Agency labour is not just a margin problem – it’s a cashflow problem

Most builders that fail do not fail because the work was unprofitable. They fail because the cash ran out before the profit arrived.

Since 2021, most direct subcontractor labour within the Construction Industry Scheme has fallen under the VAT domestic reverse charge. Where both parties are VAT registered, no VAT cash changes hands. The customer accounts for it on their own return, and nothing leaves the bank.

Supplies of workers by employment businesses are excluded from that regime. Agency invoices carry VAT in full, and the contractor funds it up front, week after week, then waits to reclaim it. On a site manager invoiced at £360 a day, that is £72 a day of VAT leaving the business before any reclaim lands.

Over a working year, one worker ties up over £17,000 in VAT cashflow on top of at least £14,000 in margin. Same worker. Same output. The agency route simply routes more of your cash through other people’s accounts, on their timetable.

Multiply that across a labour-heavy programme and agency hiring stops being a procurement preference and becomes a working capital decision. For a sector where the average margin is thinner than the VAT rate, it may be the least examined number on the balance sheet.

Agencies earned their place by solving real problems: verification, compliance, availability at short notice, payment administration. But those are administration problems, and administration can now be automated. Direct engagement under CIS, with attendance verified, timesheets digital and records portable, keeps the rate you agree as the rate the worker receives, and keeps the cash in the business that earned it. That is the premise we built UrProject on.

The margin was always the visible cost of agency labour. The cashflow was the quiet one. In an industry losing nearly 4,000 firms a year to exactly this pressure, quiet costs deserve louder scrutiny. We have published what we believe the numbers look like. Any agency that disagrees is welcome to publish its own.