An advisory assignment rarely runs exactly from January to December. On 31 December some of your assignments are half done. That work is called work in progress. With an hourly rate it is simple: you count the hours you have not invoiced yet. With a fixed price you have to decide which part of the price belongs to the work already done.
That part counts towards the revenue and profit of the year. This applies to the annual accounts of your private limited company and to the tax return too, for a company and for a sole proprietorship. What you have invoiced is not the measure.
In short
- A fixed-price assignment counts towards your revenue and profit in proportion to the work done. For tax purposes this is in article 3.29b of the Income Tax Act, which also applies to companies.
- In advisory work you usually measure progress with hours worked against all the hours the assignment will take. An instalment invoice says little about it.
- If the assignment is going to make a loss, you may already take that loss in the annual accounts. A success fee only counts once the outcome can be estimated reliably.
In this article
- What is work in progress at a consultancy?
- Why does a half-finished assignment already count towards your profit?
- How do you determine how far an advisory assignment has got?
- What do instalment invoices and advances do to the balance sheet and VAT?
- What do you do if a fixed-price assignment is going to make a loss?
- How do you account for a success fee, a retainer or an assignment the client stops?
- Must work in progress in the annual accounts match the tax return?
What is work in progress at a consultancy?
Work in progress is work that has been done at the balance sheet date but is not yet finished or invoiced. At a consultancy it concerns assignments: an organisational review, a change programme or an interim job. The law calls these ongoing assignments (Income Tax Act 2001, article 3.29b(2)).
In law an advisory assignment is a contract for services (overeenkomst van opdracht). That is work which produces something other than a physical work, such as a building or a product (Dutch Civil Code 7:400). For a roofer or a builder it is a construction contract. The rules for the annual accounts are similar, but the way progress is measured differs.
If you work by the hour, the hours you worked in December and invoice in January are simply December revenue. Without an agreed price the client owes the usual or a reasonable fee (Dutch Civil Code 7:405(2)). If you work at a fixed price, you divide that price over the work. That is what the rest of this article is about. How it works for a roofing company is explained in work in progress at a roofing company.
Why does a half-finished assignment already count towards your profit?
Because the law says that income and expenses belong to the year in which they arise, not the year in which the money comes in. The annual accounts include the income and expenses of the financial year, whether or not they led to receipts or payments in that year (Dutch Civil Code 2:362(5)).
Guideline 270 of the Dutch Accounting Standards Board works this out for services. If the outcome of a service can be estimated reliably, you recognise the revenue in proportion to the services performed (RJ 270, paragraph 115). The guideline refers to Guideline 221 on construction contracts, which usually also applies to services (RJ 270, paragraph 116).
For tax purposes it has been the same since 2007. Work in progress is valued at the part of the agreed fee that belongs to the work already done (Income Tax Act 2001, article 3.29b). According to the explanatory memorandum, this makes profit visible progressively during the project, including a share of overheads and a profit margin (Parliamentary papers II 2005/06, 30 572, no. 3). For companies the article applies through the Corporate Income Tax Act (Corporate Income Tax Act 1969, article 8).
What this means for your tax
If you charge a fixed price and only invoice on delivery in February, the profit on the work from October to December still counts in the previous year. So you cannot push profit into the next year by invoicing later.
How do you determine how far an advisory assignment has got?
In advisory work you usually measure progress in hours: the hours worked against all the hours the assignment will take. RJ 270 names three methods: a review of the work performed, the services performed as a percentage of the total, or the costs incurred against the estimated total costs (RJ 270, paragraph 119). You choose the method that lets you determine progress reliably.
According to the guideline, instalment invoices and advances are usually not a good measure of how far the work has got (RJ 270, paragraph 119). A first instalment of 50% at the start does not mean that half is done.
The weak spot is the estimate of the hours still needed. People consistently estimate their own work too optimistically. In a series of studies participants were too optimistic about how quickly they would finish their own tasks, for study tasks and for other tasks. They thought mainly about the plan and little about earlier experience. Those asked to think about earlier tasks first no longer estimated too optimistically (Buehler, Griffin & Ross, 1994).
Kahneman and Lovallo describe the same thing for decisions in organisations. Over-optimistic forecasts come from an inside view, in which a plan and scenarios are the anchor and the figures from earlier projects are forgotten (Kahneman & Lovallo, 1993). For the year-end close this means: compare the estimated remaining hours with how many hours similar assignments really took.
What do instalment invoices and advances do to the balance sheet and VAT?
On the balance sheet you show the difference between what you have earned and what you have invoiced. If you have done more than you invoiced, the difference is a receivable: revenue still to be invoiced. If you have invoiced more than you have done, the difference is a liability. The law calls that liability advance payments received on orders (Dutch Civil Code 2:375(1)(c)).
| Situation on 31 December | On the balance sheet | In the profit and loss account |
|---|---|---|
| Done € 25,000, invoiced € 20,000 | Receivable still to invoice € 5,000 | Revenue € 25,000 |
| Done € 20,000, invoiced € 20,000 | No difference | Revenue € 20,000 |
| Done € 15,000, invoiced € 20,000 | Liability invoiced in advance € 5,000 | Revenue € 15,000 |
VAT works differently: it follows the invoice and the payment. VAT is due when you issue the invoice, and at the latest when you receive the money or part of it (VAT Act 1968, article 13(1) and (2)). An advance from the client at the start of the assignment therefore triggers VAT straight away, even if you have not done anything yet.
