The Financial Reporting Council (FRC) has announced significant amendments to FRS 102, the UK’s principal accounting standard for small and medium-sized entities. These changes, effective for periods beginning on or after 1 January 2026, aim to align UK GAAP more closely with international standards such as IFRS 15 (Revenue) and IFRS 16 (Leases). Early adoption is permitted, but even for those hospitality & leisure businesses which aren’t early adopting, preparation should begin now.
Key changes to FRS 102
Revenue Recognition
- A new five-step model for revenue recognition, based on IFRS 15, will be introduced
- This model requires businesses to identify performance obligations in contracts and recognise revenue as those obligations are satisfied.
- For hospitality businesses, this could affect how revenue is recognised for:
- bundled services (e.g. A Hotel offering room, meals, and spa packages)
- one-off joining fees (e.g. Gyms, Golf Clubs and Spas who charge a one-off fee for memberships).
Lease Accounting
- Lessees will now be required to bring most leases onto the balance sheet, recognising a right-of-use asset and a lease liability.
- This change, based on IFRS 16, will significantly impact businesses with large property or equipment leases—common in hotels, bars & restaurants, gyms, and entertainment venues.
- Lease expenses will be split into depreciation and interest, affecting EBITDA and other financial metrics.
How this will Impact Hospitality & Leisure
The hospitality and leisure industry is particularly exposed to these changes due to its reliance on long-term leases and for those with more complex revenue arrangements, such as the examples above. Here’s how the sector might be affected:
Balance Sheet presentation:
Hotels, bars & restaurants and leisure facilities often lease properties and equipment. By bringing these leases onto the balance sheet it will increase their reported assets and liabilities, potentially impacting loan covenants and investor perceptions.
Revenue Timing:
Businesses offering bundled services or loyalty programmes may need to reassess when and how they recognise revenue, potentially leading to earlier or later recognition than under current rules.
Those H&L businesses who charge a one-off joining fee need to assess this in accordance with the new standard, as again the timing of when this revenue is recognised may change.
Operational Adjustments
Finance teams may need to update systems and processes to capture the necessary data for lease and revenue accounting. Staff training and system upgrades may be required.
Strategic Considerations
The changes may influence decisions around lease vs. buy, pricing strategies, and contract structuring. Any loans being entered into with covenants should factor in upcoming changes, but management should check that they do.
Next steps for H&L businesses
Assess Impact Early: Conduct a gap analysis to understand how the changes will affect your financial statements.
Understand possible changes in more detail: We recently held in person seminars on the changes for all business and are holding sector specific webinars over the coming months on how these changes may impact certain sectors.
Engage Stakeholders: Communicate with lenders, investors, and internal teams about the upcoming changes and their implications.
Update Systems and Processes: Ensure your accounting systems can handle the new requirements, particularly for lease tracking and revenue recognition.
Consider Early Adoption: For some businesses, early adoption may provide strategic or operational benefits.
Speak to us if you are unsure or ensure you are signed up to our mailing list to hear about upcoming events on the sector-specific impacts.
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