Impact of Apprenticeship Levy on recruitment agencies

The Government’s new apprenticeship levy, which came into force this month, could be a huge challenge for recruiters within the region, writes Lucy Cashmore of Star Employment Services. 

The aim of the new levy, which came into effect from April 6, is to create a national funding pot for training and generate three million apprenticeships by 2020.


The levy means employers from both private and public sectors that have an annual pay bill of £3million and above will have to hand over 0.5% of their annual salary costs to HMRC.

The Government body will collect the levy on a monthly basis through Pay as You Earn (PAYE). However, an allowance of £15,000 will be available to offset against the bill meaning money can be claimed back by employers from the national apprenticeship fund for quality training lasting up to a year.

But with agencies sourcing temporary staff, claiming back money on training is near impossible as most contracts do not last a full year.

The levy will also see the Government apply a 10% top-up on funds. This means the Government will pay into the fund allowing businesses to claim back £1.10 for every £1 they pay into the levy. 


Tax chiefs have also stated this new levy will only affect 2% of businesses in the country. However this could still be a huge blow for recruitment agencies.

The way people work within the UK is ever changing and over recent years there has been an increase in the number of freelance consultants and contractors.

This shift in working trends now allows businesses to access the skills they need without having to worry about full time employment.

Therefore, many agencies managing the payroll of thousands of temporary workers could be hit with this levy yet be unable to claim anything back as a result.

On the other hand many businesses may have never had the opportunity to train their temporary staff members, as only a minority of businesses see value in training short term contractors.

The recruitment sector is seeing a huge rise in the number of temps being put into work every year. In theory, the levy can encourage firms to develop and retain higher skilled apprentices who stay for longer.

Recruitment agencies will have to learn fast to meet the knock-on effect of these changes.

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