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Dealing with builders retentions

Source: HM Revenue & Customs | | 30/04/2019

It is common practise in the building industry for a final percentage of an amount due to a builder to be withheld as a retention. This payment allows the customer to retain part of the total payment due until satisfied that the builder has completed all the activities required of them under contract at an agreed level of satisfaction.

Typically, this may be for a 12-month period between a Certificate of Completion being given and the issue of a Maintenance Certificate.

HMRC accepts that builders will generally deal with retentions in one of the following ways:

  • include retentions within turnover, provide for the estimated cost of remedial work, and make provision for any debt impairment, or
  • defer recognition of retentions until their receipt becomes virtually certain.

HMRC is prepared to accept either of these options for tax purposes as an accepted treatment unless an unrealistically conservative view has been taken. In some cases, these monies are never paid. HMRC point out that, consequently, it will often be the case that, whichever of the above approaches is adopted, there will be little or no difference in the figure of net profit.

 

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McAllisters is a partnership trading from Paxton House, 11 Woodside Crescent, Glasgow providing accountancy and tax services and general business advice and is a member of ICAS (Registration No 0342) and an FCA exempt professional firm (No 301235). Its VAT number is 261 3019 94

McAllisters (Scotland) Ltd is a related business providing tax and business advisory services to McAllisters and its clients. McAllisters (Scotland) Ltd is registered in Scotland (Registration number SC146856). Its VAT number is 624 0564 62.

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