The shift in UK GAAP lease accounting is a significant one, promising greater transparency but also demanding careful preparation. By understanding the changes and planning proactively, businesses can navigate this new landscape effectively and ensure compliance by the effective date.

From January 2026, lease liabilities will hit the books and could spell trouble for EBITDA (earnings before interest, tax, depreciation, and amortisation), loan covenants, and audit thresholds.

For years, many UK businesses have enjoyed the relative simplicity of ‘off-balance sheet’ accounting for their operating leases.

A straightforward rent expense hit the profit and loss account, and for a multitude of entities, that was largely the extent of it. However, a significant change is on the horizon for UK GAAP under FRS 102, bringing it much closer to the international  accounting standard, IFRS 16 Leases.