Compulsory retention reporting from 1 April 2025: what are the key changes that qualifying companies need to be aware of?

Following on from our previous article on compulsory retention reporting, the 2025 update to the Reporting on Payment Practices and Performance (Amendment) Regulations 2017 came into force on 1 March 2025 and will apply in relation to financial years beginning on or after 1 April 2025. 
 
The 2025 regulations impose additional reporting requirements specifically around how 'qualifying companies' operate retention provisions in any 'qualifying construction contract' with their suppliers. This article outlines some of the key changes in relation to construction contracts specifically and the key takeaways that all qualifying companies need to be aware of.

Who is affected by the regulations? 

A qualifying company is one which is in at least its second financial year and exceeds two or all three of the following thresholds: 

• £36 million annual turnover, increasing to £54million for financial years beginning on or after 6 April 2025
• £18 million balance sheet total, increasing to £27million for financial years beginning on or after 6 April 2025
• 250 employees

There is already a duty under the 2017 regulations for these companies to publish a report every six months containing information about their qualifying contracts - being one for supply of goods, services or intangible assets, with a sufficient connection to the UK. Under the 2025 update, they now need to include specific details about retention clauses in any qualifying construction contracts they have with their suppliers. 

A qualifying construction contract has to be a qualifying contract (as defined in the previous paragraph) as well as fall within the definition of a construction contract in the Housing Grants Construction and Regeneration Act 1996, although construction contracts with residential occupiers are excluded.

What information is required?

The 2017 regulations already require a qualifying company to publish the following information in its bi-annual reports: 

• The average number of days taken to pay invoices in that reporting period.
• Standard payment terms for contracts and details of any variations to those terms within the reporting period.
• The company’s process for resolving payment disputes with its suppliers.
• Whether the policies allow the company to deduct monies due to the supplier to keep them on the company’s list of suppliers.
• The name of any code of conduct the company is a member of.

Schedule 2 of the new 2025 regulations outlines the additional information that qualifying companies now need to provide in relation to qualifying construction contracts. This includes:

• A statement confirming whether these contracts include retention clauses.
• If they do, a further statement as to whether:
  1. All qualifying construction contracts include retention clauses, 
  2. The standard payment terms include retention clauses or 
  3. Retention clauses are used in construction contracts in specific circumstances, and a description of what these circumstances are.
• A statement as to whether there is a maximum contract value, below which no retention clause will apply, and specifying what that value is.
• A statement as to whether there is a standard percentage rate applied in retention clauses, and what that percentage is.
• A statement as to whether the company ensures the retention clauses applied to its qualifying construction contracts with suppliers is no more onerous that the retention clauses that it has with its clients in the supply chain, with a description of that practice and how it works.
• A description of how and when any money retained under the retention clause is deducted and how and when it will be released.
• A percentage showing the difference between the amount of monies retained or deducted under those retention clauses used with suppliers and those used with clients.
• A percentage showing the difference between the monies retained or deducted from payments to its suppliers and the total monies paid to its suppliers.

Key takeaways

All qualifying companies, whether predominantly a construction business or not, are expected to adhere to these new regulations during financial years which start on or after 1 April 2025. Companies should take care to check whether they will be affected by the regulations as failure to report or publishing misleading information is a criminal offence, holding all directors liable on summary conviction. Those guilty of this offence will be subject to a fine.

It's hoped that the new legislation will lead to greater transparency around the retention payment practices of larger UK businesses, which may in turn improve cash flow throughout the construction industry. Whilst only applicable to ‘qualifying companies’, these reporting measures will shed light on poor payment practices within those larger companies and potentially help other businesses in the supply chain predict potential payment issues.

For further information please contact the construction team.