Do our office and equipment leases now go on the balance sheet?

England and Wales, Scotland and Northern Ireland: the lease accounting itself is identical everywhere — FRS 102 applies UK-wide, and the SORP module carries no jurisdictional variation. What differs is the consequence of putting newly-recognised assets on the balance sheet. In England and Wales, the audit asset threshold rose to £3,260,000 for financial years ending before 30 September 2026; £5,000,000 for financial years ending on or after 30 September 2026 — partly because of this very change, see below — so there is new headroom to absorb it. In Scotland, the equivalent threshold — £3,260,000 — did not move, so the same newly-recognised assets have a lower bar to clear. Northern Ireland has no asset-based audit trigger at all, so there is no knock-on here.

Which arrangements count as leases?

Any arrangement that gives the charity the right to use a specific asset for a period counts. It does not matter what the paperwork calls it. So the treasurer starts wider than “leases”: office space, vehicles, photocopiers, storage, hired equipment.

Most charities do too little at this step. Most of these arrangements were never filed as leases, and some were never written down at all. This page assumes you know the charity prepares accruals accounts and have already determined your SORP tier; the lease rules apply at every tier. Whether to take a lease or a licence in the first place is covered in take on premises — lease, licence or share.

The rules that put leases on the balance sheet apply from reporting periods beginning on or after 1 January 2026. They come in with the rest of the new Charities SORP. They are the same in England and Wales, Scotland and Northern Ireland. The regulator makes no difference, whether it is the Charity Commission, OSCR or the Charity Commission for Northern Ireland.

Which leases stay off the balance sheet?

Two exemptions, and only two, keep an arrangement off the balance sheet: low value and short term. Fail both, and it is recognised.

The low-value exemption has no monetary threshold. This is the most common thing published summaries get wrong about it. Most attach a figure. The standard-setter says expressly that there is not one.

The standard-setter gives examples instead. Cars, vans, lorries, boats, production equipment and land and buildings are explicitly not low value. Personal computers, tablets, small office furniture and telephones typically are.

The exemption is elected lease by lease. The asset has to be usable on its own. And a lease cannot be split into parts to bring it under the radar.

The short-term exemption is a real time test, not the contractual minimum. A lease qualifies only if its lease term is 12 months. Lease term includes any extension period the charity is reasonably certain to exercise. It also includes any termination option the charity is reasonably certain not to exercise.

Take a rolling annual room hire that the charity has renewed for years and means to keep renewing. Its lease term is longer than any single agreement suggests. It lands on the balance sheet even though each renewal on its own runs for a year.

This exemption is elected by class of asset, not lease by lease. And a lease with an option to buy cannot use it at all.

Three arrangements the SORP treats differently

Before you decide an arrangement is a lease, check whether it is one of three things the SORP treats differently:

• A licence agreement — temporary, non-exclusive use of an asset for 12 months or less. A charity that shares a hall with other users, without exclusive use of it, may hold a licence, not a lease.
• A peppercorn arrangement — where the consideration lacks economic substance. This is unlikely to meet the definition of a lease. It is treated as a non-exchange transaction instead.
• A social donation lease — a lessor accepting below-market rent for philanthropic reasons. This one is still a lease: the SORP changes how it is measured, not whether it is recognised.

All three are common in the charity sector. A licence or a peppercorn arrangement can keep an asset off the balance sheet, alongside the low-value and short-term exemptions. A social donation lease cannot.

Right-of-use assets and lease liabilities

Whatever fails both exemptions, and is neither a licence nor a peppercorn arrangement, goes on the balance sheet. A right-of-use asset is the charity’s right to use a specific asset for the lease term, shown on its balance sheet. A lease liability is the liability recognised to match each right-of-use asset. It reduces the charity’s net assets.

Land and buildings are expressly excluded from the low-value exemption. An office rental almost always lands on the balance sheet, unless the lease term is short.

Is a leased photocopier a low-value asset?

A leased photocopier comes up all the time, and it has no settled answer. It appears on neither of the SORP’s two lists of examples. It is not among the assets that are not low value. Nor is it among the ones that typically are. And the SORP itself says judgement must be exercised.

