The rules for company accounts are changing: What businesses need to know

As part of our ongoing look at what's changing in 2026 and beyond, we're highlighting some important changes to the accounting rules used to prepare company accounts.

If you run a limited company, some of these changes could affect your next set of accounts. You may have heard references to FRS 102 or FRS 105. These are simply accounting standards used when company accounts are prepared, and you don't need to know which one applies to your business. That's something we can establish for you.

What is more useful to understand is what is changing and whether it could make a difference to the numbers you see in your accounts. The changes apply to financial years beginning on or after 1 January 2026, so for many businesses they are already relevant.

Two areas in particular are worth knowing about: leases and how income is recorded.

If your business leases property, vehicles or equipment

One of the biggest changes affects businesses that lease things. That could be your office, shop or warehouse, company cars and vans, machinery or other equipment. Until now, many of these leases have largely appeared in the accounts as a cost each year.

For businesses affected by the new rules, most leases will now also need to be shown on the balance sheet. In simple terms, the accounts will recognise that your business has the benefit of using something for an agreed period, but also has a commitment to make future payments for it. That can make both the assets and liabilities on your balance sheet look higher than they have previously. It doesn't mean your business has suddenly borrowed more money or taken on a new commitment. The lease was already there. The difference is that the accounts will now show more of that commitment.

Why could that matter?

For some businesses, it may simply change how the accounts look. For others, it could have wider implications. Banks and lenders sometimes use figures from company accounts when looking at borrowing arrangements or financial performance. Business valuations, earn-outs and other commercial agreements can also refer to measures such as profit or EBITDA.

The new accounting treatment can change some of these figures even though nothing has changed in the day-to-day operation of the business. That is why it is worth understanding the potential impact rather than discovering it when your accounts are prepared.

There are some exceptions to the new lease rules, and they do not apply in the same way to the smallest companies. We explain the lease changes in more detail in our separate article, Leases and your company accounts: What businesses need to know about the 2026 changes.

The way some businesses record income is changing too.

The second major area concerns when income from a customer is shown in your accounts. For many businesses, this will make little or no difference. If you sell a product or provide a straightforward service for an agreed price, the accounting is likely to remain relatively simple. It becomes more relevant where a customer arrangement is more complicated.

For example, perhaps you provide several services as part of one contract. A project might run over a number of months. Part of your fee might depend on achieving a particular result. Or a customer might pay you upfront for a service you will provide over the following year.

The new rules look more closely at what you have agreed to provide and when you have actually provided it. This can affect when some or all of the income is shown in the accounts. Importantly, it isn't necessarily about when you send the invoice or when the customer pays you. It is about when the business has actually earned the income under the agreement with the customer.

We explore this separately in Could the new accounting rules change when income appears in your accounts?

What if I run a very small company?

Smaller companies aren't necessarily excluded from the changes. Some very small businesses qualify to prepare their accounts under a simpler set of accounting rules, known as FRS 105.

If this applies to your company, the major change to lease accounting outlined above does not apply to you. However, there are still changes, including how some income is accounted for. Again, you don't need to work out which rules your company follows. We can tell you whether the changes affect you and, more importantly, what you need to do about them.

Are there other changes?

Yes. There are a number of other updates to the accounting rules, although many will only be relevant to particular businesses or circumstances. These include areas such as buying another business, valuing certain assets, employee share arrangements and situations where the tax treatment of a transaction is uncertain.

For most business owners, there is little benefit in learning the technical detail. What matters is making sure that anything relevant to your business is identified early enough to deal with it properly.

When does all this happen?

The changes apply to financial years beginning on or after 1 January 2026. That means many businesses are already in their first affected financial year. For example, if your company's year end is 31 March 2027, the financial year that started on 1 April 2026 is already covered by the new rules. So although you may not see the impact until your next accounts are prepared, the transactions and agreements that will feed into those accounts are happening now.

Do I need to do anything?

For many businesses, very little may need to change. But there are a couple of things worth considering now.  If your business leases property, vehicles or equipment, make sure you have copies of the agreements and details of the payments available. If you have more complicated customer contracts, particularly those running over a longer period or combining several products or services, these may also be worth discussing with us.  And if your borrowing arrangements or other agreements depend on figures from your company accounts, it is sensible to understand whether the accounting changes could affect those figures.

How Ward Williams can help

You don't need to become an expert in accounting standards to prepare for these changes.

Our role is to establish which rules apply to your business, identify anything that may need to be treated differently and explain the impact in a way that makes sense for you.

Where there is likely to be a more significant change to your accounts, we can also help you look beyond the accounting treatment and understand whether there are any wider implications for your business.

Key takeaways

• The accounting rules used to prepare UK company accounts have changed from 2026.
• You don't need to know whether your business uses FRS 102 or FRS 105. We can establish that for you.
• Businesses that lease property, vehicles or equipment may see a noticeable change to their balance sheet.
• Some businesses may also need to change when income from customer contracts appears in their accounts.
• The smallest companies are treated differently in some areas.
• The changes are already in effect for financial years beginning on or after 1 January 2026.
• If you have significant leases or more complicated customer contracts, it is worth talking to us before your next year end.

If you'd like to understand whether the changes affect your business, the best place to start is with a conversation with your usual Ward Williams contact. Contact us on 01932 830664 or email enquiries@wardwilliams.co.uk.

More changes to be aware of

This is one of a number of changes affecting businesses over the coming years. Visit our What's changing in 2026 and beyond? page for our latest guidance on the key tax, regulatory, employment and financial reporting changes and when they take effect.