Stage payments for trades: how to structure them (UK guide)

A mate of mine took on a two-storey side extension a couple of years back. Twenty-odd grand, twelve weeks, nice customer, no red flags. He agreed to invoice at the end because that's how he'd always done it. By week seven he'd put £9,000 of blocks, steels and labour through his own account and the job hadn't produced a penny. Van insurance came out, the subbie wanted paying, and he ended up borrowing off his brother-in-law to finish a job he was making money on.

The job was profitable. The cashflow nearly killed him. That gap is what stage payments close.

This is how to structure them: the four schedules that actually work on UK jobs, a worked £28,000 loft conversion with the numbers, the wording to put in your quote, and what the law says when a stage goes unpaid.

What a stage payment is, and what it isn't

A stage payment is a slice of the total job price, invoiced when the work reaches a point you both agreed in advance. Six stages of a £30,000 job are not six separate jobs. It is one price, one contract, released in instalments against progress.

It is not a deposit. A deposit is taken before any work happens, usually to cover materials you order and pay for up front. Stage payments start after that, and plenty of jobs have both. We covered that side in how much deposit a builder can ask for.

It is also not payment on account for work you haven't done. Invoice stage three while the job is sat at stage two and you have handed the customer a reason to argue, and a reason to hold the lot.

The four ways trades structure stages

Pick one and stick to it. Mixing methods halfway through a job is where disputes come from.

1. Percentage milestones

The total price splits into percentages tied to named points in the build. Deposit 10%, structure complete 25%, weathertight 25%, first fix 20%, second fix 15%, completion 5%. Best for domestic jobs with a clear build sequence: extensions, loft conversions, full refurbs.

The strength is that the customer can see what they are paying for. The weakness is that a percentage of a fixed price does not move when the job does, so variations need their own paperwork.

2. Fixed value stages

Same idea, but each stage carries a pound figure rather than a percentage. £2,800 on acceptance, £7,000 on steels in, and so on. Reads clearer to a customer who does not want to do arithmetic. Use it on anything under about £50,000. Above that, percentages hold up better because variations move the total.

3. Monthly or fortnightly valuations

Standard on subcontract and commercial work. You value the work done in the period, apply for payment, and the contractor issues a payment notice. On contracts covered by the Construction Act there is a proper mechanism behind it: a due date, a final date for payment, a payment notice within five days, and a pay less notice if the payer wants to pay less than the notified sum.

This suits jobs where the scope moves week to week. It suits domestic customers badly, because most homeowners cannot value a half-built wall and will not enjoy being asked to.

4. Hybrid: deposit, materials drawdowns, completion balance

A deposit covers the first materials order. You then draw down each major order as it lands on site, with labour paid at two or three progress points and a balance at completion. Common on kitchens and bathrooms, where materials are a big share of the price and get ordered in tranches. It keeps you out of pocket by less, which matters when a single kitchen order is £9,000. The trade-off is more invoices and more explaining.

Worked example: a £28,000 loft conversion

Say Adam Wójcik trading as Wójcik Building has taken on a rear dormer loft conversion in Leeds. Fixed price £28,000, eight weeks on site, domestic customer in their own home. Here is the schedule that went into the quote.

• Stage 1, on acceptance, 10% = £2,800. Covers the steels order (£1,780) and the deposit on two Velux windows.
• Stage 2, structural work complete, 25% = £7,000. Steels in, floor joists down, Building Control first inspection passed.
• Stage 3, weathertight, 25% = £7,000. Dormer framed and felted, roof made good, windows in, room is dry.
• Stage 4, first fix complete, 20% = £5,600. Electrics, plumbing, stud walls, insulation, ready for plaster.
• Stage 5, plastered and second fix, 15% = £4,200. Skimmed, sockets and lights on, staircase in, doors hung.
• Stage 6, completion and sign-off, 5% = £1,400. Snagging done, Building Control completion certificate issued.

Six stages across eight weeks, each invoiced with 7-day terms.

Now the bit that matters. Under one invoice at the end, Adam carries the full £28,000 for eight weeks. Under this schedule his exposure is one unpaid stage plus the work done since. The biggest single stage is £7,000, so if stage 3 goes unpaid and he stops, he is down roughly £7,000 on a job where he has already banked £9,800.

That is the whole argument. Same job, same profit, and the number that can go wrong drops from £28,000 to about £7,000.

The wording that goes in your quote

A stage schedule only works if the customer agreed to it before you started. Verbal does not count for much when someone decides to stop paying. Put it in the quote, above the signature, in plain language.

Three details in there are doing real work.

