UK GAAP changes effective from 1 January 2026
UK GAAP has changed for accounting periods beginning on or after 1 January 2026, following the Financial Reporting Council’s (FRC) update to Financial Reporting Standards issued in September 2024. The most significant amendments affect FRS 102, bringing it more closely into line with international accounting standards.
Below, we highlight the key changes and what businesses should be doing now.
What has changed?
Two areas of accounting have changed fundamentally: leases and revenue recognition. While differences with IFRS remain, FRS 102 is now far more closely aligned with international standards.
Leases
Under the revised FRS 102, the majority of leases will now be recognised on the balance sheet.
Leases previously classified as operating leases, where rental costs were charged to the income statement, will instead require recognition of:
a right-of-use asset within tangible fixed assets, and
a corresponding lease liability representing future lease payments.
There are limited exemptions, including for low-value assets and short-term leases (less than 12 months). However, for many entities this represents a significant change and will materially affect balance sheets.
(Note: this change does not apply to FRS 105 micro-entities.)
This treatment aligns closely with IFRS 16.
Revenue recognition
The revised revenue recognition requirements are expected to affect many businesses.
Revenue must now be recognised using a five-step model, focusing on when performance obligations are satisfied, rather than simply when risks and rewards transfer. This mirrors the approach under IFRS 15.
For some businesses, the impact will be minimal. For others, the changes could be substantial — particularly those with construction contracts or service arrangements, where profits may now be recognised later than under the previous standard.
Other key changes
Additional amendments include:
A new definition of fair value and updated measurement guidance aligned with IFRS 13
Costs relating to employee or former owner remuneration contingent on future services excluded from the cost of a business combination (aligned with IFRS 3)
Updates to share-based payment accounting, including business combination scope changes and vesting condition treatment
Additional guidance on uncertain tax positions
Clarification on whether software costs should be capitalised as an intangible asset or as part of property, plant and equipment
A move from disclosure of significant to material accounting policies, with enhanced guidance on accounting estimates
Greater clarity in Section 1A (Small Entities) on disclosures required to give a true and fair view
What should you do now?
Companies should already be preparing for the wider business implications of these changes, including:
Undertaking impact assessments on lease and revenue accounting
Reviewing data and IT systems to ensure they can track lease and revenue contracts and meet new disclosure requirements
Reviewing key agreements, as changes to profits and balance sheets may affect:
bonus and incentive arrangements (e.g. EBITDA-linked targets), and
loan covenants relating to net debt, interest cover or EBITDA
Considering the impact on dividends, as changes in revenue timing could affect profits and distributable reserves
How JSB Accountants can help
JSB Accountants can support you at every stage of the transition, from impact assessments and technical advice through to implementation, system changes and stakeholder communication. If you are unsure how the revised FRS 102 will affect your business, or want reassurance that you are fully prepared, our audit and accounting specialists are here to help.
As a family-run company, we pride ourselves on providing a bespoke service tailored to your particular needs.
Above all, our objective is to save you time, money and effort in managing your accounts, leaving you free to focus on building your business.
Remember, you’re not alone, we’re always here to help if you have an accounts problem or query
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