A roofing project that is still running on 31 December appears in your annual accounts as work in progress. You value it at the part of the agreed price that belongs to the work done (Income Tax Act 2001, article 3.29b). If a roof is 60% finished, 60% of the profit on that roof already counts in the old year. Invoices you already sent for instalments are deducted from it.
That makes December important. A large project that runs over the turn of the year moves profit and tax to the year in which you did the work, not to the year of completion.
In short
- Work in progress is work you have taken on and partly done, but not yet delivered.
- For tax you value it at the part of the agreed price that belongs to the work done. So the profit falls in the old year in proportion to the work.
- You deduct invoiced instalments. If you invoiced more than the work is worth, the difference appears as a liability on the balance sheet.
The amounts in this article are a worked example, excluding VAT. They do not come from a customer.
In this article
- What is work in progress at a roofing company?
- How do you value a running roof on 31 December?
- How do you determine how far a project has got?
- What do instalment invoices and advance payments do to the balance sheet?
- Why does a project in December count towards your profit and tax?
- What do you do if a project 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 a roofing company?
Work in progress is work you have taken on and already partly done, but not yet delivered on the balance sheet date. For a roofing company, it is for example a flat roof for an owners' association where the old covering is off and half of the new one is laid. A dormer that is installed but not yet finished also counts.
In the annual accounts, work in progress is a separate part of stocks, next to materials and finished goods (Dutch Civil Code, article 2:369). The work has value, even if you have not yet sent a final invoice for it. That value must go on the balance sheet, otherwise your profit is too low.
The law distinguishes between work in progress and assignments in progress. Assignments in progress are services that are still running, such as a maintenance contract. For tax, the same rules apply to both (Income Tax Act 2001, article 3.29b).
How do you value a running roof on 31 December?
For tax, you value the work at the part of the agreed price that belongs to the work done. That is what article 3.29b of the Income Tax Act 2001 says, which applies to a sole trader and a general partnership (Income Tax Act 2001, article 3.29b). For a private limited company the same article applies, because the Corporate Income Tax Act refers to it (Corporate Income Tax Act 1969, article 8).
The purpose of the rule is set out in the explanatory memorandum to the law. The valuation includes not only direct costs, but also a share of overheads and a profit mark-up. That way the profit becomes visible progressively during the project. The rule applies from the first financial year that started on or after 1 January 2007. Before that, you could postpone the profit until completion (Explanatory memorandum to the Work on Profit Act, 2006).
Worked example
An owners' association orders a new flat roof for €24,000. The company expects €20,000 of costs, so €4,000 of profit. On 31 December 2026, €12,000 of costs have been incurred. So the work is 60% finished. The work in progress is 60% of €24,000 = €14,400. On this project, €2,400 of profit falls in 2026: €14,400 minus €12,000 of costs.
How do you determine how far a project has got?
The law does not prescribe a method of measurement. It only says that the part of the price must match the work done (Income Tax Act 2001, article 3.29b). In practice there are three ways, and you choose the one that reflects the work best.
- Costs: costs incurred divided by the expected total costs. This requires good project records, with all hours and invoices on a project code.
- Hours: hours worked divided by the budgeted hours. Useful when labour is the largest item.
- Survey: what is on the roof, measured in square metres or in fixed stages, such as stripping, insulating and covering.
Be careful with the cost method: it is only as good as your estimate of the costs still to come. People usually estimate them too low. In a well-known study, 37 Canadian psychology students predicted that they would hand in their thesis after 33.9 days on average. It took 55.5. Fewer than a third finished on time (Buehler, Griffin & Ross, 1994).
That study was not about roofing, but the mechanism is the same. If you estimate the remaining hours too low, you treat a project as further along than it is. Then you take profit too early. So compare the estimate with the survey on the roof and with the job costing of similar projects.
What do instalment invoices and advance payments do to the balance sheet?
You deduct invoiced instalments from the work in progress. The balance sheet then shows only the part of the work you have not yet invoiced. If you invoiced more than the work is worth, the difference appears as a liability on the balance sheet.
The explanatory memorandum to the law names instalments as one of the reasons for the rule. A contractor often charges instalments during the work, depending on progress. The profit is then in fact already realised during the work (Explanatory memorandum to the Work on Profit Act, 2006).
| On 31 December 2026 | Example 1 | Example 2 |
|---|---|---|
| Work in progress, 60% of €24,000 | €14,400 | €14,400 |
| Instalments already invoiced | €9,600 | €16,800 |
| On the balance sheet | €4,800 receivable | €2,400 liability |
The second example is common in roofing. If you invoice a large part when the materials are delivered, your invoices run ahead of the work. That is good for your cash at the bank. It does not change the profit, because that follows the work and not the invoice.
Why does a project in December count towards your profit and tax?
Because the profit falls in the year in which you do the work. If a project runs over the turn of the year, part of the profit lands in the old year, even if the customer only gets the final invoice in February.
In the example, €2,400 of the €4,000 profit falls in 2026 and €1,600 in 2027. If you trade through a private limited company with less than €200,000 of taxable profit, the corporate income tax rate is 19.0% (Tax Administration, corporate income tax rates). For 2026 you then pay €456 of corporate income tax on this project, a year earlier than with profit on completion.
The reverse also applies. If you start a large project in December, you bring costs and part of the profit into the old year. A count of all running projects on 31 December therefore belongs in every year-end close, with the price, the costs incurred, the estimated progress and the invoiced instalments for each project.
What do you do if a project is going to make a loss?
Then you take the loss as soon as you see it coming. The explanatory memorandum to the law says you can form a provision for a project if there is reason to (Explanatory memorandum to the Work on Profit Act, 2006). A provision is an amount you book as a cost now for a loss that comes later.
Worked example loss
The same €24,000 roof, but a lot of rotten roof deck turns up under the old covering and the owners' association refuses extra work. The expected costs rise to €26,000. On 31 December €15,600 has been incurred, also 60%. The work in progress is €14,400, so there is already a loss of €1,200. For the remaining loss of €800 the company forms a provision. So the whole loss of €2,000 falls in 2026.
Is work in progress in the annual accounts the same as in the tax return?
For many small roofing companies, yes. A small or micro private limited company may draw up its annual accounts according to the tax rules, if it then applies all the tax rules and states this in the notes (Dutch Civil Code, article 2:396 and article 2:395a). Then the work in progress is the same amount in the annual accounts and in the tax return.
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. Losses you know about before the accounts are drawn up may be taken into account (Dutch Civil Code, article 2:384).
The Dutch Accounting Standards have a separate standard for running projects for third parties: RJ 221 Construction contracts. The current version applies to financial years from 1 January 2025 (SRA, RJ 221). According to the explanatory memorandum to the tax rule, companies usually already take interim profit on running works in their commercial accounts (Explanatory memorandum to the Work on Profit Act, 2006). So the difference with the tax return is usually small.
Sources
- Income Tax Act 2001, article 3.29b, in force from 21 February 2026. wetten.overheid.nl
- Dutch Civil Code Book 2, article 369, in force from 1 July 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. officielebekendmakingen.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
- Tax Administration, Corporate income tax rates, accessed 17 October 2026. belastingdienst.nl
- Dutch Civil Code Book 2, articles 384, 395a and 396, in force from 1 July 2026. wetten.overheid.nl
- SRA, RJ annual edition 2025, Standard 221 Construction contracts (amended 2024). sra.nl