From 1 January 2026, UK businesses reporting under FRS 102 will need to follow the new lease accounting rules.
A quick summary of what’s changing:
- Leased assets will go on your balance sheet
You’ll now recognise a “right-of-use” asset and a matching lease liability (similar to owned or financed assets if you have them) - The lease expense will disappear from your profit and loss
Instead, it will be split into: • Depreciation on the asset
• Interest on the liability - Profits will look different.
Costs are front-loaded – expect higher expenses in the earlier years of a lease. - It potentially could impact lending decisions
Your balance sheet will show more liabilities, which could affect finance applications. - Some leases are exempt💡
Low-value and short-term leases (less than 12 months) don’t need to be capitalised. - No change to tax or BIK rules🚗
Corporation tax relief still allows for lease payments and Company car tax rules are unaffected.
Early adoption is allowed, but full implementation is required for periods starting from 1 January 2026.
So to get ahead of the curve – Now is a good time to:
🟣 Review your lease agreements
🟣 Understand how this will affect your financials
🟣 Speak to your accountant about getting prepared
