Architects and engineers: project-based fees
A project runs eighteen months and is billed in stages. Here is how income, costs, and deductions line up across that stretch.
Design and engineering work does not fit neatly into months. A project is won in one year, designed in the next, and supervised through the one after that. Billing happens in stages tied to milestones rather than to the calendar.
Meanwhile filing happens on a fixed schedule that knows nothing about your milestones. Reconciling those two rhythms is most of the administrative work in a practice.
Staged billing means staged income
When a fee is billed in stages, the income arrives in pieces across periods. Each piece is income when earned, and a practice with several projects running at different stages will have income appearing in every period, unevenly.
The mistake is treating a large milestone payment as though it were the whole project's profit. It is not: the costs of the remaining stages are still ahead. Practices that spend a milestone payment as profit find the later stages of the same project unfunded.
For long projects, knowing what portion of the fee has been earned versus what has merely been received is the difference between a practice that can plan and one that lurches.
The deduction on professional fees
Corporate and institutional clients paying professional fees generally deduct an amount before releasing payment and remit it in your name.
Across a long project with several billings, that adds up substantially. Each one needs its certificate, and those certificates are credits against your own tax. Practices that collect them per billing file smoothly. Practices that try to reconstruct two years of deductions from bank records do not.
Government projects deserve their own note, because payments from government offices have their own process and their own timing, and the delay between billing and payment can be considerable.
Reimbursables are not fees
Projects generate costs that are passed to the client: printing, permits, travel to site, testing, and specialist consultants brought in for part of the work.
These are different from your fee, and it is worth keeping them different in your records and on your invoices. Money that passes through you to cover a cost is not the same as money you earned, and blending them overstates your income while hiding your costs.
Consultants you bring in deserve care. A structural engineer engaged for one project is either a subcontractor or a partner in the fee, and either way the payment should be documented. Paying a specialist in cash leaves you with an unsupported cost and them with an undocumented income.
The practice as a business
Beyond the projects, there is a practice to run: an office, software licences, staff or junior designers, equipment, professional dues, and insurance.
Software and equipment are worth a specific mention. Design software is often a recurring subscription, which is an ordinary running cost. Workstations, plotters, and survey equipment are long-lived assets, recognised across the years they serve you rather than expensed in the year bought.
Staff status is the other recurring question. Junior designers working set hours under direction look like employees; specialists engaged per project may not be. The arrangement should be deliberate, because the obligations differ.
Practical footing
Keep a file per project: contract, fee schedule, billings, payments, deductions, reimbursables, and subcontracted costs.
Separate fees from reimbursables everywhere.
Collect a withholding certificate for every billing.
Know what portion of each project's fee is earned versus merely received.
Document payments to specialists.
Running a design or engineering practice and unsure how staged fees should appear in your records? Ask AskOnward for a plain answer from the official BIR rules, so a long project does not turn into a long reconciliation.
This article is for general information and is not affiliated with the government. For official forms and the latest rules, see the Bureau of Internal Revenue at bir.gov.ph.