New requirement to report on retention money held

The Reporting on Payment Practices and Performance (Amendment) Regulations 2025 are due to come into force on 1 March 2025 and will apply to financial years beginning on or after 1 April 2025.

The regulations require “qualifying” companies and LLPs to disclose information about how they operate the retention provisions in “qualifying” construction contracts with their suppliers.
 
A "qualifying” company is one that is not in its first financial year and has two of: 

• a turnover of more than £36,000,000 (from 6 April 2025, this increases to £54,000,000);
• a balance sheet of more than £18,000,000 (from 6 April 2025, this increases to £27,000,000); and
• more than 250 employees.  

Different thresholds apply to parent companies, and group companies which are contracting with one another, and they will need to consider their obligations separately for each contract.

A “qualifying” construction contract is one for the carrying out of “construction operations”, as defined in the Housing Grants, Construction, and Regeneration Act 1996 and therefore subject to statutory requirements for payment and statutory adjudication.  This includes contracts for the carrying out of construction work and arranging for the carrying out of construction operations or the supply of labour, but it does not include construction contracts with residential occupiers or contracts for construction operations in excluded sectors such as gas and oil.

A “retention clause” means a provision in a “qualifying” construction contract that allows one party to the contract to deduct or retain money being: a percentage of the amount payable to another party to the contract for any goods, services or works supplied by that other party; or an interim payment that is due; or the contract sum, until a condition in the contract for release or partial release of the money is met.

A qualifying company with a qualifying contract including a retention clause must disclose and report on:

• whether retention clauses are standard practice for all or only some qualifying construction contracts, or apply only in certain circumstances (and the circumstances are to be disclosed);
• whether there is a maximum contract value (and what the value is) under which no retention clause is included in construction contracts;
• what the standard percentage rate in retention clauses in qualifying construction contracts is;
• whether the practice is to use retention clauses that are no more onerous than those in qualifying construction contracts between the qualifying company or LLP and its own client;
• the mechanism or process for the release of the retention money;
• confirmation of the percentage ratio of the amount of retention withheld from the organisation compared with the amount of retention the organisation withholds from its own suppliers; and
• confirmation of the percentage ratio of the amount of retention the organisation withheld from gross payments made to suppliers compared with the gross amount it paid to suppliers during the same reporting period.

The name of the director of the qualifying company, or member of the LLP, who has approved the information must be given, and the qualifying company/LLP must publish its report for the reporting period no later than 30 days after the end of the period.
 
Companies that do not report this information will face sanctions corresponding with general reporting requirement sanctions, although the Department for Business and Trade has stated that it would encourage organisations to comply before seeking prosecution.
 
The Secretary of State for Business and Trade, Jonathan Reynolds, has said that the intention is to increase transparency and improve payment practices, which will benefit small to medium sized enterprises in the construction industry.
 
Qualifying companies and LLPs that are caught by these regulations will face a significant administrative burden to comply with them.

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