Calculate retention payments in UK construction (2026)
Calculate retention payments in UK construction (2026)
By InvoiceAdept Editorial17 May 2026Updated 29 August 202614 min read
Retention is not a late payment and it is not a deposit. It is a percentage of the certified value that the client, or the main contractor, holds back from each application until practical completion and then until the defects period ends. If you cannot calculate it, you cannot invoice it. If you cannot invoice it, it becomes a gift.
Quick answer: most UK construction contracts hold back 3% to 5% of each application. Half is usually released at practical completion. The other half is released after the defects liability (rectification) period, often 6 or 12 months, once making-good is certified. Show the withheld line on the stage invoice. Raise a separate numbered invoice when the retention is due. VAT on the retained amount is usually delayed until you invoice that retention or you receive the money, whichever is earlier. CIS follows the payment, at the subcontractor’s status on the day the retention is actually paid, not the day the work was done.
This page is the arithmetic and the invoice. The rights-and-chasing version already lives at retentions in construction: how they work and your rights. Do not treat the two as the same job.
Figures in the tables are worked examples, not a price list and not a valuation. This is general information for UK trades, not tax, legal or quantity-surveying advice. If the contract, the VAT rate or the CIS split is messy, ask the person who files your return before you send the PDF.
InvoiceAdept is invoicing software from Tech Me Today Ltd, Companies House 15917255, ICO ZB944663. We keep digital records of the invoices you raise. We do not send Making Tax Digital quarterly updates, VAT returns, Self Assessment or CIS300 to HMRC. CIS lines sit on Pro+ at £12.99 a month. Free is five invoices a month. Pro is £7.99.
What retention actually is
A client holds back a slice of each payment as security that you will finish the job and come back for snags. On a JCT-style contract that slice is set in the contract particulars. Some 2024 JCT forms default to 3% unless a different rate is written in. In day-to-day UK work you will still see 5% on smaller commercial jobs, and 3% on larger or repeat work. Some contracts are nil. Read the executed contract, not a blog, including this one.
Retention is usually taken from every interim application, not only from the last invoice. It accumulates. At practical completion the first half is normally released. The second half waits for the defects / rectification period and a certificate of making good. After that period you can still be liable for latent defects. Release of retention is not a waiver of every future claim.
A deposit is the opposite timing. A deposit is money you take before you start, to buy tiles or book the week. Retention is money they keep after you have already done the work. Mix the two on one line and neither of you will know what is still owed. The deposit walkthrough is deposit invoice template UK.
Domestic householders often do not use a formal JCT retention. Some still hold a snagging percentage. If you agreed 5% for 30 days on a loft conversion, that is still retention. Invoice it as such. Do not “leave it off and see”.
The figures you need before you calculate anything
Term | What it means on the invoice |
|---|---|
Retention percentage | Usually 3% to 5% of the certified value of each application. Confirm the contract. Do not copy last job’s rate. |
Certified / applied value | The labour plus materials (and any agreed variations) you are applying for this period, before retention. |
Retention this period | Percentage × this application’s certified value. Add it to the running retention held. |
Amount due this period | Certified value minus this period’s retention, then CIS and VAT as they apply to this payment. |
Practical completion | Works usable for their purpose. First-half retention usually becomes due. Raise a release invoice. |
Defects / rectification period | Often 6 or 12 months from practical completion. Second-half retention usually becomes due after making-good. |
Retention release invoice | A new numbered invoice for the sum now due, split labour / materials if CIS still applies. |
If the job has variations, retention usually sits on the varied contract sum as well, unless the contract says otherwise. Invoice the extra first, as a variation, then apply the same percentage. The extras walkthrough is how to invoice variation orders and extras.
How to calculate it, in order
Read the retention clause. Percentage, what it is taken from (gross certified, or something narrower), when each half is released, and whether it is held in trust or just in the payer’s account.
Add up this application: labour, evidenced materials, agreed extras. That is the certified value for the period.
Retention this period = percentage × that certified value.
Running retention held = previous balance + this period’s retention − any release already paid.
Amount due before tax = certified value − this period’s retention.
Split labour and materials on the amount that is actually being paid. CIS is on labour, not on evidenced materials.
Apply VAT only to the supply you are invoicing now, and only if you are VAT-registered and reverse charge does not apply. The retained slice has its own later tax point. See below.
When a release date arrives, raise a new invoice for that slice. Do not silently bump the next job’s total.
A spreadsheet with four columns is enough: date, application number, certified value, retention held. InvoiceAdept will store the invoices. It will not file the VAT return or the contractor’s CIS300.
