Could the new accounting rules change when income appears in your company accounts?

As part of our ongoing look at what’s changing in 2026 and beyond, we're highlighting changes to the way some businesses will need to record income in their company accounts.

For many businesses, there may be little noticeable difference. But if you have longer-term contracts, provide several services as part of one agreement, receive payments upfront or have fees that depend on achieving certain milestones or results, it is worth taking a closer look.

The important question is quite simple.

“When has your business actually earned the income from its customer?”

“Isn't income simply recorded when I invoice the customer?”

Not always. Raising an invoice, receiving the money and earning the income can happen at different times. Imagine a customer pays your business in January for a service you will provide throughout the following 12 months. You may have received the cash, but you haven't necessarily earned all of that income in January because you still have a service to provide. Equally, your business might complete work before the customer is invoiced.

The accounting rules have always had to deal with these differences. What has changed from 2026 is the approach businesses use to decide when income should appear in their accounts.

What is changing?

The new rules look more closely at the agreement between the business and its customer.

In straightforward terms, the business needs to consider:

• What have we promised the customer?
• How much are they paying us?
• When have we delivered what we promised?

The answers help determine when the income should be recorded. For many simple sales, this won't result in a significant change. But it becomes more important when the customer arrangement contains several different elements or takes place over a longer period.

Which businesses should take a closer look?

The changes may be particularly relevant if your business has:

• contracts running over several months or years;
• projects delivered in stages;
• several products or services included within one price;
• annual subscriptions or service agreements;
• upfront fees;
• performance-related payments;
• bonuses or penalties;
• discounts or rebates;
• fees that depend on a future result; or
• customer contracts that are regularly changed or extended.

It isn't necessarily the type or size of the business that determines whether this matters. It is often how you agree to provide your products or services and how you charge for them.

Example 1: one customer, several services

Suppose your business agrees to provide a customer with a piece of equipment, installation and 12 months of ongoing support for one overall price.

You might raise one invoice. But from an accounting perspective, there are several things being provided.

The equipment may be delivered immediately. Installation might take place the following week. The support service will then continue for another year.

The new rules require businesses to look at what they have promised the customer and when those promises have been delivered. That can mean the income needs to be spread differently rather than all appearing at one point.

Example 2 : a long-term project

Consider a business undertaking a significant project that runs across two financial years. The customer may make payments at agreed stages, but the timing of those payments does not necessarily determine when all the income should appear in the accounts.

The business may need to consider how much of its commitment to the customer has actually been completed at the year end. For some businesses, that could change how much income and profit is reported in a particular financial year.

Why could that matter?

The total amount the customer ultimately pays may be exactly the same.

What can change is when that income and therefore potentially some of the profit appears in the accounts. That matters because those figures can be used elsewhere. For example, they may influence:

• management reporting and performance targets;
• banking and borrowing arrangements;
• financial conditions attached to loans;
• business valuations;
• company sale negotiations;
• earn-out arrangements; or
• management bonus schemes.

So this can become more than an accounts preparation issue.

What about smaller companies?

The smallest companies can qualify to use a simpler set of accounting rules known as FRS 105. There are changes to how these businesses account for income too, although the requirements are simplified. You don't need to know whether your company uses FRS 102, FRS 105 or another accounting framework. We can establish which rules apply and whether the changes are likely to make any practical difference to your business.

When does this apply?

The changes apply to financial years beginning on or after 1 January 2026. That means many businesses are already trading within their first financial year under the new rules. The contracts you are agreeing with customers today may therefore form part of the accounts prepared under the new approach.

Do I need to review every customer contract?

For most businesses, probably not. If your transactions are straightforward, there may be little change to the way income is recorded. Instead, think about where your business has arrangements that are less straightforward.

• Do you receive large payments upfront?
• Do contracts run across year ends?
• Do you combine several services within one overall fee?
• Does part of your fee depend on achieving a milestone or result?
• Do you regularly change the scope of customer contracts once work has started?

Those are the arrangements worth highlighting to your accountant.

What should businesses do now?

You don't need to redesign your contracts simply because the accounting rules have changed. But businesses with more complex arrangements should make sure the terms are clearly documented and readily available. It is also worth discussing potentially affected contracts before the year end rather than waiting until the accounts are being prepared. That gives you time to understand whether the accounting treatment will change and, if it does, what that could mean for the figures you are expecting to see.

How Ward Williams can help

Our role is to take the technical accounting requirements and apply them to the way your business actually operates. We can help identify which types of customer arrangement need closer attention, look at the relevant contracts and determine whether the timing of income in your accounts needs to change.

Where it does, we can also help you understand what that means for the wider financial picture.

Key takeaways

• The accounting rules around when income is recorded have changed from 2026.
• For straightforward sales and services, there may be little practical difference.
• Businesses with longer-term or more complicated customer contracts should take a closer look.
• Raising an invoice, receiving payment and earning the income aren't necessarily the same thing.
• Upfront payments, bundled services, projects delivered in stages and performance-related fees are among the arrangements that may need consideration.
• Smaller companies are also affected, although their rules are simplified.
• If you have more complex customer arrangements, it is worth discussing them with us before your next year end.

If you're unsure whether the way your business charges customers could be affected, speak to 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.