What happens to retention payments for tax purposes?

Retention money — the percentage a main contractor holds back from a payment until the job passes final inspection, often months or even a year later — is still taxable when you become entitled to it under the contract, not necessarily when you're actually paid it, which can create a timing mismatch between when you owe tax on it and when the cash actually lands in your account.

Under CIS, tax is normally deducted from the payment that includes the retention when it's finally released, matching the deduction to when you receive the money, but the underlying accounting treatment (when the income is recognised for your accounts and tax return) can be earlier than that. This timing gap catches out subcontractors who forget retentions are still owed to them months after a job's finished, either losing track of what's due or being surprised when tax is due on income they haven't actually received yet. If you're holding retentions from several jobs and aren't tracking exactly what's owed and when it's due for release, it's worth keeping a running list — both for chasing the money and for getting the tax timing right.