Applications for payment vs invoices: what is the difference?

It values what you’ve done. On a monthly cycle you assess the work completed to a valuation date, add materials on site where the contract allows, add agreed variations, deduct retention and deduct what you’ve already been paid, then claim the balance. The number is a claim, not yet a debt.

What turns it into a debt is the notice regime. Under section 110A the payer has five days from the due date to issue a payment notice stating the sum it considers due. If it doesn’t, and the contract allows the payee to apply, your application generally becomes the default payment notice under section 110B, and the sum in it becomes the notified sum. The payer then has to pay that figure in full on the final date for payment, unless it serves a valid pay less notice in time. Five days isn’t long.

A valid application that goes unanswered becomes the sum the payer must pay, regardless of what the work was worth.

Two things decide it. Whether it complies with the contract, and whether it’s clear enough that a reasonable recipient would read it as an application under the payment mechanism. Courts have thrown applications out for arriving late, for going to the wrong person, and for sitting in a spreadsheet attachment with no covering statement.

1. 01On time. Applications are usually due on a fixed date each month. A day late is often a month late, because it rolls into the next cycle.
2. 02In the right form and to the right person. If the contract names a quantity surveyor or an email address, use it. Copying someone else in as well is fine. Sending it to them instead isn’t.
3. 03Stating a sum. The gross valuation, the deductions and the net amount now claimed, as a specific figure.
4. 04Stating the basis. Enough detail to show how the sum is calculated: measured work, variations, materials on site, retention.
5. 05Identifying itself. Head it "Application for Payment No. 7" with the valuation date and the payment cycle it belongs to.

NoteDon’t head a document "Invoice" if it’s an application. The label isn’t decisive on its own, but arguing about it costs more than getting it right first time.

When the sum is settled. On an application-based contract the sequence normally runs: application, payment notice or certificate, then invoice for the certified amount. The invoice does the tax job, because it’s the VAT document, and it’s the thing your customer’s accounts payable team needs before it can pay you.

On smaller work with no formal payment mechanism, the invoice does both jobs. A domestic bathroom refit is invoiced, not applied for. Between those two extremes sit a lot of subcontracts where the contract says "applications" and both parties have drifted into invoices because invoicing is easier. That drift is where the money goes.

For most construction services the basic tax point is when the work is done, but issuing a VAT invoice within fourteen days creates an actual tax point on the invoice date. Continuous supplies of construction services are typically accounted for as each payment is received or each VAT invoice is issued, whichever comes first. So the VAT normally sits on the invoice, not on the application.

Where the customer isn’t an end user and the other conditions are met, the invoice carries nil VAT and the domestic reverse charge wording. That holds for an invoice raised off a certified payment application exactly as it does for any other invoice. It’s also one of the invoices most often missed.

NoteAn application for payment is generally not a VAT invoice. Don’t show VAT as charged on one unless your accountant has told you your arrangements make it a tax point.

Retention is deducted on the face of the application, usually as a percentage of the gross valuation. It isn’t a discount and it isn’t written off. It’s your money, held back, and it needs tracking through to the release dates. See retention and how to get it released.

Show it as its own line. An application that nets retention off inside the valuation hides it, and hidden retention doesn’t get chased at practical completion.

Payment applications are a module in Estimark, £19 a month, bundled from Pro upward. An application carries its valuation, its retention deduction and its Construction Act dates on one record, so the due date and the pay less deadline sit next to the figure they apply to. Certify it and it becomes an invoice, with the same VAT treatment any other invoice would get, reverse charge included.

Two honest limits. Estimark doesn’t decide whether your application is contractually valid, and it doesn’t serve or assess notices. It keeps the dates and the numbers in one place so the deadline is on screen rather than in somebody’s head. The contract admin stays yours. More on payment applications and retention.