Retention held and released
You will be able to: Compute retention, the retention cap and the invoice for a certificate; Describe the release triggers and the approvals required; State the VAT time-of-supply point for retention and what to watch.
- Read not done yet
- Self-check: not taken not done yet
- Lesson complete not done yet
Retention is the part of each certified amount the client keeps until the work is accepted and defects are fixed. In Zeyto Construction & Contracting it is held as a receivable in an append-only retention ledger, so the balance can always be traced to the bills that created it and the releases that cleared it.
The cap
If the contract has a cap, retention stops when the total held reaches that share of the contract value. With a contract of AED 5,000,000 and a cap of 5%, the most that can be held is AED 250,000. If AED 220,000 is already held and the new certificate is AED 500,000, 10% would be 50,000 but only 30,000 of room remains, so the retention is 30,000. Taxable is 470,000, VAT 23,500 and the invoice 493,500.
Releasing retention
- Record a practical completion certificate (and later the end of the defects period). Practical completion and handover start the defects liability clock.
- Request a release. At practical completion the contract share is claimed (50% of the retention held unless the contract says otherwise); at the end of the defects period the whole balance is claimed; a partial release takes an amount you type. A release can never exceed the retention held, less releases already waiting.
- Two different people, neither the one who requested it, approve it.
- Issue the release invoice. The retention is credited to the receivable and VAT is declared on that invoice.
With AED 100,000 held, a practical completion release is 50,000 plus VAT 2,500, an invoice of 52,500. The balance of 50,000 is claimed at the end of the defects period, with its own VAT.
VAT and the 12-month point
The Federal Tax Authority's real estate guide treats retention under the rules for continuous supplies of services: the supply date is the earliest of the retention being paid, a tax invoice being issued for it, or 12 months after the work was signed off as complete. It also says certification on its own does not create the date of supply. Zeyto declares the VAT on the retained part on the release invoice.
Walk it through
- Recompute the 500,000 example with 5% retention.
- Compute the capped retention if 240,000 is already held and the cap is 250,000.
- In the demo, open Retention and certificates on the Billing tab and find where a release is requested; note who may approve it.
Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.
- Retention = certified gross x %, limited by the cap; VAT is on the part billed.
- Releases need a certificate for the trigger, two approvers, then a release invoice with VAT.
- Diary the 12-month sign-off point; the FTA guide can bring the supply date forward.
Check yourself
5 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.