Applications for payment vs invoices: what is the difference?

It values what you have 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 have already been paid, and 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 does not, 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. From that point the payer must pay it in full on the final date for payment unless it serves a valid pay less notice in time.

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 is clear enough that a reasonable recipient would understand it as an application under the payment mechanism. Courts have thrown out applications for being sent late, for being sent to the wrong person, and for being buried 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 — 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 as well is fine; instead of, is not.
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.

NoteDo not head a document "Invoice" if it is an application. The label is not decisive, but arguing about it costs more than getting it right.

When the sum is settled. On an application-based contract the sequence is normally: application, payment notice or certificate, then invoice for the certified amount. The invoice does the tax job — it is the VAT document — and it is what your customer’s accounts payable team needs in order to pay.

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

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 is earlier — which is why the invoice, not the application, normally carries the VAT.

Where the customer is not an end user and the other conditions are met, the invoice will carry nil VAT and the domestic reverse charge wording. That applies to a certified payment application exactly as it does to any other invoice, and it is one of the invoices most often missed.

NoteAn application for payment is generally not a VAT invoice. Do not 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 is not a discount and it is not written off — it is your money held back, and it needs tracking to the release dates. See retention and how to get it released.

Show it explicitly. An application that nets retention off inside the valuation makes it invisible, and invisible retention is the retention nobody chases at practical completion.

Payment applications are a module in Estimark — £19 a month, included from the Pro plan at £249 a month. An application carries its valuation, the retention deduction and the Construction Act dates, and a certified application becomes an invoice with the same treatment applied as any other invoice route, reverse charge included.

Two honest limits. Estimark does not decide whether your application is contractually valid, and it does not serve or assess notices. It keeps the dates and the numbers in one place so that the deadline is visible; the contract admin remains yours. More on payment applications and retention.