Deposits and stage payments for domestic work

Take a deposit that covers what you'll spend before the first stage payment, usually materials ordered for the customer and any made-to-measure items, then bill the rest in stages tied to finished work. On a £42,000 extension, a 20% deposit (£8,400) and four stages of £8,400 keeps you from funding the job yourself. Put the schedule in the signed quote.

How much deposit should a builder take?

Enough to cover your outlay before the first stage payment, and no more than you can justify. On most domestic jobs that's the materials you'll order for this customer, plus anything made to measure: windows, a kitchen, steels, a staircase. A deposit that matches real costs is easier to defend if the customer cancels.

There's no single right percentage. A bathroom where you buy £3,500 of sanitaryware and tiles up front needs a bigger share than a decorating job where the paint costs £200. Work it out from the job, then round it.

The default is a £42,000 extension with a 20% deposit and four stages: £8,400 deposit, £33,600 left to bill, £8,400 a stage. Change the figures to your own job.

How do you set stage payments?

Tie each stage to a point the customer can see is finished, and make each one cover the cost of the next stretch of work. Avoid stages tied to dates alone; if the job slips, the customer will argue it isn't due.

On longer jobs, some builders hold a small final amount, say 5%, until snagging is done. That's fair to the customer and gives you a clear finish line. If the job has variations, bill them with the next stage rather than at the end; see how to price variations.

Payment terms
This quote is for £total including VAT / no VAT is charged.

1. Deposit of £deposit on acceptance. This pays for materials ordered for your job, e.g. steels, windows and the first materials delivery, which we order on receipt.
2. £stage 1 when stage 1 milestone, e.g. foundations are passed by building control.
3. £stage 2 when stage 2 milestone.
4. £stage 3 when stage 3 milestone.
5. £final on completion, when we've walked round together and agreed any snagging.

We'll send an invoice at each stage with photos of the work. Payment is due within 7 days of each invoice by bank transfer to account details.

Agreed variations will be priced in writing before the work is done and added to the next stage invoice.

Your right to cancel is set out in the attached cancellation information.

What consumer rules apply to deposits?

Two sets matter most for homeowners in Great Britain: cancellation rights when you agree the contract in their home, and fairness rules for what you keep if they cancel.

You must also give the customer the cancellation information and form before the contract. If they cancel in the 14 days and you haven't started, the deposit generally goes back.

On keeping a deposit after a later cancellation, the Competition and Markets Authority's unfair terms guidance gives a term letting a trader keep all prepayments whatever the circumstances as an example of one that can be unfair, and says charges shouldn't go beyond what's needed to protect your legitimate interests. Unfair terms don't bind the consumer, and you may have to repay money taken under them. In practice: keep what covers your real costs, such as made-to-measure items and work done, and say so in the quote. If a large sum is at stake, ask a solicitor.

The Construction Act's statutory right to stage payments doesn't apply to a contract with a homeowner for work on the home they live in, so for domestic work, your quote is the only thing giving you stage payments. Write them in.

How do you handle VAT on a deposit?

If you're VAT-registered, a deposit that's a part payment for the work usually creates a tax point when you receive it or invoice it, whichever is first. So VAT on the deposit goes in the VAT return for the period you received it, not when the job finishes.

HMRC's VAT guide says most deposits serve as advance payments and create tax points. Work it into your cash flow forecast so the VAT on a big deposit is there when the quarter's bill arrives. Ask your accountant if you're unsure how a particular deposit should be treated.

What if a customer won't pay a deposit?

Explain what it pays for, and offer to show the order. Most refusals come from customers who've been burned before, or who think the deposit is profit. Pointing to the specific items, "this pays for your steels and windows, which we order the day it arrives", usually settles it.

Quoting fast and sending the payment terms with the quote means the deposit question comes up before the customer says yes, not after. A renovation builder we work with sends branded proposals and contracts with the stage payments written in; it's part of what got his admin from about two days a week down to about 30 minutes a day.

If a customer still won't pay anything up front on a job where you're buying made-to-measure items, think hard about whether you want the job. You'd be lending them the money. See quote acceptance and deposits for how to put it at the point they accept.

Why do stage payments matter so much for cash flow?

Because without them you pay for the whole job before you're paid for any of it. On the £42,000 extension, with no deposit and one invoice at the end, the builder carries ten weeks of wages and every materials bill. With the schedule above, the builder is never more than about one stage, £8,400, out of pocket. If you feel busy but broke, unstaged domestic jobs are often why.

Common questions