Work Done, Nothing Invoiced
It is 31 March. Your team has spent the last six weeks on a client project that will not be signed off until May. You have also finished the March retainer for another client, but your invoicing run is on the fifth of the month, so that invoice goes out in April.
On your books today, none of that work shows up as income. No invoice, no receivable, no revenue. If you close the year like that, your accounts say you did six weeks less work than you actually did.
Accrued income fixes that. It is income you have earned in a period but have not yet invoiced or been paid for by the end of it. You will also see it called accrued revenue or unbilled revenue. It goes into the profit and loss account as revenue for the period in which you did the work, and onto the balance sheet as an asset until the invoice goes out.
It is a small idea with a big effect on anybody who bills in arrears, bills on milestones or gets paid by a platform weeks after the money is earned.
Is Accrued Income an Asset?
Yes. Accrued income is an asset, and nearly always a current asset.
The reasoning is simple. An asset is something that will bring economic benefit to the business. If you have delivered the work, you have a right to be paid for it. The customer owes you, even if neither of you has seen a piece of paper that says so yet. That right to future cash is the asset.
In UK accounts prepared under the Companies Act formats, accrued income usually sits inside debtors, under a line called "prepayments and accrued income". You will see that phrase in thousands of filed accounts on Companies House. It sits alongside trade receivables and feeds straight into your working capital and your current ratio.
If some of it will not be billed or collected for more than twelve months, for example on a long construction or software contract, that part should be shown as falling due after more than one year. Most small businesses never need that split, but the ones that do tend to forget it.
Accrued Income vs Deferred Income vs Accruals
People mix these four up all the time. They are one idea applied to four situations, and the question underneath is always the same: has the work been done, and has the cash or invoice moved?
| Expense side | Income side | |
|---|---|---|
| Belongs to this period, not yet billed or paid | Accrual (liability) | Accrued income (asset) |
| Billed or paid, belongs to a future period | Prepayment (asset) | Deferred income (liability) |
Accrued income is the opposite of deferred income. Deferred income is cash you have received for work you have not done. Accrued income is work you have done for cash you have not received or even asked for. One is a liability, the other is an asset.
Accrued income is also the mirror of an accrued expense. An accrual is a cost you have incurred but not been billed for, like the electricity used in March that the supplier bills in April. Accrued income is the same thing seen from the supplier's side. Our guide to accruals and prepayments covers the expense side in full.
Accrued Income vs Trade Receivables
This is the distinction that matters most in practice. Both are money your customers owe you. The difference is the invoice.
- A trade receivable exists once you have raised an invoice. The customer has been asked to pay and the clock on your payment terms is running.
- Accrued income has no invoice behind it yet. You have earned it, but you have not asked for it.
The moment you raise the invoice, the accrued income becomes a trade receivable. Same money, different stage of the journey. That is why lenders, auditors and buyers look at the two very differently, which we come back to below.
The Accrued Income Journal Entry
The double entry has two parts. The first recognises the income at the period end. The second reverses it when the invoice is raised, so the revenue is not counted twice.
At the period end, to recognise income earned but not invoiced:
| Debit | Credit | |
|---|---|---|
| Accrued income (balance sheet) | £2,500 | |
| Revenue (profit and loss) | £2,500 |
On the first day of the next period, reverse it:
| Debit | Credit | |
|---|---|---|
| Revenue (profit and loss) | £2,500 | |
| Accrued income (balance sheet) | £2,500 |
When the invoice is raised a few days later:
| Debit | Credit | |
|---|---|---|
| Trade receivables | £3,000 | |
| Revenue (profit and loss) | £2,500 | |
| VAT (balance sheet) | £500 |
The reversal and the invoice cancel out in the new period, so the new year shows no revenue for March's work. March's work sits in March, where it was earned. That is ordinary double entry bookkeeping with a timing rule attached, and it is the matching principle doing its job.
Notice that the accrual itself carries no VAT. VAT follows its own tax point rules, which we cover further down, and it is a mistake to accrue VAT alongside the income.
Most software, including Xero and QuickBooks, lets you post the period end journal with an automatic reversal date. Use it. The single most common accrued income error we see is a journal that was never reversed, so the income gets counted once at the year end and again when the invoice goes out.
A Worked Year End Example
Here is a composite example based on the kind of client we see often. Fernhill Studio Ltd is a design consultancy with a 31 March 2027 year end. At the year end the director tells us about four things:
- A brand project with a fixed fee of £18,000, invoiced in full on delivery. At 31 March the work is about 70% complete, backed by timesheets and the project plan. Delivery is due in May.
