Income tax – Retention money

This question we’ve been asked explains when a person derives retention money as income and when they incur the expenditure of retention money for income tax purposes.  It discusses how in some cases retention money is incurred at the point when each progress payment from which retention money is withheld is payable, how the contractual terms governing retention money affect the timing of income recognition and deductions, including how the specific timing rule in s EA 3 and the financial arrangements rules apply in certain situations.   This guidance is important for taxpayers who use retention arrangements including those in the construction industry. 

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