Trade body B&ES is worried that the changes will send costs soaring at labour agencies who supply workers across the industry.

One industry expert said: “The M&E sector is dominated by labour agencies which is why they are panicking.”

The crackdown by HM Revenue and Customs will see agencies having to directly employ workers on PAYE pushing up labour costs by as much as 25%.

The tax authorities are also turning the spotlight on payroll companies who work in tandem with agencies to keep workers off the full-time books.

B&ES has now gone public with its opposition alongside its sister body the Building Services Engineering Employment Agency Alliance.

Both groups are now urging the Government “to defer the introduction of its proposals by at least a year to enable industry to adjust to the new arrangements.”

John Meadley, B&ES employee relations adviser and secretary of the Employment Agency Alliance, said: “The current regime allows a contractor to avoid payment of the 13.8% employers’ NI contribution and the costs of administering PAYE, holiday pay, sick pay, redundancy pay and pension contributions.”

But member firms are worried that the changes fail to distinguish between bona fide labour agencies that supply skilled manpower to contractors and other forms of intermediaries such as “payroll companies”.

Meadley said: “If labour agencies have to operate PAYE in respect of the workers they supply, as well as accounting for their tax and NI contributions, their overheads will increase not only by the NI contribution, but also by a further 12% in holiday pay entitlement – the cost of all of which will be unbudgeted on current contracts, and will in the long term have to be passed on to their contractor clients.”