Dealing with CIS Retentions

[Nicster]

One of my clients is in the construction industry, they have raised an invoice as follows:

Fee £20,000

Less 5% Retention £1,000

Subtotal £19,000

VAT (on £19,000) £2,850

Total £21,850

1. What should the accounting entries be?
2. Should I account for the VAT on the retention now (client is on accruals VAT method).

Many Thanks
Nicola

[David Griffiths]

Most construction businesses do not account for (recognise revenue in respect of ) retentions until the money is released to them. A separate invoice is issued at the time.

The retention hasn't been invoiced now, so doesn't need to be accounted for in terms of VAT until it is invoiced.