VATREVCON26000 - Scope of the construction reverse charge: Supplies of labour vs supplies of staff
Source: gov.uk (2025-04-02)


Employment businesses supplying construction workers

Supplies of construction workers by employment businesses and similar are not subject to the construction reverse charge, even if those supplies are within the scope of the Construction Industry Scheme.

Employment businesses supplying construction workers are, for VAT purposes, treated as supplying staff rather than building and construction services.

For VAT purposes, such activities of workers are supplies of staff by their employer and not supplies of specified services by the workers themselves. The supplier makes a supply of staff for VAT purposes if it provides the customer with the use of an individual who is:
- contractually employed or otherwise engaged by the employment business, or
- a director of the employment business.
A similar situation arises with joint ventures. The construction firms that are parties to the joint venture provide workers on secondment to work on the joint venture project. Payments by the joint venture to each construction firm for their staff are not payments for construction services and therefore not subject to the reverse charge.

Labour-only subcontractors

The reverse charge applies to specified services supplied by labour-only subcontractors. The labour-only subcontractor is responsible for the works carried out and therefore subject to the construction reverse charge, so long as the supplies are within the scope of the CIS.

Differences between employment businesses and labour-only subcontractors

The distinction between employment businesses and labour-only subcontractors is not always immediately clear-cut, but generally employment businesses will place workers and process payrolls but will not get directly involved in decisions on how the work is done, who does it, and the scheduling of it. Nor will employment businesses have their own teams of quantity surveyors, engineers, and planners managing the work on their behalf; these skills will reside with the contractor.

The following can be indicators that the supplying business should be treated as an employment business:
- the customer contacts the employment business and asks for a number of workers over a number of days
- the employment business provides an hourly or daily rate for the workers
- a timesheet is used to record the hours and days worked; this, rather than specified deliverables, forms the basis of the remuneration for the workers
- the customer sends the signed timesheet agreeing the hours and days worked to the employment business
- the temporary worker contract is not based on drawings, specifications, planning constraints, and defects periods, i.e. it is a contract of service rather than services; there are no specified deliverables
- the customer is responsible for the works carried out and for correcting any defects.
The presence of one or more of these indicators does not necessarily prove that the supplying business is an employment business.

The following can be indicators that the supplying business should be treated as a labour-only subcontractor:
- the customer contacts a business and asks for a skilled labourer (for example, a bricklayer, electrician or plumber) to carry out specified services
- the supplying business provides a price for the works or agrees a measured rate per square metre
- the supplying business works from any drawings and specifications, and directs their workers accordingly
- the supplying business is responsible for the labourer’s works
- the supplying business is responsible for correcting any defects following completion of the works
- the customer, or its representatives, agrees that the work has been carried out or certifies payment for the value of works carried out to date.
The facts of each specific case should be looked at as a whole when determining whether the supplying business is an employment business or a labour-only subcontractor for the purposes of the supply in question.

The nature of the specific supply needs to be looked at; a business that normally would make supplies where they would be treated as a labour-only subcontractor for the purposes of the reverse charge may also make supplies of construction workers, and in this particular situation would be treated as an employment business.

A business that is, for the purposes of the distinction drawn for the reverse charge, an employment business, may describe itself as a labour-only subcontractor; it is the facts of the case rather than the terminology used that determines whether it is supplying construction services or workers.

Where, for example, the customer asks the supplying business to build a structure or erect a scaffold, this would be a supply of construction services; but where the customer asks the supplying business to contract and pay operatives on their behalf, this would be a supply of workers by an employment business. A business supplying construction services decides how work is done and who does it; where it is the customer who makes these decisions, the supplying business would be considered an employment business for the purposes of the construction reverse charge.

An employment business is not supplying a specific service but is supplying a number of individuals to come under the control of the customer, who tells them what to do and sets them to work. In many cases the worker may be quite autonomous on site, i.e. doesn’t need supervision or instruction, so ‘control’ here means that the customer or user of the labour is in charge of the site and has overall responsibility for what is happening.

A labour-only subcontractor is contracted to complete specified items of work; they will provide a price for the job or agree a measured rate, e.g. per square metre. The customer pays based on quotation and/or valuation of work carried out rather than on the hours worked or number of staff supplied, although the estimate of hours worked may form part of how the quotation was calculated. A labour-only subcontractor is responsible for the completed outcome, the finished item of work.

If there is a supply of construction services in a supply chain it cannot then turn into a supply of staff at a later point in the same supply chain. However, the opposite situation will happen where building contractors buy in supplies of workers to help them in making their onward supplies of construction services.