Many UK tradespeople also find it helpful to review How to chase late invoice payments UK at this stage.
Worked example 1: one application, 5% retention, CIS at 20%
A CIS-registered plumber, verified at 20%, applies for first-fix on a commercial refurb.
Labour: £8,000
Materials bought for this job, receipts on file: £2,000
Certified this period: £10,000
Contract retention: 5%
Not VAT-registered (taxable turnover under the £90,000 threshold)
Retention is taken pro-rata off the whole certified value. CIS is then taken off the labour that is actually being paid. These numbers are a worked illustration. The contractor applies CIS on their side.
Line | Amount |
|---|---|
Labour | £8,000.00 |
Materials (this job only) | £2,000.00 |
Certified this period | £10,000.00 |
Retention 5% (held) | −£500.00 |
Amount due before CIS | £9,500.00 |
Labour in this payment (95% of £8,000) | £7,600.00 |
Materials in this payment (95% of £2,000) | £1,900.00 |
CIS 20% on labour in this payment | −£1,520.00 |
Net payable now | £7,980.00 |
Retention still held (labour £400 + materials £100) | £500.00 |
If you had dumped £10,000 as one line, a cautious contractor deducts 20% of the lot and then still holds 5%. You have paid CIS on the copper. Split the lines.
When the £500 is released, and the plumber is still verified at 20%:
Line | Amount |
|---|---|
Retention release: labour element | £400.00 |
Retention release: materials element | £100.00 |
CIS 20% on labour £400 | −£80.00 |
Net payable on release | £420.00 |
HMRC’s CIS manual is blunt: there are no special rules for retention payments. They are treated like any other payment. The rate is the subcontractor’s status on the date the retention is paid, not the date the first-fix was done. If they have gained gross payment status since, the release can go out at 0%. If they have lost it, the release can go out at 20% or 30% even though the original applications were different. The contractor should verify again before they pay.
Worked example 2: a £200,000 job, 5%, two-stage release
Main contractor, 5% retention, 12-month defects period. No CIS in this table, so you can see the cash-flow shape on its own.
Stage | Certified | 5% held this stage | Paid now | Running retention held |
|---|---|---|---|---|
Application 1: foundations | £40,000 | £2,000 | £38,000 | £2,000 |
Application 2: structure | £60,000 | £3,000 | £57,000 | £5,000 |
Application 3: first fix | £50,000 | £2,500 | £47,500 | £7,500 |
Application 4: completion | £50,000 | £2,500 | £47,500 | £10,000 |
Practical completion release (half) | £5,000 | £5,000 | ||
End of defects, making-good certified | £5,000 | £0 | ||
Total paid over the life of the job | £200,000 | £200,000 |
You have done £200,000 of work at practical completion. You have only been paid £190,000. The last £10,000 is two invoices, months apart, that you have to remember to raise. That is the whole cash-flow problem in one table.
A 3% version of the same contract holds £6,000 in total: £3,000 at practical completion, £3,000 after defects. The percentage is negotiable on larger or repeat work. The invoice process is the same.
How to show retention on the invoice
The stage invoice is a normal UK invoice plus a withheld line. Use the same fields as how to invoice a client as a UK tradesperson. Then add:
the original quote or contract reference
the application or valuation number
site / plot / PO
labour and materials split (mandatory if CIS applies)
retention percentage and the pounds held this period
running retention held to date, in a note
the date the first-half or second-half release becomes due, if you already know it
UTR and CIS 0% / 20% / 30% lines when you are billing a contractor under the scheme
Label it. “Works as per valuation 3” with a quiet short-pay is how disputes start. “Valuation 3, certified £10,000, less 5% retention £500 held under contract [ref], net before CIS £9,500” is an invoice a QS can process.
Do not raise a second live invoice number for the same application because they held retention. The hold-back is a line on this invoice. The release is a later invoice.
Trade-specific layouts, if that is the job in front of you rather than the retention maths:
roofer invoice template UK (the long template; invoicing for roofers is the shorter trade guide)
The retention release invoice
When practical completion is certified, invoice half the running retention. When making-good is certified, invoice the rest. Same unique number sequence. Same customer. Description that a stranger can follow:
“First-half retention release, contract [ref], site [address], practical completion dated [date], 2.5% of certified £200,000 = £5,000. Labour / materials split as below.”
If CIS still applies, split labour and materials on the release. If you are now VAT-registered and reverse charge does not apply, this invoice is usually the VAT tax point for that slice. If reverse charge still applies, show the VAT and do not add it to what they pay. The invoice-level walkthrough is domestic reverse charge invoice UK.
