Statutory Work in Progress: What Limited Companies Must Know

What Is Work in Progress?

Work in progress (WIP) is the value of services or goods you have started but not yet completed or invoiced at your company's accounting year-end. For limited companies, WIP is a balance sheet asset under current assets, sitting alongside stock and debtors. It represents economic value your company has generated but not yet recognised as income.

Common examples include a marketing agency that has completed 60% of a campaign, a software development firm mid-way through a client build, or a consultancy that has delivered work but not yet raised an invoice. In each case, real costs and effort have been expended, and that value must be reflected in your statutory accounts.

Why Does It Matter for Limited Companies?

Under UK Generally Accepted Accounting Practice (UK GAAP), specifically FRS 102 and the smaller companies regime FRS 102 Section 1A, limited companies are required to recognise WIP on their balance sheet. This is not optional. Omitting WIP can result in accounts that understate assets and overstate costs, giving a misleading picture of your company's financial position.

HMRC also expects your corporation tax return to align with accounts prepared under UK GAAP. If you incorrectly exclude WIP, you may understate your taxable profits for the year, which could lead to enquiries, penalties, and interest on underpaid tax.

How Is WIP Valued?

WIP should be valued at the lower of cost and net realisable value. In practice, for service-based businesses, this typically means:

• Direct costs incurred: Staff time, subcontractor costs, and materials directly attributable to the project.
• Attributable overheads: A reasonable proportion of overhead costs that relate to bringing the WIP to its current state.
• Not selling, general, or administrative costs: These are excluded from WIP valuation.

For example, if your company is 70% through a £20,000 project and has spent £8,000 in direct staff costs so far, your WIP value would be at least £8,000, potentially higher if attributable overheads are included.

Revenue Recognition and WIP

WIP connects directly to revenue recognition. Under FRS 102, income should be recognised when performance obligations are met, not simply when invoices are raised. If your company uses the percentage of completion method, you may recognise revenue proportionally as work progresses, with a corresponding WIP or accrued income entry. If you use the completed contract method, costs accumulate in WIP until the project is finished. Your accountant should advise which method is most appropriate for your business model.

Practical Steps at Year-End

To ensure your WIP is correctly accounted for, take these steps before your year-end close:

• List all active projects that are incomplete at year-end and estimate their stage of completion.
• Gather cost data including timesheets, purchase invoices, and subcontractor bills relating to each project.
• Review unbilled time in your project management or time-tracking software.
• Discuss with your accountant the appropriate valuation method and whether any WIP should be written down if a project is loss-making.
• Document your calculations clearly, as HMRC may request evidence of how WIP was valued during an enquiry.

The Corporation Tax Impact

Correctly stating WIP increases your balance sheet assets and typically increases your taxable profit for the year, since costs are carried forward rather than expensed immediately. However, this also means those costs are deducted in the following year when the project completes, smoothing your tax position over time. Consistent, accurate treatment is far preferable to an HMRC challenge later.

If your limited company has ongoing projects at year-end, do not overlook WIP. Speak to your accountant well before your accounts are finalised to ensure your statutory accounts and corporation tax return are both accurate and compliant.