A Summary of UK GAAP (FRS 102) Changes in 2026

From January 2026, major changes to UK Generally Accepted Accounting Practice (GAAP) will take effect. The changes represent the most profound, far-reaching overhaul of financial reporting for UK companies in some time.

These FRS 102 amendments will particularly focus on lease accounting and revenue recognition, aligning Sections 23 and 20 more closely with international frameworks (more specifically, IFRS 15 and IFRS 16). Consequently, the forthcoming changes will require proactive and diligent planning from business finance teams.

As chartered accountants representing small to medium businesses, many of whom report under FRS 102, we at Hamlyns deemed it necessary to summarise the main changes and what to expect.

What’s Changing for FRS 102 in 2026?

1. Section 23: Revenue Recognition 

A new “five-step” model for revenue recognition replaces the current, less prescriptive approach. Service-based businesses and those offering bundled products or long-term contracts are likely to experience these changes first-hand. From 2026, they must:

• Identify contracts with customers,
• Determine performance obligations,
• Set transaction prices,
• Allocate prices to separate obligations, and
• Recognise revenue as each obligation is satisfied.

This change means that revenue will often be recognised at different times than under the old system. As a result, this could potentially impact or skew reported earnings, KPIs, and your business’s tax position.

2. Section 20: Lease Accounting

All leases must now be recognised and noted on the balance sheet, with the exception of short-term or low-value leases. The previous distinction between “finance” and “operating” leases for lessees is eliminated, and instead replaced by the depreciation of the right-of-use (ROU) asset and matching liabilities.

Lease expenses previously shown as rent expenses are now split into depreciation and interest, which shifts the profit and loss impact. This also potentially necessitates new calculation requirements for covenants, bonuses and tax planning.

This change has been introduced to reflect a business’s full financial commitment, which increases reported assets and liabilities and reshapes key metrics such as EBITDA, debt ratios, and covenant calculations.

3. Further Updates and Disclosure Requirements

Other notable changes include:

• A clarified definition and guidance for measuring fair value, in line with IFRS 13
• Specific new disclosures for supplier finance arrangements (which have been mandated as of January 2025)
• Refined guidance on business combinations, share-based payments, and intangible assets, with updated requirements to disclose material (not just significant) accounting policies

Who Is Affected by the 2026 UK GAAP Changes?

All UK entities reporting under FRS 102 are affected.

Companies also affected will be those not applying full IFRS, which includes:

• Most private companies
• Charities
• Limited Liability Partnerships (LLPs)
• Some small businesses

Micro-businesses and those using FRS 105 are unlikely to see the full scale of these changes.

When Will These Changes Take Effect?

• Accounting periods beginning on or after 1 January 2026, with early adoption permitted only if all changes are implemented together.
• Supplier finance disclosures must begin from January 2025.
• Companies may choose to restate comparatives fully or use a catch-up adjustment at transition.

What Business Owners Should Do to Prepare

1. Review existing customer and lease agreements to identify how revenue and lease recognition will change.
2. Evaluate how KPIs, bank covenants, and bonus arrangements will be affected and plan any communications with stakeholders.
3. Ensure your existing finance team(s) are familiar with new requirements and processes.
4. Update any finance and reporting systems to ensure they can handle new calculations and disclosures. Upgrade if necessary.
5. These changes may require negotiations with lenders or updates to incentive and acquisition agreements.

How Hamlyns Can Help

Whether you’re a startup, SME, or established business, these changes present both challenges and opportunities. At Hamlyns, our experienced team is ready to guide you through the transition with tailored advice, contract reviews, and hands-on assistance to help you stay compliant and make the most of the new reporting regime.

Contact Hamlyns today for expert advice and support as you prepare for the 2026 UK GAAP changes.