UK Accounting for retentions on invoices

Mar 1, 2016
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United Kingdom
Does anybody have any experience of dealing with invoices that contain retention values on? I have dug out my old textbooks and surprisingly can't find anything mentioned in relation to this.

Example: I receive an invoice for £100,000 net, and 3% retention is deducted - bringing the net value to 97k. VAT is then applied on that 97k to give an invoice value of £116,400.

How should this be processed in the books? I think that I record the full goods value of 100k to my I&E, and a credit value of 3k to a creditor/retention code on the B/S. This means that in the current year I am recording a cost of 100k, and recognising a liability of 3k due in a years time. When that year comes round and the contractor invoices me the 3k (plus VAT) I pay that, but I can code it to the creditor/retention code which should have a 3k balance on it - therefore clearing that out.

Is there anything wrong with the above method?


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