With the 2025/26 tax year underway, there’s a change that hasn’t had enough attention: the FRC has expanded the disclosure requirements for small companies under FRS 102, Section 1A. If you prepare or review accounts for small entities in the UK, this affects you now.
What happened
The FRC’s periodic review of FRS 102 (September 2024 edition) takes effect for accounting periods commencing on or after 1 January 2026. The headline changes — on-balance sheet lease accounting and the new five-step revenue recognition model — have been well covered. Less discussed are the disclosure changes for small entities.
The short version: several disclosures that were previously “encouraged” are now mandatory, and six areas have new or expanded requirements.
Previously encouraged, now required
Under the old rules (FRS 102, January 2022), small entities were
encouraged to disclose things like:
- A statement of compliance with FRS 102 (adapted for Section 1A)
- Whether the entity is a public benefit entity
- Material uncertainties about going concern
- Dividends declared, paid, or payable during the period
- Transition information on first-time adoption
“Encouraged” meant optional. From January 2026, these are all mandatory for UK small entities. The FRC moved them into Appendix C, which is the compulsory disclosure appendix.
Worth noting: this only applies to UK small entities. Irish small entities stay on the old encouraged basis because the EU Accounting Directive still constrains the FRC’s requirements in Ireland.
The six expanded areas
Beyond mandating the encouraged disclosures, the FRC has added or expanded requirements in six specific areas.
Taxation
This is probably the biggest practical change for most small companies. You now need to disclose:
- Deferred tax — the amount of deferred tax liabilities and assets at the reporting date for each type of timing difference, plus unused tax losses and credits (para 29.27(e))
- Tax expense components — breaking out current tax, prior period adjustments, deferred tax from timing differences, rate changes, Pillar Two tax, and accounting policy changes (para 29.26)
- Tax reconciliation — reconciling the tax charge to profit before tax multiplied by the applicable rate (para 29.27(b))
If you’ve been preparing small company accounts with a single line for corporation tax and nothing else, that’s no longer sufficient.
Leasing
Given the move to on-balance sheet lease accounting, the new disclosure requirements make sense:
- A general description of significant leasing arrangements
- Where needed, additional information about future cash flows not reflected in the lease liability, restrictions or covenants, the type of discount rate used, and sale and leaseback details
- Separate disclosure of expenses for short-term leases, low-value asset leases, and variable lease payments not included in the liability
For a small company with one office lease and a photocopier, this shouldn’t be onerous. For a business with multiple property leases and equipment finance, it’s a meaningful increase in disclosure work.
Provisions and contingencies
Small entities now need the full disclosure requirements for provisions (para 21.14), contingent liabilities (para 21.15), and contingent assets (para 21.16). The prejudicial disclosure exemption is still available, but you need to comply with para 21.17 if you use it.
Financial guarantee contracts also need disclosure of their nature and business purpose, plus provision and contingent liability information where applicable.
Share-based payments
If a small company has any share-based payment arrangements — share options for staff, for example — the disclosure requirements now include:
- A description of each arrangement, including vesting requirements and settlement method
- Number and weighted average exercise prices of options outstanding at the start and end of the period, plus those exercisable at period end
- Total expense recognised in profit or loss and total carrying amount of liabilities from share-based payments
Most traditional small companies won’t have share-based payments. But it’s increasingly common in tech startups and growth businesses that still qualify as small under Companies Act thresholds.
Revenue recognition
Aligned with the new five-step model, small entities need to describe their performance obligations in customer contracts. Specifically:
- When the entity typically satisfies performance obligations (on shipment, delivery, completion of service, etc.)
- Significant payment terms, including financing components and variable consideration
- The nature of goods or services promised, including whether the entity acts as agent or principal
This is more than most small company accounts currently include. If your revenue note currently says “Revenue is recognised on delivery of goods and provision of services” and nothing else, that will need expanding.
Related parties
This is a significant tightening. Under the old Section 1A, related party disclosures were fairly limited. The new requirements pull in paras 33.9 and 33.14, which means disclosing:
- The amount of transactions with related parties
- Outstanding balances and commitments, including their terms, whether secured, and the nature of settlement
- Details of guarantees given or received
- Provisions for uncollectable receivables from related parties
- Bad debt expense recognised on related party balances
For owner-managed businesses with director loans, intercompany transactions, or family members involved in the business, this is a step change in what needs to be on the face of the accounts. The exemption for transactions between wholly owned group members still applies, as does the government-related entity exemption.
What to do now
If you’re preparing accounts for periods starting on or after 1 January 2026:
Review your disclosure templates. Most practice software will update, but check the timing. You don’t want to file accounts that are missing mandatory disclosures because your template hasn’t caught up.
Brief your clients. The related party and tax disclosures will need more information from clients than before. Get ahead of it by explaining what you’ll need at the planning stage, not during accounts preparation.
Check your leases. The combination of on-balance sheet recognition and new disclosures means leasing will take longer to get right. Identify all leases early.
Don’t assume the old template works. “We’ve always done it this way” doesn’t cut it when the rules have changed. A set of small company accounts that was compliant last year may not be compliant this year.
The FRC has been clear: post-Brexit, they’re no longer constrained by what the EU Accounting Directive allowed for small companies. These expanded disclosures are the first significant exercise of that freedom. There will likely be more to follow.
If you’re unsure how these changes affect your business, get in touch. We can review your current reporting and make sure your accounts are ready for the new requirements.
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