FRS 102 changes to UK accounts

Who is affected

FRS 102 is the UK standard for everyone who applies neither IFRS nor the reduced standards FRS 101 or FRS 105. That covers the great majority of mid-sized subsidiaries and many holding companies. Micro-entities usually report under FRS 105, which was revised at the same time and also applies from 1 January 2026.

The Financial Reporting Council reviews FRS 102 roughly every five years. The second review, the Periodic Review 2024, was completed in March 2024. Its changes apply in most cases to periods beginning on or after 1 January 2026. If your company's year follows the calendar, 2026 is the first year under the new rules. With a different year end, say 31 March, the first affected year begins on 1 April 2026.

Besides leases and revenue the reform brings a new section 2A on fair value measurement, disclosures on supplier finance and new rules on uncertain tax positions. For the typical sales or service subsidiary, though, the two big topics decide.

Leases: the rental contract goes on the balance sheet

Until now FRS 102 distinguished, for lessees, between finance leases on the balance sheet and operating leases off it. That distinction is gone. For most leases your company now books a right-of-use asset and a lease liability, as groups know from IFRS 16. For lessors little changes.

Typically affected are the lease of the office or warehouse, company cars and larger equipment. Two exemptions keep small items out: leases of less than twelve months and low-value items. The low-value exemption is deliberately wider under FRS 102 than under IFRS 16, as long as the economically important leases land on the balance sheet.

In the profit and loss account the rent expense disappears and is replaced by depreciation and interest. Because the interest share is higher early on, the expense in the first years of a lease is typically higher than the rent, later lower. On transition the cumulative effect goes to equity; comparatives are not restated.

Revenue: one model for every contract

The new section 23 introduces a single five-step model for all revenue from contracts with customers, based on IFRS 15. The core: revenue is recognised when, or as, control of the promised goods or services passes to the customer.

Whether timing or amount of revenue changes for you depends on the business model. Pure sales of goods from stock notice little. If you sell machines with installation and maintenance, software with updates, or bill projects over several months, you must separate the individual performance obligations and may show revenue earlier or later than before. Transition offers a choice: fully retrospective with restated comparatives, or modified retrospective.

What it means for tax and the group

UK corporation tax starts from profit under generally accepted accounting practice, subject to the adjustments the law requires or allows. If profit changes through FRS 102, the taxable profit can shift too, especially in the transition year. How HMRC treats particular transition effects we check for your numbers; sweeping statements would be unserious. The basics are in UK corporation tax.

For the group side the reform is more of a relief: if you consolidate under IFRS at home, the UK subsidiary's numbers now sit closer to the group standard. If you consolidate under a national GAAP, you will need an extra reconciliation for leases and revenue.

Transfer pricing can be affected too, where it is tied to EBITDA or to a cost base that used to include rent. More in transfer pricing in the UK.

Small companies: what is added

Small companies reporting under section 1A of FRS 102 must disclose related party transactions for periods from 1 January 2026. For a subsidiary with supplies, recharges and loans from its parent that is no theoretical point. FRS 102 does not expressly require small companies to disclose directors' remuneration; remuneration on non-market terms may still have to be disclosed by law.

And there is more to come: amended formats apply for periods from 1 January 2027, a consequence of the new IFRS 18. From April 2028 Companies House only accepts accounts through software; what that means for deadlines and audit is in annual accounts and audit.

Sources: FRC: FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland; FRC: FRS 105 Micro-entities Regime; FRC News, March 2024: FRC revises UK and Ireland accounting standards; FRC: FRS 102 Explainer, Periodic Review 2024 changes (Juni 2026); legislation.gov.uk: Corporation Tax Act 2009, s. 46