The FRS 102 exemption is deliberately looser than the matching international standard. That difference pushes towards treating a photocopier as low value. But a photocopier is plainly a larger asset than the telephones and tablets the SORP does list. And many photocopier leases carry an option to buy. That closes off the short-term route, whatever the term.

Treat this as a judgement call to record, not a settled question. Write down which way the charity decided and why. That reasoning is what the lease register exists to hold.

How do leases on the balance sheet affect audit and reserves?

Recognising leases changes two other answers: the scrutiny determination and the free reserves figure. A right-of-use asset increases gross assets. That is the figure tested by Does my charity need an audit, an independent examination, or neither?.

In England and Wales the test is gross assets above £3,260,000 for financial years ending before 30 September 2026; £5,000,000 for financial years ending on or after 30 September 2026. It applies only where income also exceeds £250,000 for financial years ending before 30 September 2026; £500,000 for financial years ending on or after 30 September 2026. In Scotland the figure is gross assets above £3,260,000.

Northern Ireland has no asset test to disturb. A charity comfortably below the asset threshold before it recognises its leases may not be comfortably below it afterwards. In Scotland the threshold did not move to make room for this change. So the gap there is narrower to start with.

The matching lease liability reduces net assets. Net assets are the starting point for the free reserves calculation in Calculate your free reserves.

Say a charity builds its lease register and updates the balance sheet. If it does not then revisit its scrutiny determination and its reserves figure, it carries forward two answers that no longer match its own accounts.

What transition reliefs does FRS 102 allow?

FRS 102 does not ask a charity to go back and restate every lease as if the new rules had always applied. Lessees do not restate comparative figures for leases at all.

The cumulative effect of adopting the new rules goes to opening reserves instead. That is a specific exception to the general rule that comparatives are restated where practicable. Beyond that, these reliefs are available:

• no transition adjustment at all for leases that qualify for the low-value exemption
• one discount rate may be applied to a portfolio of similar leases, instead of working one out lease by lease
• a lease due to end shortly after the transition date may still be treated as short-term, even if its original term ran longer
• hindsight may be used to work out lease term, instead of rebuilding what the charity believed at the time

None of this is automatic. Every relief that is used has to be elected and disclosed, not simply assumed.

With the register built, the next step is to calculate your free reserves, starting from net assets that now carry the lease liability.

Common mistake: looking for a monetary threshold on the low-value exemption

Every other exemption in accounting has a figure attached. So it is natural to assume this one does too. And enough secondary sources invent one that the wrong figure keeps going round.

No such figure exists. Any source that quotes a pound figure for the low-value exemption is wrong. The standard-setter gives examples of asset types instead.

Common mistake: assuming a rolling annual room hire is a short-term lease

The written agreement runs for a year, so it looks like it qualifies on its face. Lease term is not the contractual minimum. It includes any extension the charity is reasonably certain to exercise.

A room the charity has hired for years and intends to keep hiring has a lease term longer than the paperwork suggests. It belongs on the balance sheet.

Common mistake: treating the exercise as presentational, with no wider consequence

Recognising leases is often approached as a bookkeeping change and nothing more. It is not. Right-of-use assets inflate gross assets. Gross assets are an audit trigger in England and Wales and in Scotland.

So check the effect on both the audit determination and any borrowing covenants (see decide and minute your borrowing position).

Worked example

Tollgate Youth CIO rents the single clubroom it uses for sessions, and leases a photocopier under a rolling agreement it renews each year. The clubroom fails both exemptions outright.

Land and buildings can never be low value. The trustees are also reasonably certain they will keep renewing, so the lease term runs well past twelve months. The clubroom goes on the balance sheet as a right-of-use asset and a lease liability.

The photocopier is the harder call. It sits on neither of the SORP’s two lists. The trustees record their reasoning for treating it as not low value. They recognise it too, rather than guessing and leaving no trail.

Once both are on the balance sheet, the treasurer revisits the CIO’s scrutiny determination and its reserves figure. Both were worked out before the lease register existed.