Quick Summary
From 1 January 2026, changes to FRS 102 will require most leases to be recognised on the balance sheet, aligning with IFRS 16 principles.
However, laptops and similar IT devices will continue to qualify for the low-value asset exemption, meaning they can remain a straightforward operating expense.
This article explains what the changes mean, why confusion persists, and why leasing remains a practical, cost-effective solution for UK businesses.
Cutting Through the Confusion
Leasing has long been a practical way for businesses to manage technology costs.
It provides access to new technology whenever needed and often comes with a suite of additional services, such as tech support, security, and device management.
One of the biggest attractions of using Devices as a Service (DaaS) is that it does not usually require a business to incur large CapEx costs when kitting out a team.
However, for accounting periods beginning on or after 1 January 2026, new accounting rules about leasing under IFRS 16 and FRS 102 will need to be considered.
Confusion reigns. Much has been made in the media about how new rules will force all leasing contracts to be recorded on the balance sheet. But this isn’t actually the case.
In most instances, computer leasing will continue to be accounted for as an expense due to the low-value asset exemption, rather than requiring capitalisation on the balance sheet under the new lease accounting rules.
Why Businesses Love Leasing IT (and IFRS 16 and FRS102 won’t change this)
The global financial crisis, business rates, National Insurance contributions, and trade tariffs have left many UK firms feeling understandably cautious.
These pressures explain why flexible tech subscriptions have become so popular.
It’s an easy concept to buy into: why purchase a suite of computers for your workforce – incurring a major capital outlay – when you can lease as an operating expense instead?
However, recent media coverage about lease accounting changes has created confusion, particularly around IFRS 16, with some reports insisting that any leased item can no longer be expensed.
This is inaccurate. IFRS 16 applies to listed and large UK firms that report under international standards. FRS 102 is more relevant to UK SMEs and private entities.
IFRS 16 principles have indirectly shaped the 2026 amendments to FRS 102. Companies using either accounting rules have similar leeway when it comes to leasing certain items, which we will explore further in this paper.
A Drive for More Transparent Reporting
As the accounting landscape evolves to bring greater transparency and consistency to financial reporting, lease expense reporting is now subject to greater scrutiny.
Historically, many leases were recorded as operating expenses, meaning they did not appear as balance-sheet liabilities. This reduced reported debt – a quirk of the rules that some accountants were only too happy to emphasise when presenting a client’s finances.
New rules are designed to remove some of this opacity.
When FRS 102 adopts IFRS 16-style rules from 2026, laptops and similar IT devices will continue to qualify for the low-value asset exemption. The same is also true for larger firms operating under IFRS 16.
What Is FRS 102 and Why the Changes?
FRS 102 is the Financial Reporting Standard applicable in the UK and Republic of Ireland.
From 1 January 2026, amended FRS 102 will require most leases to be recognised on the balance sheet. This mirrors the guidelines set out in IFRS 16.
It eliminates the distinction between operating and finance leases for lessees. This change is intended to enhance transparency by ensuring lease obligations are reflected in financial statements.
However, as noted, important exemptions remain.
Why Most Firms Should Not Worry About Computer Leasing
In most cases, laptops, tablets, and similar IT devices qualify for the low-value asset exemption under FRS 102 and IFRS 16.
This means:
- Lease payments can continue to be expensed directly in the income statement.
- No need to capitalise the lease or recognise additional liabilities on the balance sheet.
- CFOs retain full flexibility to spread costs over time and maintain predictable budgets.
The exemption applies on a lease-by-lease basis and is based on the asset’s value when new.
While FRS 102 and IFRS 16 do not specify a precise monetary threshold, examples of low-value assets explicitly include laptop computers, desktop computers, tablets, and small items of office furniture.
Several sources have put forward an indicative threshold of £4,000, which places most business devices firmly within the scope of the exemption.
The IFRS 16 Confusion: Why UK Businesses Have Been Worried
The issue stems from media coverage of changes affecting leasing, which has created widespread confusion.
Key sources of confusion include:
- Media oversimplification – coverage often states that “all leases must go on the balance sheet” without mentioning exemptions.
- IFRS 16 focus – most coverage discusses IFRS 16, which most UK SMEs do not use.
- No fixed sterling threshold – uncertainty over what constitutes “low value.”
The Financial Case for Leasing
With the ability to expense computer leases clearly established, what are the advantages of Devices as a Service (DaaS) subscriptions for UK firms?
Consider an SME procuring 120 laptops for employees:
Purchase price per laptop: £900
Total upfront cost if purchased: £108,000
Useful life: 4 years
Maintenance & insurance: £3,000/year
Year 1 cash outflow: £111,000
Depreciation expense: £27,000/year over 4 years
Maintenance ongoing: £3,000/year
Devices as a Service Solutions
Subscription payments: £30 per device per month = £43,200/year
Includes maintenance, protective cover, and upgrades
Key advantages of leasing include:
Cash flow preservation – no major capital drain in year 1.
Flexibility – Devices can be refreshed mid-contract.
Simplified accounting – costs remain a straightforward expense.
Risk reduction – avoids repair and obsolescence issues.
Predictable budgeting – fixed monthly costs.
FRS 102 and IFRS 16 Changes from 2026
The key change is that lessees will no longer distinguish between finance and operating leases. Most leases will be recognised on-balance sheet with two main exceptions:
Short-term leases – 12 months or less without purchase option.
Low-value asset leases – including computers, tablets, and small office equipment.
For qualifying exemptions, lease payments continue to be recognised as an expense on a straight-line basis. This maintains the current treatment most businesses are familiar with.
Practical Next Steps for CFOs
Heads of finance should:
- Review existing lease agreements to determine which may be affected by 2026 changes.
- Document low-value asset policies clearly for audit purposes.
- Ensure auditor agreement on the treatment of computer leases.
Key Takeaways
FRS 102 changes start 1 January 2026.
Laptops and similar devices remain exempt as low-value assets.
Leasing continues to be a cost-effective, compliant option.
Businesses should clarify policies and consult auditors.
FAQ Section
What is FRS102?
FRS 102 is the UK and Ireland’s Financial Reporting Standard, governing how businesses prepare financial statements.
Do the 2026 changes mean all leases go on the balance sheet?
No. Low-value assets like laptops remain exempt, so these leases can still be expensed.
What qualifies as a low-value asset?
Typically, items under £4,000 when new, including laptops, tablets, and small office equipment.
Does this affect SMEs?
Yes, but exemptions mean most IT leasing arrangements remain unaffected.
Should businesses stop leasing?
No. Leasing remains a practical, compliant solution for managing IT costs.
How should businesses prepare for FRS 102 changes?
Review lease agreements, document low-value asset policies, and confirm auditor agreement.
Does HMRC set the rules for lease accounting?
No. These rules are set by accounting standards, not HMRC.
What happens if a company leases 100 laptops?
The exemption applies per asset, not per contract, so laptops still qualify individually.
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