to do this. They typically have small teams of full-time staff and any apprenticeship programme will not match the amount they pay to the levy.

Similarly, they will not be able to use the fund to help enhance the skills of the temporary workers they represent because it will be almost impossible to deliver a “quality” apprenticeship programme.

The Department for Business, Innovation and Skills (BIS) has ruled that qualifying programmes must last at least a year and, because of the very nature of temporary assignments, very few workers are able to complete these programmes in the short time they spend with end clients.

At a recent Danbro round table event, Paul Goodman of recruitment agency Goodman Masson, said: “The Apprenticeship Levy is going to have a huge impact. The new IR35 rules are adding to the burden by driving temps onto the payroll and, in all honesty, I think that is what the Government is trying to do. We still don’t really have clarification on what agencies will be able to claim back. It is confusing and there are big gaps.”

Heather Salway of nGage added to the debate: “Agencies train all of the time but we won’t be able to meet the criteria set out by BIS. It will be really hard to claw anything back. We won’t be able to pass the cost on and we won’t be able to use the levy. It’s a substantial new tax.”

What can recruitment agencies do about the levy?

Recruitment agencies and representative bodies alike are campaigning hard on this issue. While agency chiefs say they are happy to pay a levy on their own staff, they argue temporary workers should be exempt from the levy as it will be almost impossible to create programmes for them that qualify.

Richard Ewing, of recruitment firm Meridian Business Support, also told the Danbro debate: “The amount of money agencies have to pay into this pot from PAYE workers will absolutely dwarf what we’re going to be able to claim back for training staff.”

The reality is that agencies with major payroll functions are going to have to accept the new levy or consider alternative solutions. This will involve encouraging workers to move to Employment Business (Umbrella) organisations like Danbro or move their payroll to another organisation that is better placed to claim money back under the Apprenticeship Levy programme.

To find out more about our Employment Business (Umbrella) Solution, call us on 0800 731 3178

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