An assignment that is still running on 31 December counts towards that year's profit. For tax purposes you value the work done at the part of the agreed fee that belongs to it. That applies to a sole proprietorship and to a private limited company, and also to services such as a structural calculation or a building services design.
You deduct what you have already invoiced. If your invoicing lags behind the work, you have a receivable. If your invoicing runs ahead, for example because of a large instalment at the start of a phase, the difference is not yet revenue but a debt to the client.
In short
- For tax purposes you value a running assignment at the part of the agreed fee that belongs to the work done on 31 December (Income Tax Act 2001, article 3.29b, which also applies to a private limited company through the Corporate Income Tax Act).
- With a time-and-materials assignment that is the hours worked at the agreed rate. With a fixed fee per phase you measure progress, usually with the hours spent against the budgeted hours.
- You deduct invoiced instalments from the value of the work. A positive difference is a receivable, a negative difference is fees invoiced in advance and appears as a debt on the balance sheet.
In this article
- What is work in progress at an engineering firm?
- How do you value an assignment with a fixed fee on 31 December?
- How does it work with a time-and-materials assignment?
- How do you measure how far an advisory assignment has progressed?
- What do instalment invoices and fees invoiced in advance do to the balance sheet?
- Why does a running assignment count towards tax for this year?
- What do you do if an assignment stops or is going to make a loss?
- Is work in progress in the annual accounts the same as in the tax return?
What is work in progress at an engineering firm?
Work in progress is an assignment that you have accepted and partly carried out, but not yet finished on the balance sheet date. For a structural engineer that might be a school whose preliminary design is finished while the final design is still in progress. For a building services consultant it might be a heat pump design whose calculations are done but whose specification is not.
The law names two kinds: work in progress and contracts in progress. Work concerns something physical that you make, such as a roof. A contract concerns a service, such as a calculation, advice or a drawing. The Income Tax Act gives the same rule for both (Income Tax Act 2001, article 3.29b). The work of an engineering firm is therefore usually a contract in progress.
For a roofing business, the explanation with examples of a flat roof is in a separate article (work in progress at a roofing business). This article is about what is different for advisory work: fees on a time basis or per phase, instalments at the start of a phase, and assignments that the client stops halfway.
How do you value an assignment with a fixed fee on 31 December?
You take the part of the fixed fee that matches the work already done. The law says that the valuation is the part of the agreed fee that can be attributed to the work in progress (Income Tax Act 2001, article 3.29b). The same rule applies to a private limited company, because the Corporate Income Tax Act refers to this article (Corporate Income Tax Act 1969, article 8).
So that valuation also contains part of your profit. The explanatory memorandum to the law says that not only the direct costs count, but also part of the overheads and a profit mark-up. This makes the profit visible step by step during the project (Explanatory memorandum to the Work on Profit Act, 2006).
Worked example
A structural engineer receives € 60,000 excluding VAT for the preliminary and final design of a school. He budgets 500 hours and uses a cost price of € 90 per hour, so € 45,000 of costs and € 15,000 of profit. On 31 December 2026, 300 hours have been spent and he expects to need another 200 hours. The assignment is therefore 60% complete. The work in progress is 60% of € 60,000, so € 36,000. The costs incurred are € 27,000. € 9,000 of profit falls in 2026.
The standard terms for architects and engineers, DNR2025, assume a fixed amount per defined phase. A phase is a stage with a result that can be checked (DNR2025, article 1 and article 12.1). If you agreed an amount per phase, value per phase as well. A completed phase counts for 100%, a phase still in progress by its progress.
How does it work with a time-and-materials assignment?
With a time-and-materials assignment it is simpler. The agreed fee is the number of hours worked times the agreed hourly rate. DNR2025 says that the rates per unit of time are agreed in writing and that time spent also includes the necessary travel time (DNR2025, article 12.1).
What you worked by 31 December but have not yet invoiced belongs to the old year. If you worked 40 hours in December at € 110 and send that invoice in January, the € 4,400 is December revenue. In the annual accounts that amount appears as still to be invoiced. It is an example of the rule that income and expenses belong to the financial year in which they arise, even if the money comes later (Civil Code, articles 2:362(5) and 2:384).
Be careful with a time-and-materials assignment with a cap, a maximum number of hours or a maximum amount. Then it does have a limit, and part of your hours can no longer be invoiced. Hours above the cap are costs without income. They do not count in the value of the project.
How do you measure how far an advisory assignment has progressed?
The law does not prescribe a method. At an engineering firm it is obvious to divide the hours spent by the total number of hours the assignment is expected to take. That only works if everyone records their hours on the right assignment and phase.
- Hours: hours spent divided by hours spent plus hours still to be spent. This follows the work best when hours are your largest cost.
- Phases: a completed phase counts in full. This is simple, but too rough if one phase is most of the work.
- Deliverables: the number of drawings, calculations or reports delivered against the total. This suits work that consists of many similar pieces.
For the phases you can use the classification of the Standard Task Description, STB2026. It divides design into structural design, preliminary design, final design, environmental permit, technical design and construction-ready design, among others (BNA and NLingenieurs, STB2026 alpha version, 17 June 2026). Record in the assignment which phases are included. Then you also know when a phase is finished.
The weak spot is the estimate of the hours still to come. Kahneman and Lovallo describe how people often look at a plan as a case on its own. They base their forecast on the plan and the scenario, and ignore the figures of earlier similar cases. That leads to overly optimistic forecasts (Kahneman & Lovallo, 1993).
