Hi everyone, I have a new client that is a sub contractor and he has been stopped a retention amount of of 8% on his weekly invoices, how does the client claim this money back from the contractor, I am doing the 2012/13 self assessment for him, he only started with the contractor in February 2013 so the amount stopped for the period of 2012/13 was only £182.92, but I also need to advise him for the 2013/14 tax year as he still is being stopped the retention on a weekly basis.
Also do I include the retention amount that has been deducted as income for his self assessment or is it not included as he hasn't actually received this money yet.
Long time since I dealt with retention but retention should be released back to your client after a certain length of time (can't remember how long now) If it wasn't released we used to chase it as a normal late payment.
Not sure about classing it as income for his self assessment but I would say not until he's actually received it.
I would say that on the basis of the matching concept the money belongs to the tax year it's earned in and not that which it is paid in. I recently took on a contractor who had £10,000 of retention outstanding, it had been for 5 years and he had contacted various people to recover it for him with no joy. I just wrote to the companies on his behalf and it was paid, so not sure what the other folk were doing.
HMRC will accept both the accrual and cash accounting concepts with regards to retentions. BIM 51520 on Income recognition for retentions gives the answer/options.
Stuart, retentions are amounts withheld until the relevant work has been passed as complete/satisfactory by building inspectors, main contractors etc.
