What owner-managed businesses need to know about UK GAAP changes

For many owner-managed businesses (OMBs), UK GAAP has long been viewed as a relatively stable and pragmatic framework. Amendments arising from the Periodic Review 2024 will take effect for accounting periods beginning on or after 1 January 2026, introducing some of the most significant changes to UK GAAP in a decade. Accounts prepared under FRS 102 are where the changes will mostly be seen.

While the changes apply across the board, they will have particular implications for OMBs, where financial statements often play a dual role: supporting compliance while also informing funding decisions, dividend policy and strategic planning.

For finance leaders and their advisers, the challenge is not just understanding the technical requirements, but anticipating how reported performance, balance sheets and stakeholder perceptions may change.

A visible shift to leases on the balance sheet

One of the most far-reaching changes relates to lease accounting. Under the previous versions of UK GAAP, operating leases sit off the balance sheet, with commitments disclosed in the notes and lease payments expensed through the profit and loss account.

From accounting periods beginning on or after 1 January 2026, this will change. With limited exceptions, leases will give rise to a right-of-use asset and a corresponding lease liability on the balance sheet. Over the lease term, the liability will unwind with interest charged to profit and loss, whilst the asset is depreciated.

For many OMBs – particularly those with property leases, vehicle fleets or equipment leases – this will result in a material increase in reported assets and liabilities overnight. Although comparative figures will not need to be restated, companies must recognise the lease liability and right-of-use asset at the transition date. There will also be an opening reserves adjustment in most cases.

This is more than an accounting presentation issue. Increased leverage may affect key ratios used by lenders, potentially triggering covenant considerations or at least prompting new conversations with banks. Stakeholders unfamiliar with the accounting change may also perceive the business as having taken on more “debt”, even though cash flows remain unchanged.

Short-term and low-value leases will continue to benefit from exemptions, but for many businesses the direction of travel is  lear: leases will no longer be invisible.

Aligning profit with performance

The Periodic Review also introduces a new, more structured framework for revenue recognition under FRS 102, based on a five-step model. The emphasis shifts firmly towards recognising revenue as performance obligations are satisfied, rather than simply when invoices are raised.

For straightforward transactions, this may not change the recognition of income. However, for businesses with long-term contracts, bundled goods and services, or staged delivery arrangements, the timing of revenue – and therefore profit – could look very different.

Where performance obligations are satisfied over time, such as construction contracts or ongoing service arrangements, businesses must assess progress at each reporting date. If progress can be measured reliably, revenue is recognised in line with that progress. If not, revenue is restricted to recoverable costs incurred.

Importantly, companies adopting the new rules must restate their opening position. This can be done either through a full retrospective approach, restating comparatives, or a modified retrospective approach, with the cumulative impact taken to opening reserves. Either way, owner managers should be prepared for adjustments that may affect distributable reserves and historic trend analysis.

Small companies in the spotlight

Perhaps less headline grabbing, but no less important, are the enhanced disclosure requirements. The Periodic Review removes or narrows several exemptions previously available to entities reporting under FRS 102 Section 1A, replacing them with a more consistent baseline of disclosures.

From periods beginning on or after 1 January 2026, small entities will be required to include disclosures that many OMBs may not historically have associated with “small company” reporting. These include going concern statements, related party transactions, dividends declared during the period, share-based payment arrangements, details of provisions, and expanded tax disclosures, including deferred tax.

For OMBs, related party disclosures in particular may require more careful documentation and review. While transparency is the clear objective, the increased level of detail may feel like a step change for businesses who have previously been used to less detail disclosed in their accounts.

New disclosure requirements for supplier finance arrangements

One of the amendments comes in sooner than the others already noted. The new disclosure requirements for supplier finance arrangements apply for accounting periods beginning on or after 1 January 2025. Where such arrangements exist, and the entity is not exempt, businesses must now disclose the key terms, the carrying amounts of related liabilities, and how payment terms compare to standard supplier arrangements.

These disclosures are designed to shine a light on liquidity and working capital management – an area of heightened focus for lenders and investors alike.

The importance of early preparation

Taken together, these changes mean that owner-managed businesses and finance teams cannot afford to leave preparation too late. Lease registers need to be reviewed and populated with data that may not previously have been required.

Customer contracts should be revisited to identify performance obligations and to assess how revenue will be recognised. Financing arrangements, including supplier finance, should be clearly understood and documented.

The 2024 Periodic Review has resulted in changes, but with early planning and clear communication, OMBs can navigate the transition confidently, turning a compliance challenge into an opportunity for greater financial insight.