For your balance sheet that means: if you underestimate the remaining hours, you count an assignment as further along than it is and take profit too early. So compare the estimate with the actual hours of earlier assignments of the same kind. In the example, 400 hours still to go instead of 200 would bring progress down from 60% to about 43%.
What do instalment invoices and fees invoiced in advance do to the balance sheet?
You deduct invoiced instalments from the value of the work in progress. If the work is worth more than you invoiced, the difference appears on the balance sheet as a receivable. If you invoiced more than the work is worth, the difference appears as a debt: fees invoiced in advance. That part is not yet revenue.
How quickly you invoice depends on the payment schedule. DNR2025 says that the parties agree a payment schedule in instalments when the assignment is given. If there is no schedule, the consultant invoices in monthly instalments according to the progress of the work (DNR2025, article 13.1). Invoice and work then run roughly in step.
If you agree a schedule with a large amount at the start of a phase, your invoicing runs ahead of the work. In the example the firm invoiced 50% at the start of the preliminary design and 25% at the start of the final design, together € 45,000. The work is worth € 36,000. Then € 9,000 appears among the debts as fees invoiced in advance.
That schedule is good for your money in the bank. It does not change the profit, because profit follows the work and not the invoice. It does mean that you owe work you have already been paid for. If the assignment stops, the client may ask for part of it back.
Why does a running assignment count towards tax for this year?
Because profit falls in the year in which you do the work. The explanatory memorandum to the law says that businesses with long-running assignments often charge instalments during the work, depending on progress. The profit is then realised continuously. That is why you must take profit as the work progresses (Explanatory memorandum to the Work on Profit Act, section 7.3).
In the example € 9,000 of the € 15,000 profit falls in 2026 and € 6,000 in 2027. If you work through a private limited company with less than € 200,000 of taxable profit, the corporate income tax rate in 2026 is 19.0% (Belastingdienst, corporate income tax rates). On this project you then pay € 1,710 corporate income tax for 2026.
What do you do if an assignment stops or is going to make a loss?
You take a loss as soon as you see it coming. The explanatory memorandum to the law says that you can form a provision for a piece of work if there is reason to do so (Explanatory memorandum to the Work on Profit Act, section 7.3). For the annual accounts the law says that you may include losses that originate before the end of the financial year, if you know about them before you prepare the accounts (Civil Code, article 2:384(2)).
An example. On the same project it turns out on 31 December that the assignment will take 720 hours instead of 500. The costs become € 64,800 against a fee of € 60,000. If you cannot charge for extra work, the expected loss is € 4,800. That loss belongs in 2026, not only in the year of completion.
If the client stops the assignment halfway, the law gives you a right to a reasonable part of the fee. This takes into account, among other things, the work you have already done and the benefit the client gets from it (Civil Code, article 7:411). DNR2025 says that the parties then establish the state of the work and that the client pays on that basis (DNR2025, articles 18.7 and 19.1).
For the balance sheet on 31 December that means: if an assignment has stalled or been terminated, do not value it at the old percentage. Value it at what you expect to still be able to invoice and receive. Your record of hours per phase is your evidence for that.
Is work in progress in the annual accounts the same as in the tax return?
For many small firms, yes. A small private limited company may prepare its annual accounts according to the tax rules, if it applies all tax rules that apply to it and states this in the notes (Civil Code, article 2:396(6)). Small means, among other things, no more than € 15,000,000 of revenue and fewer than 50 employees. Then the work in progress appears in the annual accounts and in the tax return at the same amount.
If you choose the ordinary rules for annual accounts, the prudence principle applies. You only include profit to the extent that it has been realised on the balance sheet date (Civil Code, article 2:384(2)). In the law, work in progress is a separate part of inventories (Civil Code, article 2:369).
The Dutch Accounting Standards work this out further. There is a separate standard for construction and service contracts in progress, RJ 221, and a standard for the profit and loss account, RJ 270, which also covers the recognition of revenue. In their current versions both apply to financial years from 1 January 2025 (SRA, RJ 221 and SRA, RJ 270). Which standard fits your assignments and exactly what it requires is something you agree with whoever prepares your annual accounts.
For closing the year, a list of all running assignments on 31 December helps. For each assignment, list the fee, the form (time and materials or fixed per phase), the hours spent and still to be spent, the invoiced instalments and any agreements on extra work. With that list you work out both the annual accounts and the tax return.
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, 2 June 2006, section 7.3 and article-by-article explanation. officielebekendmakingen.nl
- BNA and Royal NLingenieurs, De Nieuwe Regeling 2025 (DNR2025), main document, articles 1, 12, 13, 18 and 19 (in Dutch). bna.nl
- BNA and NLingenieurs, STB2026 alpha version, explanation and manual, version 1.0, 17 June 2026 (in Dutch). bna.nl
- Kahneman, D. & Lovallo, D. (1993). Timid choices and bold forecasts: a cognitive perspective on risk taking. Management Science, 39(1), 17-31. doi.org
- Belastingdienst, Corporate income tax rates, accessed 31 October 2026. belastingdienst.nl
- Dutch Civil Code Book 7, article 411, in force from 8 October 2026. wetten.overheid.nl
- Dutch Civil Code Book 2, articles 362, 369, 384 and 396, in force from 1 July 2026. wetten.overheid.nl
- SRA, RJ annual edition 2025, Standard 221 Contracts in progress (amended 2024). sra.nl
- SRA, RJ annual edition 2025, Standard 270 The profit and loss account (amended 2024). sra.nl