TRADEKIT FIELD GUIDE · REVIEWED 7 OCTOBER 2026

How retention works in construction

Retention is money withheld from payments under a contract, often as security for completing work or remedying defects. The rate, base, cap and release triggers are contractual.

Read the retention clause

Check which work or materials are subject to retention, the percentage, any maximum amount, whether it applies to variations, and how the amount is shown in payment notices. Confirm whether VAT is treated separately in the relevant valuation and invoice. Avoid assuming a standard rate or two-stage release.

Track each deduction and release

Reconcile retention withheld on each valuation to the total held. Record the event that triggers each release, such as practical completion or the end of a defects period, the person who certifies it and the next payment date. Ask for a statement if the payer’s balance differs from yours.

Example

If £8,000 of work is subject to 5% retention, £400 is withheld on that valuation. If the contract later releases half of the total retention balance at a defined milestone, calculate that share from the cumulative balance actually held—not from one period alone. The planner illustrates amounts but does not decide when a release is due.

Policy status

As at 7 October 2026, the Commercial Payments Bill is still progressing through Parliament. It proposes a ban on retention clauses and a two-year transition, but the retention measure would only take effect through commencement regulations after Royal Assent. The bill is not yet a current rule for your contract. Check its live status and the regulations before acting on a change in law.

Practical checklist

Check retention base, rate, cap and exclusions.
Keep a running balance by valuation.
Record release milestones and evidence of completion.
Verify current legislation before acting on policy announcements.

Common questions

Is 5% retention standard?

It is common in some contracts but not a universal legal rate. The signed contract controls.

Can I calculate retention release from one application?

Only if that application contains the full relevant balance. Reconcile earlier deductions and releases first.

Official references

Use the current source material and your contract for the specific facts. These links support this guide; they are not a substitute for individual advice.

Last reviewed 7 October 2026. TradeKit guides explain general process and arithmetic and are not legal, tax or accounting advice.