- The March retainer for a regular client, £2,500 a month, invoiced in arrears on the fifth of the following month.
- Affiliate commission of £1,400 earned on sales made through the studio's content site in March. The affiliate network confirms the commission but pays it in June.
- Interest on a business deposit account, paid quarterly. By 31 March, £310 has been earned but will not be credited until 30 June.
The year end accrued income works out as:
| Item | Accrued income at 31 March 2027 |
|---|---|
| Brand project (£18,000 × 70%) | £12,600 |
| March retainer | £2,500 |
| Affiliate commission | £1,400 |
| Deposit interest | £310 |
| Total | £16,810 |
Without those entries, Fernhill's accounts would understate this year's profit by £16,810 and overstate next year's by the same amount. If the company's profits sit in the corporation tax marginal relief band, where the effective rate on each extra pound is 26.5%, that is about £4,450 of tax pushed into the wrong year.
Two cautions on the brand project. First, recognising revenue over time on a fixed fee job is only right if the contract supports it. Under the rewritten FRS 102 Section 23, which applies to accounting periods starting on or after 1 January 2026, you recognise revenue over time only where you meet the tests for that, typically because the customer benefits as you work or you have an enforceable right to be paid for work done so far. If the contract only gives you a right to payment on final delivery and the work has no alternative use to you, look at it carefully before accruing. Second, if there is any real doubt the client will pay, for example the project is running late and the relationship is strained, the accrued amount should be reduced to what you actually expect to recover.
Common Examples of Accrued Income
Some businesses have accrued income every single month without realising it. The usual sources:
- Services billed in arrears. Consultants, agencies, IT support and anybody on a monthly retainer invoiced after the month ends.
- Milestone and fixed fee projects. Work in progress on a job that will only be invoiced when a stage is signed off.
- Platform and ad revenue. Google AdSense pays around the 21st of the following month, and many affiliate networks pay 30 to 90 days after the commission is confirmed. We cover this in our guide to accounting for ad revenue websites, and it is a big one for influencers and creators paid by brands and platforms in arrears.
- Interest receivable on deposits and loans where interest is paid quarterly or annually.
- Rent receivable for a period that has passed, where the tenant pays in arrears.
- Royalties and licence fees calculated on the licensee's sales and reported after the period ends.
- Commission earned by agents and brokers where the principal pays on a later statement.
The VAT Point Nobody Thinks About
Accrued income is an accounting idea. VAT does not care about it. VAT follows the tax point, and the rules are different depending on what you supply.
For a single, one-off supply of services, the basic tax point is the date the service is completed. If you issue a VAT invoice within 14 days of that date, the invoice date becomes the tax point instead. HMRC's VAT Notice 700 sets this out.
That creates a trap for slow invoicers. Say you finish a one-off job on 10 March and do not get round to invoicing until 20 April. You have missed the 14 day window, so the tax point is 10 March. The VAT belongs in your January to March return, even though no invoice existed when you filed it. Businesses that let accrued income sit for weeks after completing work are often under-declaring VAT without knowing it.
For continuous supplies of services, such as a monthly retainer, the rule is different. There is a tax point each time you issue a VAT invoice or receive a payment, whichever comes first. So Fernhill's March retainer, invoiced on 5 April, has no VAT until 5 April. The accrued income and the VAT land in different periods, and that is correct.
Work in progress on a job that is not yet finished has no basic tax point yet, because the service is not complete. The VAT arises when the job completes or when you invoice or get paid, if earlier.
The practical rule: if you have accrued income for work that is already finished, check how long ago it finished. If it is more than 14 days and it is a one-off supply, the VAT may already be due.
Corporation Tax and the Cash Basis
For a limited company, taxable trading profit is worked out using generally accepted accounting practice, with specific adjustments on top. That is the effect of section 46 of the Corporation Tax Act 2009. So if accrued income belongs in the accounts, it belongs in the tax computation too. Leaving it out does not save tax. It moves tax into the following year and makes both years wrong.
Sole traders and partnerships are different. Since the 2024/25 tax year, the cash basis has been the default for unincorporated businesses. Under the cash basis you record income when you receive it, so there is no accrued income at all. If you have opted out and use traditional accounting, the accruals rules apply exactly as they do for a company.
This matters most in the year a sole trader incorporates. The final sole trader period might be on the cash basis, and the new company is on accruals from day one. Work done before the switch but paid for afterwards needs to be allocated carefully so it is taxed once and in the right place. Our guide to sole trader vs limited company covers the wider switch.
