Contractors argue about the 20%-35%. The number that should worry them is the VAT they fund up front, says Rayno de Kock.
Everyone in this industry knows agencies charge a margin. Sit in any site office and you will hear the same complaint: 20%-35% added to the cost of workers the company already knows. What far fewer people can explain is what agency labour does to their cashflow, and in construction, cashflow is the number that decides who survives.
The shape of the problem
Construction firms recorded 3,931 insolvencies in 2025, 17% of all UK business failures, for the fourth year running. The typical contractor runs on margins of 2%-3% while paying workers weekly and waiting 60 to 90 days for their own invoices to be settled.
Most builders that fail do not fail because the work was unprofitable. They fail because the cash ran out before the profit arrived.
The mechanic nobody prices
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 roughly £12,000 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.
Administration is not a moat
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.
