Retention payments for self employed work

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    Has anyone ever come across retention of payment for self-employed work?

    We have a case whereby the claimant has submitted an appeal because he disputes our assessment of underlying entitlement as we noted deposits being made into his bank account during the overpayment period- 13 April to 29 November 2009).

    At the time the assessor sought confirmation of what the deposits were for- the claimant explained that it was payment for work carried out in the previous tax year. The claimant did not have any paperwork to support this.

    (The cause of the overpayment, which the claimant appeals- his JSA ended and he did not tell us. It would seem that prior to claiming JSA the claimant was self-employed, then claimed JSA- he has not confirmed that this business has stopped)

    The case went to tribunal and the claimant was directed to provide proof- accounts showing profit received.

    The claimant returned records, – this did not make the retention payments clear, and led to the following questions being raised

    1) I understand from our Presenting Officer that your clients paid you 80% of the fee, and retained 20%, which would be paid at a later date. When your accountant assessed your accounts did he/she include the full 100% that the client would be paying, or did they only account for the 80% actually received?

    2) The adjournment notice also requested you to produce any paperwork that would support your statement that the payments into your bank account were retentions from work billed in a previous year, and included in that years turn over.

    ยท I cannot find reference of the retention payments on the accounts, which are made up to 6 April 2009. If this information is showing, please can you indicate where it is listed within the 7 pages provided?

    The claimant did not respond to the queries above, and the case went back to the Tribunals Service.

    Following the next hearing the claimant submitted further evidence- a handwritten list of payments with dates- confirmed paid as cheques. The claimant goes on to state that the amounts listed are minus 20% tax and 20% retention. The claimant states further down that he made a loss for the tax year 2008/2009.

    The judge has summed up the retention as follows

    “You are paid for your work. You met the expenses of doing the work including wages. But they retain the sums due under CIS scheme to the Inland Revenue and they make a further retention of 20% to cover any trouble arising with the work in the first year. You include the full amount due in your turnover and you meet all the expenses and wages and it simply shows as money due but not received in the accounts (this is not shown or made clear in the expenses evidence returned by the claimant). You pay tax based on the net profit- so this money has already been reported in the tax return based on that accounting period”.

    The issue I have is that I follow what the judge has said, but when preparing the submission could not find any regulation/ case law/ guidance which supported this.

    The closest reference I found in the DWP guidance manual related to retainers

    Section 2.70 Definition of earnings- this related to an employed earner- the claimant is self-employed.

    Can anyone advise how retention payments are treated for self-employed claimants?




    An example would be if a company hired a builder. You may pay an upfront fee, a payment at the end of the contract and the balance after a reasonable period to ensure all works fine (the building does not fall down or leak etc.). This is standard business practice for certain types of work. Some Housing Benefit IT contracts are structured in that way incidentally.

    What the Tribunal has said is that the claimant has paid tax in full on the total contract so his earnings for that year include the retention and deductions for tax. If it was not paid then it would be a bad debt or dispute.

    The hb regs do not mention such business practices but they cover it in general i.e. by requiring the LA to work out the profit for a particular year. The retention was for the previous year; you cannot count it twice.


    Briliant, thanks Peter- I will go through the accounts provided- I believe the claimant made a loss for the tax year in queation, in which case the deposits received later would not be counted.

    Thanks again for your help


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