Changes to UK GAAP – Revenue recognition

For periods beginning on or after 1 January 2026, revenue is required to be recognised using a five-step approach, similar to that used in IFRS 15 Revenue from Contracts with customers.   

The five steps are: 

1. Identify the contract(s) with a customer 
2. Identify the performance obligation(s) in 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 

All entities subject to the Periodic Review will need to undertake an assessment to understand the impact of the changes. Where entities are subject to audit, they will be required to evidence how they have complied with the new model for audit purposes.  

The impact of the changes will vary depending upon the nature and terms of your customer contracts. For example, the amount of revenue recognised might change where entities regularly sell bundles of goods and services or where there are discounts, incentives or customer options.    

The changes may also impact the timing of revenue recognition. This is likely to have practical implications, such as impacting key performance metrics, taxation, loan covenants and any performance-linked remuneration.  The greatest impact is expected to be seen for those entities with customer contracts that are complex, longer term in nature and span the reporting period end.  

Industries that are expected to see significant change are: 

• Real estate and construction 
• Manufacturing and engineering 
• Software 
• Telecoms 
• Technology and media 
• Professional services 

Practical considerations to start thinking about include: 

• Do customer contracts require revision?  The wording of contracts can have significant implications on revenue recognition.  There is still time to change your commercial terms, for example where the changes result in deferral of revenue. 
• Are changes needed to IT systems and data collection in order to track revenue and to satisfy new disclosure requirements? 
• Where the amount and timing of revenue is impacted, how do performance KPIs change? 
  • Is there a change to profit or EBITDA, profit shares, bonus arrangements or any earn-out arrangements? 
  • Do other agreements, such as loan agreements with covenants linked to profit measures require renegotiation?  
  • Is there a significant impact on distributable reserves, affecting a company’s ability to pay out dividends? 
  • How will you manage investor expectations? 

For more complex customer contracts, the adoption of the amendments may require months of preparation. An early start will minimise disruption and ensure compliance. Entities should: 

• Upskill finance and commercial teams to understand the impact on the business 
• Engage early and communicate with stakeholders 
• Decide on the transition approach that will be adopted 
• Undertake an impact assessment on revenue accounting 
• Gather revenue contracts and group them into different categories (e.g. standard contracts, bespoke contracts, modified contracts etc.) 
• Where commercial terms require amendments, obtain these before the initial application date 
• Appoint a project sponsor and develop an implementation plan 
• Consider changes to data and IT system requirements to track revenue and to satisfy new disclosure requirements