Engineering firm: percentage-of-completion and R&D tax credit in 2026

Quick answer. An engineering firm performs long-term contracts: the French General Chart of Accounts (art. 622-1 et seq.) allows two revenue-recognition methods — percentage-of-completion and completed-contract — with no preferred method. On the tax side, engineering can benefit from the research tax credit (CIR) at 30% of R&D spending up to 100 M EUR, and, for SMEs, from the innovation tax credit (CII) at 20% in 2026, capped at 400,000 EUR of spending.

An engineering firm lives on long engagements: design, calculations, drawings, project supervision. Its turnover is not read at collection, but at the pace of engagement progress. Two issues shape its accounting and tax position: correctly recognising the revenue of ongoing contracts, and valuing its research and innovation work through tax credits.

In 2026 the accounting framework remains that of ANC regulation 2014-03 (General Chart of Accounts). The CIR stays at 30% of research spending up to 100 M EUR. The CII, however, saw its rate cut from 30% to 20% by the 2025 Finance Act for spending incurred from 1 January 2025, a scheme extended to 31 December 2027.

Recently, a technical engineering firm consulted us: it billed by milestones but recognised all revenue on signing the contract, overstating its result in the early months. Introducing percentage-of-completion recognition, based on costs incurred, restored a result faithful to the economic reality of its projects.

Two permitted methods#

For long-term contracts, French GAAP (art. 622-1 et seq.) offers two methods, favouring neither (art. 622-7):

• The percentage-of-completion method: revenue and profit are recognised as work proceeds, by stage of completion, provided the result at completion can be reliably estimated.
• The completed-contract method: revenue is recognised at the end of the operation. During execution, work is carried as "work-in-progress" at the level of costs incurred.

Measuring completion#

For an engineering firm, completion is most often measured on costs: the percentage of completion is the ratio of costs incurred at the closing date to the total estimated costs of the contract. This percentage is then applied to the forecast result at completion.

Here is the recording logic:

1. Estimate the result at completion of the contract (forecast revenue minus forecast costs).
2. Calculate the percentage of completion (costs incurred / total estimated costs).
3. Recognise revenue and profit in proportion to that completion.
4. Book a provision for loss at completion if an overall loss is foreseeable, without waiting for the contract to end.

Work-in-progress and advances received#

Down payments collected on a fixed-price engagement are not turnover until the service is performed: they are recorded as advances received (account 4191). At completion, or where no reliable estimate exists, unbilled work is carried as work-in-progress (account 34).

The research tax credit (CIR)#

The CIR (CGI art. 244 quater B) grants a tax credit equal to 30% of research and development spending up to 100 M EUR (5% beyond; 50% in the overseas departments). It is open to companies taxed on actual profit, whatever their size. SMEs in the European sense (fewer than 250 employees, turnover below 50 M EUR or balance sheet below 43 M EUR) and young innovative companies obtain immediate repayment; others offset the credit against tax over three years.

Eligibility requires genuine R&D activities: going beyond the state of the art, resolving scientific or technical uncertainties. Not all of an engineering firm's work qualifies: only the part genuinely amounting to research is eligible.

The innovation tax credit (CII)#

The CII (CGI art. 244 quater B, II) is reserved for SMEs in the European sense. In 2026 its rate is 20% (cut from 30% to 20% by the 2025 Finance Act), within a limit of 400,000 EUR of spending per year, i.e. a maximum credit of 80,000 EUR per year. It targets the design of prototypes or pilot installations of new products. The scheme is extended to 31 December 2027.

Summary#

Subcontracted studies#

An engineering firm often calls on other firms or re-bills services. The treatment of subcontracting follows its own billing rules, distinct from the percentage-of-completion recognition of the main contract. R&D spending subcontracted for the CIR is also subject to specific limits.

Fixed-price versus time-and-materials billing#

On time-and-materials, revenue follows the billing of hours. On a fixed price, revenue follows completion, regardless of the down-payment schedule: that is precisely where recognition errors concentrate.

Securing the CIR file#

Eligibility for the CIR hinges on the quality of the justification. An engineering firm must document, for each project, the initial state of the art, the scientific or technical obstacles encountered and the experimental approach followed, clearly distinguishing research from routine engineering. The traceability of time spent and of spending (staff, depreciation, approved subcontracting) drives the amount retained. To secure its position, the company can request a ruling (rescrit) from the authorities, who rule on the project's eligibility. This documentary rigour, built up as work proceeds rather than reconstructed after the fact, often makes the difference in an audit.

• Do not recognise a fixed price on signing: revenue follows completion, not the down-payment schedule.
• Document the result at completion: the percentage-of-completion method requires a reliable estimate.
• Provision immediately for a foreseeable overall loss.
• Secure the CIR file: only genuine R&D is eligible; technical justification is essential in an audit.
• CII at 20%, not 30%: the rate was lowered for spending from 1 January 2025.

As a chartered accountant registered with the Order, we support engineering firms whose major accounting issue is revenue recognition, and whose tax issue is securing tax credits. The two meet: fine cost accounting by contract serves both to measure completion and to isolate spending eligible for the CIR.

For the firm mentioned above, switching to percentage-of-completion recognition not only made the result reliable but also eased its CIR calculation, by clarifying cost allocation. Analytical rigour thus pays off twice.

Hayot Expertise advice. Set up cost accounting by contract that tracks costs incurred: it feeds both completion measurement and the CIR calculation. Choose your recognition method (percentage-of-completion if the result at completion is reliably estimable, completed-contract otherwise) and apply it consistently. Finally, have your CIR file secured by a professional: technical justification and traceability of spending are decisive in an audit.