Not to Be Confused With the Accrued Income Scheme
If you have searched for accrued income, you may have seen HMRC pages about the Accrued Income Scheme. That is something else entirely.
The Accrued Income Scheme is a personal tax rule for individuals who buy or sell interest-bearing securities, such as gilts and corporate bonds, part way through an interest period. It makes sure the seller is taxed on the interest that built up while they owned the security, even though the buyer receives the next full payment. Small holdings, broadly those with a total nominal value of £5,000 or less, are generally outside it, and companies deal with the same issue under the loan relationship rules instead. HMRC's helpsheet HS343 explains it.
It has nothing to do with unbilled income in a set of business accounts. If you are a business owner, this is almost certainly not what you were looking for.
Where Businesses Get This Wrong
In rough order of how often we see it:
- No accrued income at all. The most common by far. Revenue is booked when invoices go out, so every business that bills in arrears has its year end profit understated.
- The journal is never reversed. Income is counted at the year end and again when the invoice is raised. Next year's revenue is overstated, and nobody notices until the accounts look oddly good.
- Accruing VAT with the income. VAT has its own tax point. Putting it in the accrual muddles the VAT control account and can lead to VAT being paid twice or not at all.
- Accruing income you will never collect. If the client is in dispute, the project has stalled or the platform might claw back the commission, the asset needs writing down to what you expect to receive.
- A balance that never goes away. Accrued income should turn into an invoice within weeks. A figure that sits unchanged for months is usually either a mistake or work that nobody is going to pay for.
- No schedule behind the number. The ledger says £16,810 and nobody can show where it came from. If you cannot rebuild it item by item, it is a guess, not a balance.
Our View
Accrued income is fine at the year end and a warning sign the rest of the year. Every business that bills in arrears will have some. That is normal and correct. But a business where accrued income keeps growing is a business that is doing work and not asking to be paid for it. We look at the balance every month in the management accounts we prepare, and a rising figure is one of the first things we raise with a director.
Unbilled work is the cheapest finance you are not using. You cannot chase money you have not invoiced. Invoice finance lenders will not advance against it either, because there is no invoice to fund. Every day between finishing the work and raising the invoice is a day added to your cash cycle for no reason. In our experience, moving the invoicing run from the fifth of the month to the last working day does more for a service business's cash position than most of the things owners worry about. Build it into your cash flow forecast and the difference is obvious.
Buyers and lenders trust it less than receivables, and they are right to. A trade receivable has a customer who has been asked to pay. Accrued income is the business's own estimate of what it is owed. In due diligence, a large accrued income balance gets tested hard, and anything that cannot be supported by a contract, a timesheet or a platform statement gets knocked off. If you ever plan to sell, keep this balance small and well evidenced. Our guide to how a business is valued explains why this kind of adjustment matters.
Do not use it to smooth profits. We occasionally see accrued income used to make a quiet year look busier, by pulling in work that has barely started. It is easy to do and easy to spot. Under the new FRS 102 revenue rules it is also harder to defend, because the standard asks you to point to what the customer has actually received. If the evidence is thin, leave it out.
How IAK Can Help
Most of our accrued income work falls into two groups. Service businesses that have never accrued anything and have been reporting lumpy, understated profits for years. And businesses that accrue a lot but have no schedule behind it, so nobody trusts the number.
Our accounting team prepares year end accounts under FRS 102 and FRS 105, including the revenue recognition assessment, the accruals and the disclosures. Our bookkeeping and Xero teams post the monthly journals with automatic reversals so the balance is right all year. Our management reporting team tracks unbilled work month by month, and our VAT advice team checks tax points on work completed but not yet invoiced.
We do a lot of this for small businesses, limited companies and affiliate and content websites, where platform income paid in arrears is the norm.
If you bill after you deliver, get in touch for a free consultation. It usually takes one conversation to work out what your real monthly revenue looks like.
Sources
- VAT guide (Notice 700), HMRC, sections 14.2 and 14.3 on basic tax points for services, the 14 day invoice rule and tax points for continuous supplies.
- Corporation Tax Act 2009, section 46, legislation.gov.uk, on trading profits being calculated in accordance with generally accepted accounting practice.
- The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Schedule 1, legislation.gov.uk, on the balance sheet formats that include the "prepayments and accrued income" heading.
- FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, Financial Reporting Council, on the amended Section 23 revenue model effective for periods beginning on or after 1 January 2026.
- Accrued Income Scheme (Self Assessment helpsheet HS343), HMRC, on the separate personal tax rules for interest-bearing securities.