A Contractor’s Guide to Construction Invoicing in the UK

Construction invoicing presents unique complexities that set it apart from standard retail billing. While most businesses require only a simple bill of sale, contractors must compile multiple documents to prove labour, materials, and compliance with HMRC and the Construction Industry Scheme (CIS) for each billing period. Since construction invoices form the backbone of a contractor's cash flow on UK projects, getting them right is essential for business success.

This comprehensive guide explores the construction invoicing process, covering how to prepare invoices and payment applications, as well as proven best practices for effective billing.

Understanding Construction Invoices

Construction invoices document the details that contractors and suppliers submit to all project parties. These documents list amounts owed for completed work, materials, labour charges, and other costs over a specified time period.

The complexity of construction invoices varies significantly based on project size, contract type, and the party submitting them. For instance, residential project invoices are far simpler than the comprehensive documentation a main contractor submits to clients on major infrastructure schemes.

How Construction Project Invoicing Works

The invoicing process directly depends on the contract agreed between the client and main contractor. Larger projects typically operate on a progress-billing structure, which offers several advantages for both parties.

Progress Billing Explained

Progress billing (also known as milestone billing) pays contractors based on the percentage of work completed. This approach allows clients to align cash outflows with actual project progress, while contractors don't need to wait until handover to invoice. Instead, they raise applications monthly or at agreed milestones (such as 30%, 60%, and 100% completion).

Common Contract Structures

The contract ultimately determines how and when payments occur. UK projects often follow the JCT or NEC suites, incorporating payment structures such as:

• Lump sum agreements
• Time and materials (T&M) contracts
• Cost plus arrangements

Although the contract type doesn't always dictate invoicing frequency, it significantly influences the amount and type of information required in each invoice or payment application.

Understanding Retention

Retention (formerly called "retainage") represents a percentage that clients or main contractors withhold until practical completion and final account settlement. In the UK, this figure typically ranges from 3-5% per interim payment. Generally, 50% is released at practical completion, with the balance following at completion. Clear retention clauses, aligned with Build UK guidance to phase retention out in 2025, help prevent disputes and maintain positive working relationships.

Essential Components of UK Construction Invoices

Every construction invoice must meet HMRC and Construction Act requirements. As a minimum, include:

• Legal name, address, and company registration number
• Unique invoice number (for example, INV-2409-001) and issue date
• Project and contract reference details
• Description of works, dates, and location
• Net amount, VAT registration number, and rate (normally 20%) or note the Domestic Reverse Charge if applicable
• Labour element and CIS deduction where the payer operates as a contractor under CIS
• Retention held and cumulative value released
• Total amount previously certified, total due this period (such as £24,750.00), and revised contract sum
• Payment terms (usually 30 days) and a statement that statutory interest may apply under the Late Payment of Commercial Debts Regulations 2013
• Digital signature (valid under the Electronic Communications Act 2000)

UK-Specific Billing Methods and Best Practices

Under the Housing Grants, Construction & Regeneration Act 1996 (the Construction Act), you must follow specific procedures:

1. Issue a Payment Application (or "application for payment") at the agreed interval
2. Receive a Payment Notice from the payer
3. Handle Pay Less Notices - if the payer intends to pay less, they must serve a Pay Less Notice at least five days before the final payment date

Failure to follow these timelines can trigger statutory adjudication and interest charges. Moreover, software that integrates with HMRC Making Tax Digital (MTD) helps automate VAT submissions and maintain ongoing compliance.

Why Construction Invoicing Differs from Standard Billing

Multiple trades, staggered programmes, and retention rules make construction invoicing far more intricate than standard business invoicing. Evidence such as photos, daily records, and signed continuation sheets backs every claim, thereby limiting the risk of repayment notices or disputes.

Construction Invoice Components: Invoice vs. Payment Application

The specific line items vary according to who sends the invoice, the job size, and the prime contract requirements. Residential builders may raise simple documents containing company details, work descriptions, amounts payable, and terms. However, on most commercial and public projects, contractors invoice through payment applications.

Key Differences

Invoices serve as straightforward bills from vendors or contractors on smaller jobs. In contrast, payment applications are submitted by main contractors or subcontractors on larger jobs and include multiple supporting documents.

For example, a supplier sends an invoice after delivering bricks, while a main contractor submits a payment application to the client with comprehensive evidence of labour, time, and materials billed.

Most UK contracts use a JCT Application for Payment (or equivalent continuation sheet) rather than the US-centric AIA G702 form. The document typically captures:

• Project and contract information
• Contractor, client, and architect contact details
• Schedule of values reference
• Original contract price and approved variation totals
• Value of work executed and materials on-site
• Retention withheld
• Amount previously certified and total now due

On other projects, vendors may issue their own invoices, which the main contractor then compiles within the head contract's format.

Essential Documentation for Payment Applications

As previously noted, main contractors must attach comprehensive documentation to get applications certified successfully.

• Schedule of Values

  A Schedule of Values (SOV) lists every work item and its corresponding value. Created alongside the Work Breakdown Structure, it becomes a continuation sheet showing progress each period.

• Variation Orders

  Include all approved variations billed this cycle. Each variation's value should appear clearly in the SOV to maintain transparency and accuracy.

• Daily Reports

  Daily reports log site activity and can help prove completion timelines, thereby speeding approval processes and reducing delays.

• Photo Documentation

  Clear photos (mobile quality is sufficient) provide visual evidence and can resolve disputes quickly. Consequently, maintaining a comprehensive photographic record proves invaluable.

• Vendor Invoices

  Maintain and submit all invoices from subcontractors and suppliers so funds flow promptly down the supply chain, ensuring positive relationships throughout the project network.

• Lien Waivers

  A signed waiver of lien (or deed of release) demonstrates that payment has been received and no further claim will be made against the project.

Invoicing Best Practices

Although construction invoicing presents complexity, the following best practices simplify the process exponentially:

• Set Clear Expectations Early

  Agree on payment schedules, retention percentages, and notice periods upfront. If subcontractors remain unaware that 5% retention affects their cash flow, they may suspend work, thereby blocking progress elsewhere on the project.

• Maintain Organised Records

  Code all costs correctly to streamline invoicing and resolve disputes swiftly. This systematic approach saves considerable time during billing cycles and dispute resolution processes.

• Leverage Invoicing Software and Technology

  Modern construction management platforms integrate seamlessly with accounting tools, HMRC MTD, and banking feeds, creating a single source of truth for costs, change orders, and compliance requirements. Accurate, timely invoicing reduces disputes, safeguards margins, and provides teams with the data needed to forecast cash flow with confidence.

FAQs

What should a builder's invoice include? 

Project reference, description of works, dates, net amount, VAT, retention, CIS deduction, total due, and payment terms.

What legally must appear on an invoice? 

Legal name and address, company number, VAT number, invoice date, unique invoice number, and clear description of supply.

How long does a contractor have to pay an invoice in the UK? 

Unless otherwise agreed, the Construction Act sets the final date for payment at 30 days from the due date.

Do subcontractors charge VAT? 

Yes - unless the domestic reverse charge applies. Always confirm VAT status before invoicing.

How do I invoice for construction work?

1. Agree on the schedule of values
2. Record daily labour and materials
3. Compile supporting evidence
4. Issue monthly applications
5. Track payment and retention release

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