Understanding Payment Schedules on a Building Project

Money is one of the most sensitive aspects of any building project — and one where misunderstandings between homeowners and builders can quickly sour an otherwise good working relationship. Getting clarity on the payment schedule before work starts is one of the most important things you can do to protect your project and your budget.

Here's what fair, professional payment terms look like — and the warning signs to watch out for.

What Is a Payment Schedule?

A payment schedule sets out when payments are due, how much each payment is, and what it's tied to. On a well-run project, payments are linked to progress milestones — what has been built or completed — rather than arbitrary dates or the builder's cash flow requirements.

Milestone-based payment schedules protect both parties. The homeowner pays for work that has been done, not work that hasn't started yet. The builder receives payment promptly once milestones are reached, supporting cash flow on an active site.

A Typical Payment Structure

While every project is different, a reasonable staged payment schedule for a loft conversion or extension in the £50,000–£150,000 range might look something like this:

Deposit: 5–10% on signing of contract, to cover initial material procurement and mobilisation costs.

Foundations and groundworks complete: typically 15–20% of the contract value.

Structure complete (walls up, roof on, weathertight): a further significant payment, often 20–25%.

First fix complete (structural, electrical, plumbing first fix, windows fitted): another 15–20%.

Second fix and plastering complete: 15–20%.

Practical completion: 10–15%, leaving a retention.

Retention released after defects period: typically 2.5–5%, held for six to twelve weeks after completion to cover any minor defects that emerge.

The exact percentages will vary by project, but the principle of tying payment to progress should always be there.

Warning Signs in Payment Terms

Large upfront deposits are the most common warning sign. A request for 30%, 40%, or 50% of the contract value before work has started — or very early in the project — is a red flag. A reputable builder with a healthy order book does not need a large deposit to fund a project. Excessive upfront payments leave you exposed if the project stalls or the contractor disappears.

Requests for payment ahead of progress — for example, being asked for the 'structure complete' payment before the roof is on — should prompt careful questions.

Vague or unwritten payment terms are a risk. Always ensure the payment schedule is documented in writing as part of the contract, not agreed verbally.

The Importance of Retentions

A retention — a percentage of the contract sum withheld until after a defects liability period — is standard professional practice on building contracts. It gives you a mechanism to ensure minor defects that appear in the weeks after completion are rectified without having to pursue the contractor separately.

A builder who refuses any form of retention on a sizeable project is worth scrutinising. It can indicate a lack of confidence in their own work, or simply that they're not familiar with professional contract norms.

VAT and Invoicing

VAT is currently charged at 20% on most building work, though certain works — particularly those meeting the definition of a residential conversion — may qualify for the reduced 5% rate. Always clarify whether quoted prices are inclusive or exclusive of VAT, as the difference is significant on a large project.

Every payment should be accompanied by a proper VAT invoice showing the VAT registration number. Keep all invoices — you may need them for insurance purposes or when you sell the property.

Using a Contract

The payment schedule should always sit within a formal written contract. For domestic building work, a JCT Homeowner Contract is widely used and understood. It's balanced, clear, and protects both parties.