New UK Construction Retentions Reporting Rules 2025
The construction industry is now operating under major new transparency requirements for retention payments. Since March 2025, thousands of companies have been legally required to publicly report their retention practices in unprecedented detail. For qualifying businesses, these aren’t optional guidelines, but legal obligations backed by criminal penalties for directors.
The new rules took effect on 1 March 2025, covering financial years that begin on or after 1 April 2025. Now that the first reporting periods are underway, directors and designated members face personal liability for failures to comply. Businesses must ensure they understand these requirements and have proper systems in place to meet the 30-day reporting deadlines.
Our specialist solicitors and barristers support construction businesses through these reporting obligations. From determining qualifying status to establishing compliant processes that protect directors from personal liability, we can help you meet regulatory deadlines while avoiding penalties and reputational damage.
Understanding Retention in Construction Contracts
Before examining the new reporting requirements, it’s essential to understand what retention is and how it operates in construction contracts.
What is a retention clause?
A retention clause is a contract provision allowing any party to retain or deduct money until specified conditions for release are met. This typically involves withholding a percentage of amounts due for goods, services, or works.
Retention serves several important functions. It encourages quality work by providing clients with leverage, motivating contractors to deliver high standards. It protects clients from defects that may arise after completion, making contractors responsible for fixing them during the retention period. It also motivates timely completion and improves communication between parties, ultimately leading to increased client satisfaction.
What is the limit of retention in construction?
There are two key elements when discussing retention limits in construction. The first concerns the percentage of money that can be withheld, and the second relates to which contracts are subject to retention clauses.
This withheld money typically ranges from 3% to 10% of the total contract price, with 3% to 5% being standard under Joint Contracts Tribunal (JCT) contracts, which are commonly used across UK construction projects.
Many businesses establish a minimum contract value threshold below which retention clauses are not applied. For example, some businesses only use retention clauses on contracts worth over £100,000, avoiding the paperwork involved in managing small retention amounts.
When should retention be released?
Retention money is usually released in two stages under standard construction contracts like JCT forms.
Typically, half the withheld money is released when Practical Completion is reached, meaning the works are essentially finished. The second half stays withheld until the Defects Liability Period ends, typically six to twelve months following practical completion.
Retention release requires the contract administrator or the employer’s agent to issue interim certificates confirming completion stages. Common reasons why retention payments may be withheld include unresolved defects, disputes over work quality, employer insolvency, and administrative delays.
The New Reporting Requirements
These amendments build on the existing Reporting on Payment Practices and Performance Regulations 2017, which required qualifying companies to report on general payment practices. While the government’s statutory review concluded that those regulations successfully brought greater transparency to business payment practices, construction retentions were not specifically covered. Late payment of retention monies remained a significant problem in the construction sector, prompting these new targeted requirements.
Which businesses must report?
A company qualifies if it meets at least two of these thresholds:
- Annual turnover above £54 million (raised from £36 million in April 2025)
- Balance sheet exceeding £27 million (raised from £18 million in April 2025)
- More than 250 employees
Companies cannot qualify in their first financial year. Both parent and subsidiary companies must report separately if they each meet the thresholds.
The rules apply to construction contracts as defined under the Housing Grants, Construction and Regeneration Act 1996. This covers most standard construction work but excludes contracts with residential occupiers and certain sectors like oil and gas. Developers, contractors, and businesses procuring construction works must comply if they meet the size thresholds.
What must businesses report about retentions?
Where qualifying companies use retention clauses in qualifying construction contracts with suppliers, they must report seven specific aspects:
- Whether retention clauses are used in all contracts, some contracts, or specific situations only
- Whether there is a minimum contract value below which retention does not apply
- The standard retention percentage rate used
- How the business ensures subcontractor retention terms are no harsher than those it accepts from its own clients
- How and when retention money is released
- Two calculations showing retention withheld from suppliers compared to retention withheld by clients, and as a percentage of total payments
- The director’s name who approved the report
Reports must be submitted within 30 days from the end of the relevant reporting period. Qualifying companies typically have two reporting periods during each financial year.
Penalties for Non-Compliance
The consequences of failing to comply are serious. Failure to publish a report is a criminal offence committed by both the qualifying company and every director. It is also an offence to knowingly or recklessly publish a report that is false, misleading, or deceptive.
Anyone found guilty of these offences faces a fine. The Department for Business and Trade has indicated it will prioritise encouraging compliance before seeking prosecution, but the criminal nature of these offences makes compliance essential. The 30-day reporting deadline after each period leaves little room for error or delay.
Ensuring Compliance with Retention Reporting
With reporting periods already underway, construction businesses cannot afford complacency.
Assess your obligations
Determine whether your company meets the qualifying thresholds and identify which contracts fall within the reporting requirements. Audit your existing contracts and retention practices to compile the necessary data.
Update your systems
Internal systems must capture and calculate the required information, particularly the two financial ratios. Many businesses are finding their existing processes inadequate. Updating reporting systems and training staff takes time, so businesses need to act now rather than delay.
Review your supply chain
Businesses must ensure the retention terms they impose on subcontractors are no harsher than the terms they accept from their own clients. This means reviewing retention clauses throughout the supply chain, which may require changes to standard subcontract terms.
Getting it right
Criminal sanctions for directors, potential fines, and reputational damage make these regulations impossible to ignore. Businesses that take compliance seriously will avoid penalties and demonstrate transparency that strengthens supplier relationships.
If you need guidance on retention reporting compliance or implementing compliant processes, our construction law team can help you navigate these obligations and protect your business from regulatory risk.