FRS 102 amendments: Life sciences

The UK’s life science sector continues to thrive. Attracting $2.1 billion in venture capital investment by late 2025, it remains the European leader. The UK government is also investing over £2 billion in its Life Sciences Sector Plan, alongside funding from UK Research and Innovation (UKRI) and the National Institute for Health and Care Research (NIHR).  

The government’s plan is to make the UK the most attractive place in the world to develop and deploy new treatments and establish it as one of the top three fastest countries in Europe for patient access to medicines and medtech by 2030. 

With the upcoming changes to FRS 102 affecting businesses across sectors, what will life sciences organisations have to consider? 

The latest amendments to FRS 102 align UK reporting with IFRS in several areas, enhancing transparency and consistency across sectors. Notably, the periodic review aligns accounting for leases and revenue recognition with existing requirements under IFRS.  

The main considerations and changes for the life sciences sector include the following. 

The upcoming changes to FRS 102 will reshape how organisations report key financial metrics, with direct implications for performance-based incentives, such as bonuses or share schemes. Lease costs for lessees will be reclassified from operating expenses to depreciation and interest, increasing EBITDA. This could unintentionally trigger stretch bonuses or incentive schemes, even if the underlying performance hasn’t changed. 

Similarly, the new revenue recognition model introduces a single, structured model that may change the timing or amount of revenue recognised in one financial period, despite no change in the overall contract value or delivery timelines. 

These shifts highlight the importance of reviewing KPIs, bonus structures and long-term incentive plans to ensure they remain aligned with actual business performance.  

As equity funding becomes harder to secure, many life sciences companies are relying more on debt financing, often tied to covenants like EBITDA, interest cover and net debt. The upcoming FRS 102 changes will bring lease liabilities for lessees onto the balance sheet and increase reported interest expenses, while also boosting EBITDA.  

Although cash lease payments remain unchanged, these accounting adjustments could trigger covenant breaches or lead to higher interest costs.  

Now is the time to review your loan agreements and engage with lenders to ensure covenant terms reflect the true performance of your business under the revised standards. 

Even in a challenging economic climate, some life sciences businesses continue to attract equity investment and explore exit opportunities. Valuations are often based on revenue or EBITDA multiples – actual or forecasted. However, upcoming changes to lease accounting and revenue recognition under FRS 102 will change how these figures are reported.  

While the underlying business fundamentals may remain unchanged, the reported metrics could look different, potentially affecting investor perceptions and deal negotiations. Entities’ forecasts also play a key role in valuation, but without historic data on a like-for-like basis, they may face greater scrutiny.  

Early awareness and clear communication will be essential to support robust, defensible valuations in this evolving reporting landscape. 

While accounting standards don’t change the cash in your business, they can impact how and when tax is paid. Shifts in the timing or amount of revenue recognised may increase reported profits, potentially triggering higher tax liabilities before cash is received, which in turn can create short-term cashflow pressure.  

For life sciences companies, this is especially critical given their reliance on HMRC reliefs such as R&D tax credits. A move from loss to profit could significantly reduce the relief available, cutting the headline benefit by nearly half. These changes could affect not just funding, but survival.  

Reviewing your tax position and forecasting cashflow under the new standards is essential to avoid unexpected costs and safeguarding your business. 

The FRS 102 changes will impact businesses in most sectors, but perhaps particularly life sciences. Whether you're reviewing accounting policies, evaluating lease impacts or preparing for the transition to the revised FRS 102, our team is ready to support you.  

Connect your usual S&W advisor or reach out to our sector specialists to explore how we can help you navigate these changes with confidence.