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Changes to UK financial reporting standards in 2026 will have corporation tax implications. What are they?
29 January 2026
FRS 102 has changed to align it more closely to international accounting standards (IFRS), although some differences will remain.
Most of the changes were effective for accounting periods beginning on or after 1 January 2026. It is important to consider the implications.
Fergus Rhodes considers these implications.
The two areas of accounting that have fundamentally changed for accounting periods starting on or after 1 January 2026 are leases and revenue recognition.
Most leases will now be held on balance sheet, with the exception of short leases (less than 12 months) and low value leases.
Leases that were previously classified as operating leases, with the annual rental charge being accounted for through the income statement, will now be accounted for on the balance sheet by recognising a ‘right-of-use asset’, and the future lease payments as the lease liability.
This is in line with how international accounting standards treat leases (IFRS 16).
Under the previous reporting standards, payments were accounted for in the income statement, and were an allowable cost for tax. However, the updates will mean that the payments made will be accounted for against a lease liability on the balance sheet. This ‘right of use asset’ will be depreciated over the term of the lease, and the depreciation will be an allowable expense for corporation tax purposes.
As well as the depreciation of the ‘right of use’ asset, notional interest and lease premium adjustments may need to be included in the income statement. These could impact Corporate Interest Restriction (CIR) and overall depreciation deductibility.
It is also important to note that by recognising these right-of-use assets, the gross assets of your business will increase, which may impact your eligibility for certain reliefs and tax efficient investments.
The update is likely to affect many businesses as it requires revenue to be recognised in line with a five-step recognition model.
These five steps consider whether performance obligations have been satisfied rather than the transfer of risks and rewards from revenue transactions, as previous UK GAAP required. This is how international accounting standards treat revenue (IFRS 15).
Some businesses will face minimal or no changes, but for others it has a very significant impact on when revenue is recognised. As a result of this you may find that revenue is recognised sooner or later than previously, impacting profits and thus tax liabilities.
As you may see an increase or decrease in your tax liability, it will be important to reflect this into your cashflow planning and, for those in the Quarterly Instalment Payments (QIPs) regime you may need more careful planning for this cash impact.
Additionally, if revenue and therefore profits are brought forward, you may find this tips your company over the threshold for QIPs or Very Large QIPs.
In anticipation of the revised FRS 102, companies will have been preparing for the wider business impacts of these changes.
Companies will have undertaken an impact assessment on revenue and lease accounting to help quantify the impact of these changes. Bishop Fleming can assist with this if needed.
From here we can help you consider whether your business has taken all appropriate steps to mitigate against any unintended consequences of the changes in accounting standards. As discussed above, this may entail bringing forward SEIS or EIS plans, updating QIPs calculations or putting in place systems to ensure compliance with the new requirements.
It takes time to ensure that systems are in place to reliably track depreciation on leased assets and non-leased assets separately, so that the correct tax treatment can be applied.
For more support on this topic please reach out to your local Bishop Fleming team or email us with your enquiry.
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