FRS 102 Lease Accounting: What UK Businesses Need to Know for 2026

The landscape of lease accounting in the UK is set for a significant shift. From 1 January 2026, amendments to FRS 102 will require most lessees to bring nearly all leases onto the balance sheet, echoing the changes introduced by IFRS 16.

For the majority of UK businesses, this marks the end of the traditional distinction between operating and finance leases, and the beginning of a new era of transparency and complexity in financial reporting.

What’s Changing?

Under the revised FRS 102, nearly all leases - except for short-term (less than 12 months), low-value leases and bespoke exemptions - must be recognised on the balance sheet. This means businesses will need to account for a right-of-use (RoU) asset and a corresponding lease liability for each qualifying lease. The transition will use a modified retrospective approach which means there is no need to restate comparative figures.  The RoU asset is generally set equal to the lease liability, adjusted for any prepayments or accrued payments. Any difference is adjusted against opening retained earnings.

Who Will Be Impacted?

The changes will affect nearly all UK entities who do no account under IFRS, including Housing Associations, Leisure Trusts, and Local Authority Trading Companies (LATCos). For many, the most significant impact will be on vehicles, plant, and equipment portfolios, where contract hire and complex lease arrangements are common.

Key Practical Considerations

Transition and Implementation

The transition to the new standard is designed to be as straightforward as possible, however, previous experience of lease accounting changes has shown this is not the case. Businesses can use carrying amounts previously calculated for group reporting as opening balances for FRS 102, reducing the administrative burden.

How MUFG Corporate Markets Treasury Can Help

Our Treasury Services are the best resourced and most experienced independent treasury management advisor in the UK, with extensive experience of assisting public sector bodies adopting IFRS 16.

We offer a comprehensive suite of support services to help you adapt to the new accounting standard with confidence, including:

• Data capture templates and leasing policy frameworks
• Senior leadership briefing notes and FRS 102 training
• Specialist software solutions capable of managing portfolios from a handful to thousands of leases, with robust UK data storage and reporting features.

We work closely with clients to ensure a smooth transition, from initial data gathering to ongoing compliance and reporting. Our advisory team is on hand to help you navigate the technical, operational, and strategic implications of FRS 102, ensuring your business remains compliant and competitive.

Please contact us for more information on how we can help you manage this transition. You can also download a copy of our FRS 102 brochure by clicking here.