Year-End Closing for Property Developers: Work in Progress, VAT and Margins
· 6 min read · Tsquared Services
Why developers face a harder close
Property development profits are usually taxed as trading income, and the timing of profit recognition depends on how costs and sales are recorded. Projects span several years, costs arrive from many contractors and sales may be agreed long before completion. Without a disciplined close, profit can be recognised in the wrong year, VAT can be misstated and margins can be misunderstood.
Track every cost by project
Assign every invoice to a specific project and, ideally, to a cost category such as land, permits, design, construction, finance and marketing. Shared costs, such as head office salaries, should be allocated using a consistent method. Before year-end, chase contractors for invoices covering work done to 31 December, and accrue costs for work completed but not yet billed. Accurate project costing is the foundation of everything that follows.
Value work in progress
Unsold units and projects under construction are normally carried as inventory or work in progress at cost. Review each project at year-end to confirm that the expected selling price still exceeds the total cost to complete. If it does not, a write-down may be needed. Capitalised finance costs, land values and any changes in planning or market conditions should be documented, because auditors will test these judgements closely.
Recognise sales correctly
Sales contracts, deposits and instalments do not always mean revenue can be recognised. Review each contract and confirm when control of the unit passes to the buyer under the applicable accounting rules. Deposits received before that point are normally shown as liabilities. Getting this right affects taxable profit, so agree the approach with your accountant before the year closes.
Reconcile VAT carefully
VAT on development is complex: land, new buildings, reduced rates for primary residences and resales can all be treated differently. Reconcile input VAT on construction costs and output VAT on sales to your filed returns. Confirm that buyers claiming a reduced rate have provided the required documentation. Errors here are costly and are often only discovered during an inspection.
Review margins and plan ahead
Close each year with a project-by-project margin report comparing budgeted and actual costs. This shows where overruns occurred and helps price future projects. It is also the right moment to plan the structure of new projects, including whether a separate company per project makes sense.
Key takeaways
- Allocate every cost to a project and accrue unbilled work at year-end.
- Test work in progress against expected selling prices.
- Deposits are not always revenue; check when control passes.
- Reconcile VAT on land, construction and sales to filed returns.
Best practices checklist
- Use project codes in your bookkeeping from day one.
- Request contractor valuations as at 31 December.
- Keep buyer documentation for reduced VAT rates on file.
- Produce a margin report per project every year-end.
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This article is general information, not personal tax advice. Contact us for advice on your situation.