"Work on the following stage will not begin until the previous stage invoice has been paid in full." This is the sentence that stops a customer running you three stages deep on goodwill. It also gives you a calm, pre-agreed reason to stop, rather than an argument.

The variation line. Extra work is the most common reason a stage schedule falls apart. Customer asks for two extra downlights and a bit of boxing in, you do it, then at stage 5 nobody agrees what the total is any more.

The interest clause. On a homeowner job the Late Payment Act 1998 does not apply, so interest is only chargeable if your terms say so and the customer accepted them before work started. Getting that clause in beforehand is the difference between having a lever and not having one.

Where the law sits on stage payments

Two different regimes, depending on who is paying you.

Subcontract and commercial work

The Housing Grants, Construction and Regeneration Act 1996, amended in 2009 and usually just called the Construction Act, covers construction contracts in the UK. Section 109 gives a statutory right to interim or stage payments where the work is due to take 45 days or more. If the contract has no adequate payment mechanism, the Scheme for Construction Contracts fills the gap for you.

The parts worth knowing:

• The payer must issue a payment notice within five days of the due date, saying what they consider due and how they worked it out.
• To pay less than the notified sum they must serve a pay less notice before the final date for payment. No valid notice, and the notified sum is payable.
• Section 112 gives a right to suspend performance for non-payment after at least seven days' written notice, plus a reasonable amount for the costs the suspension causes you.
• Either side can refer a dispute to adjudication at any time, which beats court for payment arguments on larger jobs.

Domestic work for a homeowner

Section 106 excludes contracts with a residential occupier, meaning someone who occupies or intends to occupy the property as their home. So none of the above applies on a standard extension for a family in their own house.

That is fine as long as the schedule is in the contract. Your rights on a domestic job come from the agreement itself, backed by the Consumer Rights Act 2015 on the customer's side. If a stage stays unpaid, the route is the same as any other debt: the written chase, then Money Claim Online in England and Wales, or the Simple Procedure in Scotland. Full walkthrough in how to chase late payment from a customer.

If a customer wants a second opinion on staged payments, Citizens Advice publishes plain guidance on paying for home improvement work. Pointing them there tends to settle it faster than arguing.

VAT and CIS on staged work

If you are VAT registered and the work is standard-rated, each stage payment creates its own tax point. The VAT falls due on the earlier of the date you receive the payment or the date you issue a VAT invoice for that stage. Six stage invoices means six tax points, spread across however many quarters the job runs through.

So an unpaid stage invoice still puts the VAT on your return, and a customer who goes quiet over a quarter end costs you the VAT as well as the money. Not all building work is 20% either, and the 0%, 5% or 20% decision tree is worth five minutes before you price.

If your customer is a VAT-registered contractor and the work is reportable under CIS, the domestic reverse charge usually applies. You charge no VAT on the stage, and note on the invoice that the customer accounts for it. Getting that wrong across six stage invoices is six corrections instead of one.

What NOT to do

1. Don't tie a stage to a date. "£7,000 on 15 October" invites an argument about whether you were behind. "£7,000 on completion of the structural work" is checkable and cannot be argued into a weather delay. Stages track progress, never the calendar.
2. Don't use vague stage names. "Halfway" and "50% complete" mean whatever the customer wants them to mean at the point they are asked for £7,000. Name the physical state instead: steels in, weathertight, first fix complete, plastered.
3. Don't carry on working through an unpaid stage. Every day past an unpaid stage invoice increases what you stand to lose and teaches the customer the schedule is decorative. Stop, in writing, and point at the clause they signed.
4. Don't back-load the schedule. A 5% final stage is right. A 40% final stage means you finance the back half of the job and the customer holds all the leverage during snagging.
5. Don't let variations ride on the original schedule. Extra work quoted verbally and absorbed into stage 4 is how a clean job turns into a dispute. Separate quote, separate acceptance, separate invoice, every time.

The habit that makes the whole thing work

Photograph the stage the day you finish it, and send the invoice with the photos attached.

Not a description of the work. The work. Steels bolted in with the Building Control sticker visible. The dormer felted and the room dry. First fix cables clipped and the insulation in. Four photos and a line saying which stage this is and what the schedule said about it.

It does two things. It removes the "I'm not sure that's actually finished" conversation before it starts, because the customer is looking at it. And if the job ever ends up in front of a judge, you have a dated record of what was done and when, which is the evidence most trades wish they had and almost none of them keep.

It takes about ninety seconds from the van. TradeStash logs the photos against the job and fires the stage invoice off the same schedule, so it's done before you've pulled off the drive. However you do it, do it the same day. Stage payments are about keeping the gap between doing the work and holding the money as small as you can make it.