Leases and your company accounts: What businesses need to know about the 2026 changes
As part of our ongoing look at what’s changing in 2026 and beyond, we’re highlighting an important change that could affect businesses that rent premises or lease vehicles, machinery or equipment.
The accounting rules used to prepare many UK company accounts have changed from 2026. One of the biggest differences is how leases are shown.
For some businesses, this could make the balance sheet look noticeably different, even though nothing has changed in the lease itself.
Does your business lease anything?
When we talk about leases, it doesn't just mean property.
Your business might:
- rent an office, shop, warehouse or other premises;
- lease company cars or vans;
- lease machinery or manufacturing equipment; or
- use other equipment under a lease agreement.
If so, the changes are worth being aware of. You don't need to work out whether the new rules apply to your business yourself. That will depend on the accounting rules used to prepare your accounts, and we can establish that for you.
What is actually changing?
Until now, many familiar business leases have appeared in the accounts mainly through the annual cost of renting or leasing the asset.
For businesses affected by the new rules, most leases will now also need to appear on the balance sheet. In simple terms, the accounts will recognise two things:
- The value to the business of being able to use the property, vehicle or equipment for an agreed period; and
- The future payments the business has committed to make under the lease.
This means both the assets and liabilities shown on the balance sheet may increase.
Does that mean my business has more debt?
Not in the sense that you have suddenly taken on a new financial commitment. If you signed a five-year property lease two years ago, for example, the commitment to make those rental payments was already there.
The difference is that the accounts will now show more of that commitment on the balance sheet. So, if your next accounts look different from previous years, it doesn't necessarily mean the financial position of the business has suddenly changed. The way some of the numbers are being presented has changed.
Why does it matter if it's just an accounting change?
It matters because figures from your accounts can be used for much more than preparing the accounts themselves. Banks and other lenders may look at your accounts when considering borrowing facilities. Some loan agreements contain financial conditions or covenants based on particular figures or ratios. Business valuations, company sales and earn-out arrangements can refer to profit or measures such as EBITDA. Some businesses also use these figures internally to assess performance or calculate management incentives. The new accounting treatment can affect some of those numbers. That doesn't automatically create a problem, but it does mean businesses with significant lease commitments should understand the potential impact.
Could it affect profit?
The way the cost of an affected lease appears in the profit and loss account also changes. Rather than simply showing the rental cost in the same way as previously, the accounting will generally reflect the cost of using the asset alongside a financing cost relating to the future lease payments. This can change measures such as operating profit and EBITDA.
Again, the important point is that the underlying business hasn't necessarily changed, but some of the figures used to describe its performance may have.
Are all leases affected?
No. There are exceptions within the new rules, including for certain short-term leases and leases involving lower-value assets. There is also an important difference for the smallest companies. Qualifying micro-companies may prepare their accounts under a simpler set of accounting rules known as FRS 105. These companies do not have to adopt the same new lease treatment. If you don't know which accounting rules your business follows, don't worry. We can establish that for you.
When do the changes apply?
The new rules apply to financial years beginning on or after 1 January 2026. For many businesses, that means they are already relevant. For example, if your company's financial year began on 1 April 2026 and ends on 31 March 2027, that set of accounts will fall under the new rules. Although the accounts themselves may not be prepared for some time, the leases that need to be considered are already in place.
What should I do now?
The most useful starting point is to make sure you have a clear record of the things your business leases. That might include property, vehicles, machinery and equipment. Keep the relevant agreements and information about the lease readily available, including details such as:
- when the lease started and ends;
- what payments are due;
- whether there are rent-free periods or other incentives;
- whether you have an option to extend the arrangement; and
- whether there are break clauses or options to end the lease early.
For a business with one office lease, that may be relatively straightforward. For a business with multiple properties, a fleet of vehicles or numerous equipment leases, it may require a little more preparation.
Don't wait until your accounts are being prepared
For many businesses, these changes will simply be dealt with as part of preparing the annual accounts. But if you have significant leases, it is worth having the conversation earlier.
That gives you time to understand how your next accounts could look and whether any other arrangements linked to those figures need to be considered. It can also avoid having to track down numerous historic lease agreements when your accounts are already being prepared.
How Ward Williams can help
You don't need to interpret lease accounting rules yourself. We can establish whether the changes apply to your business, identify which of your leases need to be considered and let you know what information we require. Where the impact on your accounts is likely to be more significant, we can also help you understand what the change means beyond the accounting treatment itself.
Key takeaways
- The way many business leases are shown in company accounts has changed from 2026.
- Property, vehicles, machinery and equipment could all be relevant.
- Businesses affected by the new rules may see both assets and liabilities increase on their balance sheet.
- This does not mean the business has suddenly taken on new commitments. It changes how existing lease commitments are shown.
- Some profit measures and financial ratios may also look different.
- The smallest companies are treated differently and may not be affected by the lease changes.
- If your business has significant leases, it is worth discussing them with us before your next accounts are prepared.
If your business rents premises or leases vehicles, machinery or equipment and you would like to understand whether the changes affect you, the best place to start is with your usual Ward Williams contact.
Alternatively, 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.
