How should construction retention payments be recorded?

For each contract, record the amount retained, the basis for the deduction, the conditions for release and the dates you expect payment. Reconcile that schedule to payment certificates, applications and the accounts. Under accruals accounting, withholding cash does not by itself decide when revenue is recognised; the contract terms and applicable accounting framework matter. An unconditional right to payment may be a receivable, while an amount still conditional on further performance can need different presentation. Keep retention balances visible so ordinary debtor ageing does not hide them or make them look like routine late payments. Check recovery expectations, particularly where defects, disputes or the customer’s finances could reduce the amount received.

VAT timing can differ between types of construction supply and payment arrangements, so do not assume all retention VAT becomes due only when the cash is released. Also check whether the domestic reverse charge applies. Under CIS, any required deduction on a retention payment is normally considered when it is actually paid, using the subcontractor’s applicable payment status at that time. Neither calculation replaces the accounting assessment. Include expected release dates in your cash forecast and follow up the contractual milestones that permit collection. CASS can help reconcile the contract records, retention schedule and accounts, and identify the VAT and CIS treatment before the next certificate or payment is processed.