Lease accounting is about to change for many UK and Irish organisations. If you report under FRS 102, the routine has been simple. You sign a lease, pay rent, record the cost in profit and loss, and keep most lease commitments off the balance sheet. But for periods starting on or after 1 January 2026, the amended FRS 102 brings most lessee leases onto the balance sheet. Early adoption is permitted.
This article explains what is changing, how FRS 102 compares with IFRS 16, and what it means for your numbers. The shift is significant, but it follows the same right-of-use idea as IFRS 16, just written in a more practical UK GAAP style.
These amendments only change lessee accounting. Lessor accounting remains the same, with leases still classified as finance or operating leases in line with IFRS 16.
Both standards use a single on balance sheet model for lessees. For most leases you recognise:
So leases that used to look like rent now look more like financed purchases. Assets and obligations become visible on the balance sheet, and the profit and loss account shows depreciation and interest instead of a straight rent charge.
Read more about revised FRS 102 vs the pre-2026 FRS 102 and older UK GAAP.
The FRS 102 model is based on IFRS 16 but designed for SMEs and mid-sized groups. The outcomes are similar, but the rules are shorter and easier to run.
A contract is a lease if it gives you control of an identified asset for a period of time in exchange for payment. The judgement is the same as IFRS 16, but the guidance is less detailed. FRS 102 also keeps exemptions for short term leases and low value assets. If a lease qualifies for the exemption, you can expense payments over the term instead of recognising an asset and liability.
You discount future lease payments using the interest rate implicit in the lease if it can be readily determined. If not, amended FRS 102 lets you use either:
The obtainable borrowing rate reflects what you could obtain to borrow over a similar term with similar security, and is often easier for smaller entities to estimate and support.
IFRS 16 requires detailed tables and narrative to support global comparability. Amended FRS 102 requires fewer, more focused disclosures aimed at UK GAAP users. One extra transparency point remains: if you use the short term or low value exemptions, you still disclose the expected cash flows for those leases, split by maturity.
FRS 102 offers a smoother adoption path:
This reduces the need to rebuild historic lease data.
Bringing leases on the balance sheet will increase both assets and liabilities, and ratios such as gearing and net debt will move. EBITDA usually increases because lease costs shift from operating expense to depreciation and interest.
From 2026, amended FRS 102 brings most lessee leases on balance sheet through a right-of-use model aligned to IFRS 16 in principle. The difference is practicality:
Start early by gathering your lease population, setting exemption policies, and agreeing a discount rate approach, and the 2026 switch should feel like a smooth transition.