What is retention in construction?

Retention is an amount held back from payment under a construction contract that provides for it. It is intended to give security for matters such as completing the work or putting defects right. Some contracts use retention and others do not. HMRC’s explanation of retention payments describes the basic arrangement in its construction payment guidance.

The amount, any cap and the release requirements must come from the actual agreement and applicable legal position. Do not assume that every project uses the same percentage, that half is always released at completion, or that an anniversary alone makes the balance payable.

How does it affect the figures?

Keep the work value, retention, previous payments and current payment balance visible separately. Retention held is not cash already received.

For a fictional example, assume an account records £48,000 of work, £1,200 retained and £30,000 previously paid. There are no other adjustments or tax amounts in this simplified illustration. The calculated payment balance is:

£48,000 − £1,200 − £30,000 = £16,800.

The retention record still shows £1,200 held. If a later £400 release is documented and paid, £800 remains held. Record the release and the receipt, so the same money is not counted twice. These figures illustrate the reconciliation; they do not establish whether a deduction is permitted or a payment is legally due.

What should you keep track of?

Record the relevant terms, the amounts deducted, any cap, releases already recorded and payments actually received. For each proposed release, identify the stated requirement, the supporting evidence and the applicable payment steps. Keep an estimated release date distinct from a confirmed event and from the date money reaches the bank.

Our answer on retention release dates explains what to check next. If money remains unpaid, use the retention not released guide to organise the account and correspondence. A dispute about the right to deduct or withhold money needs appropriate legal advice.

You can maintain the record yourself or ask us about Retention Tracking. The useful starting point is a reconciled balance with its evidence and next action.