30th April 2026
From 1 January 2026, new UK accounting standards will come into effect, bringing UK reporting more in line with international standards. While largely technical, these changes could have a significant impact on how profits and financial positions are reported.
The two key areas affected are revenue recognition and lease accounting.
Income will now be recognised when specific performance obligations in a contract are met. In the case of long term contract sales this can be very different from the current treatment of spreading the income across the life of a project.
At the same time, costs will be recognised as incurred, which may create timing differences. For contract-based work, this could mean:
If a year-end falls mid-project, this could result in a material shift in reported profit or loss, purely due to accounting treatment.
Most longer-term leases will move onto the balance sheet as:
Rather than being expensed as incurred
Exemptions are:
Instead of lease costs (such as rent) being charged to the P&L as incurred, businesses will need to capitalise the asset and corresponding liability and the P&L will see the depreciation and interest.
This typically results in:
This change will also impact how financial performance is measured, particularly EBITDA, which will increase as rent is removed from operating costs.
These changes could significantly affect:
In some cases, adjustments on transition may reduce retained earnings, even though there is no change to underlying cash flow or trading.
Although these changes take effect from accounting periods beginning after 01 January 2026, it’s important to prepare early. Reviewing contracts, leases, and financing arrangements now will help avoid surprises and ensure you are ready for the transition.
Where there is any concern about the effect to the balance sheet reserves or banking covenants please get in touch so that we can help to quantify the effect.