If they will not certify making-good, that is a contract dispute, not an invoicing-app setting. Put the due date you say the contract gives you on the face of the invoice. Chase from that date. The rights page covers adjudication and pay-less notices. This page stops at the PDF.
If you are sorting this alongside other compliance work, read VAT invoice requirements UK 2026.
VAT on retention: the £90,000 threshold and the delayed tax point
The VAT registration threshold is £90,000 of taxable turnover on a rolling 12 months, or if you expect to go over it in the next 30 days. That is GOV.UK, register for VAT. An older version of this page said £85,000 in the FAQ. That figure is stale. Do not use it.
If you are not VAT-registered, there is no VAT on the stage invoice and none on the release. Do not print a fake “VAT: N/A” line.
If you are VAT-registered and you are charging VAT (homeowner, or a written end-user notice, or any other case where reverse charge does not apply), HMRC delays the tax point on the retained slice. Under regulation 89 of the VAT Regulations 1995, VAT on the retention is not due until the earlier of:
the date you issue a VAT invoice for that retained amount, or
the date you receive the retention payment
The rest of the supply follows the normal tax point. Practical version: on the stage invoice, charge VAT on the amount you are actually invoicing now (certified minus retention), not on the full certified value including the hold-back. When you later invoice the release, VAT arises on that release at the rate that applied to the original work. VAT Notice 708 says you apply the same rate to retention as you applied to previous payments under the contract.
Worked slice, VAT-registered, charging 20%, no CIS, 5% retention on a £10,000 application:
Line | Amount |
|---|---|
Certified (ex VAT) | £10,000.00 |
Retention held | −£500.00 |
Net invoiced now | £9,500.00 |
VAT at 20% on £9,500 | £1,900.00 |
Amount due now | £11,400.00 |
Later release invoice: £500 plus VAT £100 = £600. If you had put 20% on the full £10,000 on day one, you would have accounted for £100 of VAT on money you had not been paid. That is the mistake regulation 89 is there to stop.
InvoiceAdept can put 20% on a line. It cannot submit the VAT return. Digital records, then FreeAgent, QuickBooks, your accountant, or other software on HMRC’s list. The honest split is MTD invoicing for UK trades: records vs filing and InvoiceAdept vs QuickBooks.
CIS on the withheld slice
CIS is a deduction from a payment. Money that has not been paid is not a CIS event yet. HMRC’s CIS 340 guide and CISR15040 say retention has no special scheme of its own. When the retention is released, the contractor verifies the subcontractor as they would for any other payment and deducts 20%, 30% or 0% on the labour in that release.
Subcontractor status on the day the retention is paid | CIS on the labour in the release |
|---|---|
Registered and verified | 20% |
Not registered, or cannot be verified | 30% |
Gross payment status | 0% |
CIS is on labour, not on evidenced materials, and not on VAT. Keep the split on the release invoice. The template and the 20% / 30% arithmetic sit in CIS invoice template UK (2026). InvoiceAdept prints those lines on Pro+. It does not file CIS300. The contractor does.
A retention payment can be part labour and part materials reimbursement. HMRC says so. If the original applications held 5% of both, the release is both. Do not let the contractor treat the whole £500 as labour “to be safe”.
Domestic reverse charge on a retention invoice
If the original applications were reverse charge, the release is usually reverse charge as well, provided the tests are still met: both of you VAT-registered, payment reported under CIS, standard- or reduced-rated construction services, no written end-user notice. You show the VAT on the retained value. You do not add it to what they pay. Wording HMRC accepts includes “Reverse charge: VAT Act 1994 Section 55A applies” and “Customer to pay the VAT to HMRC”, plus the words reverse charge.
A private householder is not VAT-registered. Reverse charge never applies to their retention, if they even have one. Charge VAT on the release only if you are registered. CIS does not apply to an ordinary householder.
Related: see Invoice payment terms UK law for practical next steps.
Cash flow, insolvency, and why the diary matters
Retention is profit you have already earned sitting in someone else’s bank. On a 5% / 12-month defects job you will fund materials and labour on the last applications with money you will not see for a year. Plan for that. Do not spend the “full contract value” the week you leave site.
If the payer goes insolvent while they are holding cash retention, you are an unsecured creditor unless the contract actually put that money in a trust or escrow you can reach. Plenty of standard forms talk about a fiduciary interest. Plenty of payers still mix the cash with their own. This page will not invent a recovery rate. Read the clause before you sign, not after the administrator is appointed.
As of August 2026 there is still no UK-wide statutory ban on cash retentions and no mandatory government deposit scheme. Consultations come and go. Do not invoice as if a 2026 Act has already abolished the practice. The contract in front of you is what applies.
