Important Accounting Changes from 1 January 2026 - What Tech and SaaS Businesses Need to Know

The Financial Reporting Council (FRC) has issued significant amendments to FRS 102 as part of its Periodic Review 2024.

These updates will apply to all UK companies that account under FRS 102, including small companies preparing Section 1A accounts. These changes apply for accounting periods beginning on or after 1 January 2026.

For many tech and SaaS businesses, the key changes relate to;

• Revenue recognition
• Lease accounting
• Enhanced disclosures

Below is a practical summary of what’s changing, what you should be thinking about now and how to prepare.

Want to know how this affects your business? Contact our our team, they will be happy to help.

The three key changes explained

1) Revenue recognition is being updated (Section 23)

FRS 102 is moving towards a more structured approach to recognising revenue, broadly aligned to IFRS. Expect a shift from “when work is done/transfer of risks and rewards” to a more structured “when obligations and performance obligations in contracts with customers are satisfied”, with more focus on contract terms, variable consideration, and allocating revenue across deliverables. 

For SaaS and tech businesses, this is particularly relevant if you have:

• Subscription or licence arrangements (deliver services over time)
• Setup, onboarding, or implementation fees
• Bundled contracts (e.g. licence + support + development)
• Discounts, incentives, usage-based pricing, or performance bonuses

Instead of simply recognising revenue when invoices are raised, the new rules focus on:

• What you’ve promised to deliver to customers, and
• When the customer actually receives those services or benefits

What this could mean in practice:

• Some upfront fees (e.g. onboarding or setup) may need to be spread over the contract period
• Revenue timing and therefore profits may shift between periods
• You’ll need clearer documentation of how your contracts work and how revenue is allocated

Even if your total revenue doesn’t change, the timing might with potential additional disclosures on revenue recognition and related accounting policies required. Therefore it is key that organisations perform a thorough assessment and reach the correct conclusions.

2) Lease accounting is being overhauled for lessees
(Section 20)

Similar to revenue, the periodic review has looked to align lessee accounting to that of International Financial Reporting Standards. As a result, major change is that most leases will now come onto the balance sheet. Instead of classifying many leases as “operating leases” with costs simply expensed as a rent expense to the Profit and Loss account, businesses will typically recognise:

• A right-of-use asset, and
• A corresponding lease liability

This matters most if you lease:

• Office spaces or co-working premises
• Company vehicles
• IT equipment or specialist hardware

What may change in your numbers: 

• Higher reported assets and liabilities
• Changes to expense profiles (depreciation + interest instead of straight-line rent expense)
• Knock-on impacts to covenants and other alternative performance measures such as; EBITDA and gearing

Although the overall amount of cash used by the business doesn’t change, the presentation of such arrangements will.

3) Small companies: disclosures are increasing (Section 1A)

FRS 102 Section 1A previously permitted eligible small companies to benefit from simplified financial statements reduced disclosure requirements. However, as a result of the periodic review, even Section 1A will now also see expanded and enhanced disclosure requirements in several areas including more detailed accounting policy notes and disclosures for revenue and leases.

The amendments to FRS 102 also includes expanded related party disclosures, removing previous areas of judgement as to what constitutes “normal market conditions” and “materiality”. In practice, this means all transactions with related parties will be disclosed in small company accounts, unless certain conditions are met including transactions between wholly owned group members.

Transition and timing: what to do now?

Transition is mandatory for periods beginning on or after 1 January 2026, with early adoption permitted.

The below table summarises the first set of annual financial statement which are to be prepared in accordance with the amendments to FRS 102:

To avoid surprises when your FY26/FY27 year-end accounts are prepared, we recommend starting planning now.

Here is a key action plan to help prepare and plan for any potential impacts:

1) Review key customer contracts

• Reviews should happen for each type of customer contract, for every revenue stream. If each contract with customers is bespoke, then this review will need to be on a client by client basis
• Look out for key triggers such as bundled services, multiple deliverables, variable consideration, subscriptions, long term agreements etc.
• Separate out deliverables, identify each distinct service or product (key performance obligations) and allocate a price to each performance obligation

2) Gather lease agreements and list the key terms

• Offices (property), equipment, vehicle leases etc.

3) Plan your approach and communications

If you report to stakeholders, consider explaining changes before the first set of “new basis” management accounts and/or financial statements are shared.

How Onside can help

We can support you with a focused  “FRS 102 impact review” covering:

• A review of your revenue contracts
• A review of your lease agreements
• Provide a practical implementation plan; including guidance on revenue recognition and lease accounting
• Help provide an impact assessment of how your figures, including revenue, gross profit and net assets may change
• Help assess impact and changes required for any external investor reporting where applicable

Unsure how these changes will affect your revenue or leases?
We’re already helping tech and SaaS businesses assess the impact of the new FRS 102 rules. Feel free to reach out to the team, who will be happy to help.

Contact the team

From left to right, meet our Accounting Partner, Laura Smith; our Head of Accounting, Linda Lipkova; our Senior Client Director, Hannah Gillan; and our Client Directors, Will Taylor and Sophie Hanks.

You can contact the team today using our Contact Us page - simply click here

Author: Laura Smith, Accounting Partner, Onside Accounting

FAQs

What’s the biggest risk if we ignore this?

Leaving it too late increases the risk of revenue being recognised incorrectly, leases being missed from the balance sheet and last-minute changes to your financials as part of the preparation of your year-end accounts; which can also lead to delays and extra time being spent on completing your financial statements.

Will this change our cash or pricing?

No. The changes affect how revenue and leases are accounted for and reported, not how cash moves in or out of the business.

Could this affect reported growth or profitability?

Yes, potentially, total contract value may stay the same, but when revenue and profit are recognised can shift particularly for subscriptions, setup fees and bundled services.

Why does this matter more for SaaS businesses?

SaaS contracts often include multiple deliverables, recurring services and variable pricing. The updated revenue accounting standards require clearer identification of each obligation promised to customers in the sales contract and an allocation of total contract price to these obligations.

What’s the upside of dealing with this early?

You get time to:

• Understand the impact before it appears in your financials
• Explain changes early to investors and lenders
• Make confident decisions based on the amended accounting guidance
• Avoids to delays to your year-end and where relevant your audit process

If you’re planning ahead for FY26 or FY27 and want clarity on how these changes affect your business, we can help you assess the impact and plan the transition.

Speak to Onside about an FRS 102 impact review.