Deposits, Stage Payments & Retention: How to Pay an Extension Builder Safely

Last updated: June 2026 · Figures checked against live North London quotes and current government fee schedules.

How should you pay an extension builder?

Quick answer: Hand over no more than 5–15% as a deposit, tie every further instalment to a completed milestone rather than a calendar date, and hold back 2.5–5% retention for 3–6 months after completion. A builder demanding 25% or more upfront in cash is a warning, not a norm.

How the money flows is the single biggest lever a homeowner controls. Builders rarely walk away from a job that still owes them money; they walk away from jobs where the cash arrived ahead of the work. Stories of contractors vanishing with five-figure deposits — and of 12-week programmes limping past week 30 once the client had nothing left to withhold — almost always trace back to a payment plan that paid for promises instead of progress. Here is the structure that keeps you safe without starving an honest builder of cash flow.

How much deposit is normal for an extension?

Across the industry, 5–15% of the contract sum is standard — £4,000 to £12,000 on an £80,000 build. The deposit's legitimate purpose is commitment and early procurement, not funding the builder's previous job. Three rules keep it sensible. First, anything at 25% or above is a red flag whatever the explanation offered. Second, "materials on order" deposits are negotiable: where bespoke glazing genuinely needs a 50% fabrication payment, pay it against the supplier's order confirmation, or directly to the supplier, so the money is anchored to your goods. Third, pay by bank transfer or card, never untraceable cash — and if any single early payment exceeds £100, putting it on a credit card brings Section 75 protection on transactions up to £30,000.

What does a safe stage-payment schedule look like?

The principle is arrears, not advance: each payment lands after a physical milestone is finished and inspected, so the builder is never holding much of your money for work that does not yet exist. Here is a sound schedule for an £80,000 contract:

Stage	Trigger	Share	Amount
1	Contract signed (deposit)	10%	£8,000
2	Footings poured and ground-floor slab complete	15%	£12,000
3	Watertight — walls up, roof on, glazing in	25%	£20,000
4	First fix complete (wiring, pipework, carpentry)	15%	£12,000
5	Plastering and second fix complete	20%	£16,000
6	Practical completion and snag list agreed	10%	£8,000
7	Retention released after defects period	5%	£4,000

Notice the shape: at every point in the build, the value fixed to your house slightly exceeds the cash paid out. Six or seven stages suit most extensions; fewer than four concentrates too much money in each leap of faith.

What is retention and why does it matter?

Retention is a slice of the final account — 2.5–5% is conventional — withheld for a defects period of 3–6 months after practical completion. Its job is to keep the builder answering the phone once the keys are handed back. Cracked plaster as the structure dries, a sticking bifold, a weeping joint under the sink: these surface in the first winter, and £4,000 still on the table concentrates minds wonderfully. Agree the percentage, the defects period and the release mechanism in the contract before work starts; a builder who refuses any retention at all is telling you how interested they will be in your snag list.

Which payment red flags should stop you signing?

Walk away, or renegotiate hard, when you meet any of these: a deposit demand of 25%+ or a request for thousands in cash; no written contract for a five-figure project; instalments scheduled to calendar dates rather than completed milestones, which pays for time instead of work; lump sums requested "for materials" with no order confirmations attached; a schedule front-loaded so that 70% of the money is gone by the halfway point; or pressure to pay the next stage while the previous one stands unfinished. Each device transfers risk from the builder's cash flow to yours — and once you have paid ahead of the work, your leverage over pace and quality is gone.

How do you vet the builder before any money moves?

Ten minutes of checking beats any clawback attempt later. Look the firm up on Companies House: a trading history of three or more years with filed accounts is reassuring; a six-month-old entity whose director has dissolved two previous companies is not. Ask to see the public liability certificate — £2m–£5m of cover is typical for domestic work — and confirm the policy is live. Then telephone two past clients, ideally one whose project finished over a year ago, and ask the single most revealing question: how did the builder behave over the final 5% and the snagging? Anyone can pour footings enthusiastically. The defects period is where payment discipline proves its worth.

Which contract should the payments live in?

Two standard forms dominate domestic extension work: the JCT Minor Works contract and the FMB's domestic building contract. Both set out the payment schedule, retention percentage, defects period, insurance obligations, variation procedure and a dispute-resolution route, and both cost a few pounds rather than a few hundred to put in place. The exact form matters less than the discipline: every figure in this article belongs in a signed document, not an email thread. No serious contractor in 2026 objects to working under one.

Frequently asked questions

Can I pay the deposit by credit card?

Often, and it is worth asking. Under Section 75, card payments between £100 and £30,000 make the card issuer jointly liable if the contractor fails — protection a bank transfer does not carry. Some builders pass on a card fee; weigh it against the cover.

What if the builder asks for money early because of cash-flow trouble?

Decline, sympathetically. A contractor who cannot bridge a week of wages is one supplier bill from insolvency, and money paid ahead of milestones joins the queue of creditors if they fold. Offer to accelerate the next inspection instead of the next payment.

Who holds the retention money?

You do — it is simply the unpaid tail of the final invoice. Nothing needs escrow: the contract states that 2.5–5% falls due only when the defects period ends and listed snags are closed out.

Is paying cash to dodge VAT worth it?

No. It is tax evasion, it voids your paper trail, and it usually accompanies the no-contract, big-deposit pattern that precedes disappearances. Any saving evaporates the first time you need to enforce a warranty or chase a defect.

What happens if I miss a stage payment?

Most standard contracts let the builder suspend work after notice, and persistent non-payment is a breach entitling them to terminate. The schedule protects both directions — pay promptly when milestones are genuinely complete, and insist on completeness before paying.

A written stage schedule and retention come as standard on every fixed-price project we run from Cockfosters. Sketch your build with the Extension Builder, then book a free site visit or call 020 3051 9430 to see the payment plan before you see an invoice.