What are the tax implications of the FRS 102 lease accounting changes?

What is the impact on the balance sheet?

Accounting

Right-of-use asset: The right-of-use asset is initially recognised at the commencement date and measured at cost, consisting of the amount of the initial measurement of the lease liability, plus:

• any lease payments made to the lessor at or before the commencement date, less any lease incentives received;
• the initial estimate of any restoration costs for which a provision must be recognised on lease commencement; and
• any initial direct costs incurred by the lessee.

Impact on gross assets                                                                    

With operating leases coming onto the balance sheet, the gross assets of a company will potentially increase, which could affect its ability to qualify for some of the tax reliefs intended to encourage investment in smaller UK businesses, such as the:

• Seed Enterprise Investment Scheme (SEIS) – where the company’s gross assets must be no more than £350,000,
• Enterprise Investment Scheme (EIS) – where the company’s gross assets must be no more than £15 million,
• Enhanced R&D intensive support (ERIS) – where gross assets must be no more than €86million
• Enterprise management incentives (EMI) – where the company’s gross assets must be no more than £120 million (from 1 April 2026)

For larger companies, an increase in gross assets could cause them to breach thresholds such that they enter more burdensome compliance regimes, for example:

• Main transfer pricing rules where the company’s gross assets are €43 million or more
• Senior Accounting Officer (SAO) regime – where gross assets are more than £2 billion