What do you do if a fixed-price assignment is going to make a loss?
Then you may take that loss in the year in which you see it coming. The law says that profits are only recognised once they have been realised at the balance sheet date, and that foreseeable obligations and possible losses that arose before the end of the financial year may be taken into account (Dutch Civil Code 2:384(2)).
For tax purposes a provision also remains possible if there is reason for it. That is what the explanatory memorandum to article 3.29b says (Parliamentary papers II 2005/06, 30 572, no. 3). Record why you expect the loss: the hours so far, the new estimate and the arrangements with the client.
Whether a fixed price is wise depends on how clearly the client's question is defined. In a study of 93 software projects at an Indian supplier, uncertainty about the client's requirements, team size and shortage of people, among other things, explained which type of contract was chosen. The choice of contract was also clearly related to the profit on the project (Gopal and others, 2003). These were IT projects in India, but the lesson fits advisory work too: the vaguer the question, the bigger the risk of a fixed price.
How do you account for a success fee, a retainer or an assignment the client stops?
A success fee only counts once the outcome can be estimated reliably. RJ 270 gives the example of an arrangement in which a fee is only payable if a certain result is achieved (RJ 270, paragraph 118). As long as that is not possible, you recognise at most revenue up to the costs you will probably recover, and no profit (RJ 270, paragraphs 121 and 122). If the fee consists largely of a fixed part, the total revenue can still be reliable.
A retainer is a fixed amount per period for work without a fixed number of tasks, such as a standing advisory role or a sounding-board role. You spread that revenue evenly over the period, unless another split fits the work better (RJ 270, paragraph 120).
A client may always terminate an assignment (Dutch Civil Code 7:408(1)). If your fee depended on completing the assignment, you are entitled to a reasonable part of the fee. The work you already did, the benefit to the client and the reason for the termination all count (Dutch Civil Code 7:411(1)). Between businesses you may agree a notice period or a fee for early termination in the assignment. That makes the amount on the balance sheet more certain.
Must work in progress in the annual accounts match the tax return?
For a small company it may, but it does not have to. A small legal entity may prepare its annual accounts on a tax basis, if it then applies all the tax principles and states this in the notes (Dutch Civil Code 2:396(6)). A company is small if it meets two of three criteria: assets up to € 7,500,000, net turnover up to € 15,000,000 and fewer than 50 employees (Dutch Civil Code 2:396(1)). Almost every consultancy falls into this group.
If you have a sole proprietorship, you do not publish annual accounts. Article 3.29b is in the Income Tax Act and so applies to your profit as usual. As a freelancer too, a fixed-price assignment that is half done on 31 December counts towards your taxable profit for the part already done.
The current texts of the guidelines are not freely available. Guideline 221 Construction contracts was amended in 2024 and applies to financial years from 1 January 2025 (SRA, RJ annual edition 2025). The RJ 270 paragraphs in this article come from the freely published 2021 version. If you are unsure about a large assignment, record your choice and your estimate and discuss them with your accountant.
Does an assignment I started in December but invoice in January count in the old year?
Yes, for the part done in December. With an hourly rate that is the hours worked, with a fixed price the part of the price that belongs to the work done.
May I book an advance from the client as revenue?
No, only for the part you have already done. The rest is a liability on the balance sheet. The VAT on the advance is already due, though.
Do I need to track my own hours as a freelancer for work in progress?
With a fixed price you do, because without hours it is hard to support your progress. A review of the work is also allowed, but is harder to demonstrate.
Sources
- Income Tax Act 2001, article 3.29b, in force from 21 February 2026. wetten.overheid.nl
- Corporate Income Tax Act 1969, article 8, in force from 1 January 2026. wetten.overheid.nl
- Parliamentary papers II 2005/06, 30 572, no. 3, explanatory memorandum to the Work on Profit Act, section 7.3 and notes on article 3.29b. officielebekendmakingen.nl
- Dutch Civil Code Book 2, articles 362, 375, 384 and 396, in force from 1 July 2026. wetten.overheid.nl
- Dutch Civil Code Book 7, articles 400, 405, 408 and 411, in force from 8 October 2026. wetten.overheid.nl
- VAT Act 1968 (Wet op de omzetbelasting 1968), article 13, in force from 1 January 2026. wetten.overheid.nl
- Dutch Accounting Standards Board, RJ-Uiting 2020-15, appendix 2: Guideline 270 The profit and loss account (amended 2021), paragraphs 115 to 122. rjnet.nl
- SRA, RJ annual edition 2025, Guideline 221 Construction contracts (amended 2024), table of contents. sra.nl
- Buehler, R., Griffin, D. & Ross, M. (1994). Exploring the "planning fallacy": why people underestimate their task completion times. Journal of Personality and Social Psychology, 67(3), 366-381. doi.org
- Kahneman, D. & Lovallo, D. (1993). Timid choices and bold forecasts: a cognitive perspective on risk taking. Management Science, 39(1), 17-31. doi.org
- Gopal, A., Sivaramakrishnan, K., Krishnan, M.S. & Mukhopadhyay, T. (2003). Contracts in offshore software development: an empirical analysis. Management Science, 49(12), 1671-1683. doi.org