Deferred income is money received for work you have not delivered yet. This guide explains why it is a liability and how it becomes income over time.
Published July 2026 · Updated July 2026
Deferred income (also called deferred revenue) is money a customer pays before you have delivered. Getting paid upfront does not mean you have earned it, so until you deliver, that cash is really an obligation.
Because you still owe the customer the work, the amount sits as a liability on your balance sheet. As you deliver, you move it into income. This matches the revenue to the period you actually earn it.
Any business paid in advance: subscriptions, annual memberships, retainers, deposits and prepaid packages. Recognising it correctly stops you overstating income in the month the cash lands.
A customer pays £600 in January for 6 months of service:
A deposit is a common source of deferred income. Until you deliver what the deposit is for, it is money you owe, not income.
Deferred income is money you received in advance (a liability); a prepayment is money you paid in advance (an asset). They are mirror images.
As you deliver. Each period you recognise the portion you have earned and reduce the liability.
Source: Investopedia ↗. This glossary is written for small business owners, so definitions are simplified. Tax rates and thresholds reflect 2026/27 UK rules and change over time. Berified does not provide accounting, tax or legal advice; always check the source or a qualified adviser.