Construction Act payment notices, pay-less notices, suspension and adjudication apply to construction contracts. A contract with a residential occupier for work on their own dwelling is generally outside that Act. Do not paste a “we will adjudicate” paragraph on Mrs Jones’s kitchen retention and expect the same lever. The longer rights write-up is the getting-paid retention page.
If the payer is another business and the release is late against a dated invoice, UK late-payment rules for commercial debts allow statutory interest at 8% above Bank of England base rate, plus a fixed recovery sum of £40, £70 or £100 depending on the size of the debt. Check the live base rate. Do not copy a combined percentage from an old blog. Homeowners are consumers. That Act is not a domestic stick.
What this page used to get wrong
The FAQ said you must account for VAT on retentions “especially if turnover exceeds the £85,000 VAT threshold”. The live threshold is £90,000.
A step said “ensure all necessary paperwork is filed with HMRC and Companies House if applicable”. Retention is a contract payment. It is not a Companies House filing and InvoiceAdept does not file it to HMRC.
The page calculated the percentage and then stopped. It did not show the invoice line, the release invoice, the delayed VAT tax point, or CIS on the day of payment.
Worth pairing this with our guide to Boiler service invoice template.
What InvoiceAdept will and will not do
On the pricing page (checked 29 August 2026):
Free: £0, 5 invoices a month. A deposit, two stages and a retention release on one job will burn the cap.
Pro: £7.99 a month excl. VAT. Unlimited invoices, WhatsApp send, Stripe with no extra InvoiceAdept platform fee, reminders, quotes, expenses.
Pro+: £12.99 a month excl. VAT. CIS on the invoice (0% / 20% / 30%, labour versus materials), plus bank rec and the rest of that plan.
Raise the stage invoice with the withheld line. Raise the release as its own numbered invoice when it is due. Keep both as digital records. Export them for whoever files.
We do not:
send Making Tax Digital quarterly updates to HMRC
submit your VAT return or Self Assessment
file the contractor’s CIS300
decide the retention percentage in your contract
hold retention money in trust for you
If you want unlimited free CIS invoices and you are paid by BACS, InvoiceAdept vs InvoiceFree is the honest comparison. InvoiceFree puts CIS on its free plan and takes 1% on its Stripe links. If you want filing software, that is QuickBooks or FreeAgent, not an invoicing app.
Frequently asked questions
How do I calculate a construction retention in the UK?
Take the certified value of this application. Multiply by the contract percentage (commonly 3% to 5%). That is what they hold this time. Subtract it from the certified value to get the amount due before CIS and VAT. Keep a running total of what is still held. Release half at practical completion and the rest after the defects period, unless the contract says something else.
Is retention 3% or 5%?
Both appear. Some current JCT particulars default to 3% unless another rate is entered. 5% is still common on smaller commercial work. Nil happens. The executed contract wins.
Do I invoice the full value or the amount after retention?
Show the full certified value, then a retention line, then the amount due now. When the hold-back is released, invoice that slice on a new number. Hiding the retention so the PDF “matches what they will pay” is how you lose the audit trail.
Does VAT apply to retention?
If you are VAT-registered and you charge VAT, yes, but usually not on day one for the withheld slice. Regulation 89 delays that tax point until you invoice the retention or you receive it. The VAT registration threshold is £90,000, not £85,000. If reverse charge applies, you show the VAT and you do not collect it. InvoiceAdept does not file the VAT return.
Does CIS apply to retention?
When the retention is paid, yes, if the payment is a CIS payment. There are no special CIS rules for retentions. The rate is 20%, 30% or 0% on the labour in that payment, using the subcontractor’s status that day. Materials evidenced for that job stay out of the CIS base.
Is retention the same as a deposit?
No. A deposit is money you collect before you start. Retention is money they keep after you have worked. Invoice them separately. See the deposit invoice template.
Can InvoiceAdept file this with HMRC?
No. We store the invoice as a digital record. We do not send MTD updates, VAT returns, Self Assessment or CIS300. Use HMRC-recognised software or an accountant for filing.
What if they never release it?
Send a dated release invoice, then a formal demand that cites the contract clause and the due date. For business customers, statutory interest and a fixed recovery sum may apply. Adjudication is a construction-contract route, not a residential-occupier one. That is the other page. This one is so you have a number and a PDF to point at.
Last reviewed: 29 August 2026. Tax rules change. Check the GOV.UK pages linked above before you rely on a rate. This guide is general information for UK tradespeople. It is not tax, legal or accounting advice.
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