If you are a director of a small or medium-sized company, you’ve likely become accustomed to the "settled" nature of UK accounting standards over the last decade. However, 2026 marks the beginning of the most significant shake-up to UK GAAP since its inception.

Following the Financial Reporting Council’s (FRC) 2024 Periodic Review, the rules for FRS 102 and Section 1A have been overhauled. At CoreAcc Accountants, we’re already working with our clients to model how these changes—specifically regarding leases and revenue—will transform their balance sheets overnight.

Here is what your business needs to know about the transition for accounting periods beginning on or after 1 January 2026.

1. Leases: Bringing the "Invisible" onto the Balance Sheet

Historically, most small and medium businesses treated office rents or equipment leases as "operating leases," simply expensing the monthly cost.

Under the new rules, the "off-balance sheet" era is ending. Most leases must now be recognised on your balance sheet as:

  • A Right-of-Use (ROU) Asset: Representing your right to use the leased item.
  • A Lease Liability: Representing the present value of your future lease payments.

The Impact: This will naturally "inflate" your balance sheet. While your net assets might not change significantly, your gearing ratios and debt-to-equity profiles will. If you have bank covenants, it is vital to discuss these new figures with your lender early.

The Good News: Small exemptions remain for "short-term" leases (under 12 months) and "low-value" assets (like tablets or small office tech).

2. Revenue Recognition: The New "Five-Step" Model

The old way of recording revenue—essentially when "risks and rewards" passed to the buyer—is being replaced by a more structured five-step model aligned with international standards (IFRS 15).

You must now:

  1. Identify the contract.
  2. Identify the specific "performance obligations" (promises) in that contract.
  3. Determine the transaction price.
  4. Allocate that price to each promise.
  5. Recognise revenue only as each promise is satisfied.

Why this matters: If you sell bundled packages (e.g., a piece of machinery plus a three-year service contract), you may no longer be able to record all the cash as revenue upfront. You might have to "defer" a portion of that income over the life of the service.

3. More Clarity for Section 1A (Small Entities)

For those reporting under the Small Companies regime (Section 1A), the FRC has introduced more mandatory disclosures to ensure accounts provide a "true and fair" view.

You will now be required to provide clearer notes on:

  • Related Party Transactions: Even those conducted under "normal market conditions" must now be disclosed.
  • Going Concern: An explicit statement and more detail on how you've assessed the business's ability to continue for the next 12 months.
  • Dividends: Clearer reporting on what was declared and paid during the year.

4. Transition: Do You Need to Restate the Past?

The standard offers some "practical expedients." While you generally have to show comparative figures for the previous year, you may be able to use a "modified retrospective" approach—meaning you don't have to fully rewrite your 2025 history, but instead record a one-off adjustment to your opening reserves on 1 January 2026.

How CoreAcc Accountants Can Help

These changes are technical, but their impact is practical. They affect your tax position, your ability to pay dividends, and how your business looks to potential investors or lenders. CoreAcc Accountants is here to ensure the transition is a smooth one. We can help you with:

  • Impact Assessment: We’ll review your existing lease portfolio and customer contracts to see exactly how your 2026 numbers will shift.
  • Covenant Management: We can help you prepare the data needed to have proactive conversations with your bank before the new rules affect your loan terms.
  • Accounting Policy Updates: We’ll rewrite your internal policies to ensure your revenue and leasing workflows are "2026-ready."
  • Training & Support: We can walk your internal finance team through the new five-step revenue model so they feel confident in the new regime.

The 2026 changes are the biggest "re-learning" event in a generation of UK accounting. Let CoreAcc Accountants handle the complexity so you can stay focused on your business.