There are changes incoming for periods commencing 1 January 2026, mainly affecting the ways in which companies account for operating leases and revenue in their financial statements.
You may already have heard about the upcoming shake-up of UK accounting standards under FRS 102, the foremost set of accounting rules for UK private businesses. If you haven’t, don’t worry: there’s still time to get ahead. Our specialists are here to help you understand what’s changing and how to get your business ready.
Read on for a summary of the key FRS 102 changes coming up and a breakdown of what these amendments mean for you.
Lease accounting: changes and practical impact
In the context of FRS 102, leases means anything you rent for your business – from office equipment and company cars to property.
Under the updated rules, lots of things that you previously held off your balance sheet (often categorised as operating leases) will now need to go on the balance sheet, changing the appearance of a company’s financial position.
On the balance sheet, you will recognise both a right-of-use asset (valued as the item you have access to over the remaining term of the lease) and a lease liability (the remaining amount of money owed for the item until the end of the lease term). In the P&L, rent expense will change into depreciation on that right-of-use asset and interest on that lease liability, both spread over the remaining term of the lease.
Some small exemptions apply, mainly for short-term leases (less than 12 months) or low-value items. But for most businesses, their accounts will be showing more assets and more liabilities than before. That could impact KPIs like EBITDA, banking covenants or how your business looks to others.
It is true to say that the overall net asset effect stands to be small, cashflows remain the same and HMRC are not anticipating major changes to UK tax liabilities. However, stakeholders sometimes look at assets or liabilities or things like interest cost in isolation – these numbers could change significantly, almost overnight. That’s why it’s important to give your business plenty of time to prepare.
Revenue recognition: changes and practical impact
The incoming changes to FRS 102 place much more emphasis on how and when you record income. The standard is shifting to a five-step model, which means you’ll need to:
- Identify the contract with your customer
- Determine exactly what goods or services you’ve promised
- Work out the transaction price
- Allocate that price to what you’re delivering
- Recognise revenue when you transfer goods or services to the customer
You’ll need to be much clearer about the trigger point when you can actually recognise revenue as ‘earned’. This could mean changes to when you book income – especially if your business delivers over time, you have contracts with lots of stages, or you bundle goods and services together.
Getting it wrong could seriously impact your reported profits and even your tax liability, so it’s essential to build your understanding before the updated rules take effect.
How BKL can help
The FRS 102 changes aim to make your accounts more transparent and to give a clearer picture of how your business is truly performing. Even so, with increased admin and new calculations to get used to, we appreciate how daunting the updated rules may feel.
We’re experienced at guiding business owners and their teams through the practical impacts of changes to accounting standards. We’re here to help you to navigate the lease and revenue changes – from explaining the effect on your numbers to improving your systems and processes – so that you maintain clear, compliant financial reporting as you take your business forward.
To hear directly from our experts about the changes, and to get answers to your questions, we’ll be holding an FRS 102 webinar on Tuesday 28 October: look out for an invitation. We’ll also be adding more FRS 102 guidance to our website and social media channels, including a video from our specialists.
For a chat about how we can help your business to prepare for the new accounting standards, send us an enquiry or get in touch with your usual BKL contact today.