Changes to UK accounting standards — is your retail business ready?

We deliver specialist legal advice to retailers across the UK, supporting businesses as they navigate the fast-evolving retail landscape. As a legal one-stop-shop for retailers of all sizes, we're to help businesses adapt to legislative changes, manage risk and seize new opportunities.

Here, Anna Pickup (Head of Financial Reporting, Armstrong Watson) explores the upcoming changes to UK accounting standards, offering practical guidance on how retailers can prepare for the new rules.

Significant changes to accounting standards explained

Retail businesses across the UK and Ireland need to prepare for significant changes to UK accounting standards, particularly those relating to how they account for revenue and leases. The new rules stem from changes to FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland), following the Financial Reporting Council’s Periodic Review 2024.

For retail businesses, the impact of these changes could be substantial — especially those with multiple leases such as stores, warehouses or point-of-sale equipment and diverse revenue streams consisting of bundled goods or services, loyalty programmes, warranties, customer options or significant financing components.

Most of the amendments to FRS 102 (including those relating to revenue recognition and lease accounting), will take effect for accounting periods beginning on or after 1 January 2026. However, one area of change that requires new disclosures for businesses with supplier financing arrangements became effective from 1 January 2025. Businesses also have the option to early adopt these changes (and some are already choosing to do so). 

Changes to revenue recognition

The revised standard introduces a new five-step model for revenue recognition:

1. Identify the contract(s) with a customer.
2. Identify the performance obligations or promises within the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations in the contract.
5. Recognise revenue when (or as) the entity satisfies a performance obligation.

While this approach is similar to the requirements introduced into International Financial Reporting Standards in 2018, it does include some simplifications. The standard provides guidance for each step of the model but the changes may impact the amount and timing of revenue recognition for many businesses. 

Changes to lease accounting

The distinction between finance and operating leases and the associated accounting will no longer exist. Where operating leases were previously held ‘off balance sheet’, now most leases will be accounted for on balance sheet, with both a right of use asset and a lease liability being recognised.

Subsequently, depreciation of the right of use asset and interest on the lease liability will be charged to the Income Statement. There are some exemptions from this treatment available for short-term leases (typically those under 12 months) and leases of low-value assets, whereby the rental expense should be recognised as an operating cost in the Income Statement. 

Wider & commercial considerations of the changes

Beyond the technical accounting changes, there could be wider implications to consider, such as:

• The impact on key performance measures monitored by stakeholders such as revenue, EBITDA and gearing.
• The impact on any arrangements linked to financial performance, such as debt covenants, performance-based remuneration, business valuation multiples and earn-outs.
• The impact on distributable profits and a company’s ability to pay dividends.
• Whether a company meets the criteria and thresholds for requiring a statutory audit.
• The impact on systems and processes within a company to ensure compliance with the incoming changes.

How to prepare

To prepare, retail businesses should:

1. Assess the impact. Review how these changes will affect your financial statements, systems and processes.
2. Communicate. Keep stakeholders, including investors and lenders, informed about the potential impact of the new rules on retail operations.
3. Gather information. Collect the data needed to comply with the new requirements, such as documentation for leases and customer contracts.
4. Seek advice. Consult your professional advisers and ask for support where necessary. Preparing for these changes can be time-consuming, so it’s wise to start sooner rather than later.

For more information around how Armstrong Watson can support you with this, please call 0113 221 1347 or email anna.pickup@armstrongwatson.co.uk.

The ‘Future of Retail’ conference

On 22 October 2025, our retail team will be hosting the Future of Retail: Risk and Resilience Conference at our Manchester office. This event will explore critical themes including Martyn’s Law, employee welfare protection, health and safety management, cybersecurity and IT system integrity, AI and counterfeiting and social media risks — all aimed at equipping those who attend with the knowledge and practical tools to safeguard their brand, people and customers. 

We'd like to thank Armstrong Watson for its expert insight into how companies can manage the changes to UK accounting standards. This topic will also be a key discussion point at the conference.