The rule the IRD applies
The IRD's practice note on profits tax says revenue and expenses are recognised even if receipts and payments occur in a different period, and that revenue is derived when goods are sold or services are provided[1]. The Commissioner normally does not accept the cash basis, because business profits are recognised on an accrual basis[1]. For a payment received upfront, the cash should be recognised as revenue in the year of assessment in which the good or service is transferred to the customer[1]. The note also accepts accounting profits under HKFRS 15, which recognises revenue when the performance obligation is satisfied, as the starting point for the tax computation[1].
The entries, step by step
| Event | Debit | Credit |
|---|---|---|
| Customer pays for the package | Bank | Deferred revenue (a liability) |
| A session or class is delivered | Deferred revenue, that session's share of the price | Revenue |
| Year end | No entry | Undelivered sessions stay in deferred revenue and are taxed in the year they are delivered |
A term fee works the same way: spread it over the weeks or months of the term. If a package expires unused, what happens to the balance depends on your terms with the customer; agree the treatment with your accountant and apply it the same way every time.
Records that make it work
A business providing services must keep records of the services provided in sufficient detail for the IRD to verify the entries, plus day to day entries of all sums received, for not less than 7 years[2]. For packages that means a register per customer: the date paid, the price, the sessions bought and each session used. Without it you cannot show how much of the balance is still owed in services.
Term fees at registered tutorial schools
The Education Bureau's registration form quotes the rule that inclusive fees for an educational course shall be calculated on an equal monthly basis and collected on or after the first school day of each month, with the first instalment paid not earlier than one month before the course begins[3]. The Bureau's leaflet tells parents not to pay course fees in a lump sum by any means[4]. A school exempted under Cap. 279F follows the fee conditions of that order instead, so check which applies to you.
Rules on taking prepayments
A trader wrongly accepts payment if, when taking it, the trader intends not to supply the product or has no reasonable grounds to believe it can supply within a reasonable period; the maximum penalty is a fine of $500,000 and imprisonment for five years[5]. A prepaid card or balance usable only with your own business is a single purpose facility, outside the Monetary Authority's licensing regime[6]. In June 2026 the government consulted on a seven day cooling off period for prepaid beauty and fitness contracts[7]; that is a proposal, not yet law, so watch for the outcome if you sell those services.
Rules, forms and figures can change, and the official pages listed below are the authority wherever this summary differs from them.