A prominent trade association has joined Umbrella Company trade body the Freelancer and Contractor Services Association (FCSA) in highlighting the disproportionately harmful impact that the Apprenticeship Levy will have on employment intermediaries.

The Association of Recruitment Consultancies (ARC) called on the Government to urgently review the basis for charging the levy.

ARC Chairman Adrian Marlowe welcomed the Government’s aim of increasing funding to expand apprenticeship numbers in the UK but said that, as it stands, it will disproportionately penalise recruitment supply agencies, threatening to jeopardise the way that they operate.

When the levy comes into effect in April 2017, businesses will be obliged to pay a 0.5 per cent charge on their payroll if it exceeds £3 million.

Mr Marlowe explained that the levy will not only be calculated based on an agency’s internal employees but also on the payroll for all workers that it supplies to end-clients. Since between 80 and 90 per cent of an agency’s turnover is comprised of the worker payroll, compared with more typical employers where the paybill may represent no more than 33 per cent, it is clear that this contribution will be levied on a vastly greater percentage than that of any other business.

He cited the example of an agency with an internal paybill of just £1 million but a turnover of £5 million. This business would be obliged to pay the levy, whereas any other business with a payroll of £1 million would not, even if the latter type of company uses agency workers and pays £10 million annually for them.

This, Mr Marlowe said, is obviously unfair. The Government appreciates the disproportionate effect that the levy will have on intermediaries, yet it has shown no sign that it plans to make any alterations. He added: “This comes at a time when the government has already placed responsibility for agency worker tax compliance generally on agencies and is now extending that responsibility to contractor tax under IR35, as announced in the Autumn Statement, so also affecting contractor agencies. One could be forgiven for believing that the recruitment supply sector is deliberately being targeted as a cash cow.”

Early this month, FCSA CEO Julia Kermode highlighted similar points in respect of Umbrella Companies, which, like recruitment companies, have artificially high payrolls. Citing FCSA research, she said: “Intermediaries are clearly concerned about the impact the Apprenticeship Levy will have on their businesses, with 14 per cent of our respondents telling us that they fear going out of business because of the levy, and that is a grave concern.”

Mr Marlowe issued a clarion call, urging agencies supplying contracting professionals to join with the ARC in tackling the Government over the levy on intermediaries.

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