What the New Lease Accounting Rules Mean for Roofing Businesses

Roofing companies often rely on leased assets to operate. Vans move crews between jobs, access equipment gets workers safely to height, and depots provide space for materials, tools, and administration.

For businesses reporting under FRS 102, many of those arrangements now need different accounting treatment. The revised lease requirements apply for accounting periods beginning on or after January 1, 2026, so roofing contractors need to understand which agreements are affected and how the changes alter their financial statements.

Why the Lease Rules Changed

Under the previous FRS 102 model, lessees classified agreements as either finance leases or operating leases. Operating lease payments were generally recognized as an expense over the lease term without putting a corresponding lease asset and liability on the balance sheet.

The revised Section 20 removes that distinction for most lessees.

Businesses applying the new UK GAAP lease accounting requirements will generally recognize a right-of-use asset representing their right to use the leased item and a lease liability representing the obligation to make future payments.

There are exemptions, including qualifying short-term leases and leases of low-value assets. Roofing businesses should therefore review agreements individually rather than assuming every rental or hire arrangement belongs on the balance sheet.

Identify Which Roofing Agreements May Be Leases

Start by building a complete inventory of contracts involving property and equipment.

Potential agreements might include:

• Office, warehouse, or depot property
• Commercial vans and company vehicles
• Forklifts and material-handling equipment
• Access platforms and certain lifting equipment
• Photocopiers and office equipment
• Specialized machinery used for fabrication or installation

The contract label is not enough. An agreement described as “hire” or “rental” may still require analysis to determine whether it contains a lease.

A key question is whether the arrangement gives the business the right to control the use of an identified asset for a period of time in exchange for consideration.

Short-term equipment hire where the supplier controls which equipment is provided may produce a different accounting conclusion from a multi-year agreement giving the contractor control over a specifically identified machine.

Expect Changes to the Balance Sheet

The most visible change is that leases previously treated as operating leases may now create both an asset and a liability.

At commencement, the lease liability is generally measured using the present value of relevant lease payments. The right-of-use asset is initially measured using the lease liability together with other qualifying adjustments required by the standard.

After recognition, the liability changes as interest accrues and payments are made. The right-of-use asset is generally depreciated over the appropriate period.

The Financial Reporting Council explains in its FRS 102 Periodic Review explainer that businesses with former operating leases are likely to report increased assets and liabilities, together with changes in the presentation of lease-related expenses.

That means the economics of a van or depot lease may be unchanged while the accounting presentation looks substantially different.

Understand the Effect on Financial Metrics

Roofing companies should not assume the change affects only the accounting department.

Previously, an operating lease payment may have appeared as a rental expense. Under the revised approach, the accounting charges are generally separated into depreciation of the right-of-use asset and interest on the lease liability.

This can affect measures used by owners, lenders, and investors, including:

• EBITDA
• Gearing
• Current ratio
• Interest cover
• Reported operating expenses

The FRC specifically warns that changes to these metrics may have implications for loan covenant compliance.

Roofing businesses with bank facilities or other financing arrangements should therefore review covenant definitions before year-end. A ratio can change because of the accounting standard even when the underlying lease payments have not changed.

Build a Reliable Lease Register

A spreadsheet containing only monthly rental payments is unlikely to provide everything needed for the new model.

Create a central register containing the information required to calculate and maintain each lease.

Record the commencement date, non-cancelable term, renewal and termination options, payment schedule, rent-free periods, variable payments where relevant, discount rate information, and details of modifications.

Also identify who owns the contract operationally. Vehicle agreements may sit with fleet management, property leases with operations, and equipment agreements with project managers.

Finance needs a process that captures all of them.

Watch for Contract Changes

Lease accounting does not end when the initial calculation is complete.

Roofing businesses frequently replace vehicles, extend depot agreements, add equipment, renegotiate terms, or terminate contracts early. Those events may require the lease calculation to be reassessed or remeasured.

Create a notification process so finance knows when operational teams agree to contract changes.

Otherwise, the accounting schedule can continue using terms that no longer match the actual agreement.

Improve Controls Around New Lease Commitments

The revised rules make contract approval more important.

Before signing a new lease, finance should receive enough information to understand the term, payments, options, and accounting consequences. Procurement teams should also know which contracts need to be sent for lease assessment.

This is especially useful for roofing businesses operating several branches or crews. Local managers may sign equipment or property agreements without realizing that the contract creates a reporting requirement at group level.

A standard review checklist can prevent agreements from appearing only when an invoice reaches accounts payable.

Review Rented Equipment Beyond Vehicles and Property

Roofing companies should also look beyond obvious leases such as vans and depots.

Workshops, warehouses, fabrication areas, and material-handling facilities may use equipment provided under rental or service arrangements. Depending on the contract terms, those agreements may also need to be assessed to determine whether they contain an identified asset that the business controls.

For example, businesses operating dusty indoor facilities may rent air filtration systems under arrangements that include equipment installation, maintenance, filter replacement, and recurring monthly payments.

That does not automatically mean the arrangement qualifies as a lease under FRS 102. Finance still needs to examine whether the supplier controls the equipment, whether a specific asset has been identified, and whether the customer controls how that asset is used.

This is why reviewing only contracts labeled “lease” can leave gaps. Procurement and finance should also examine equipment rental, managed-service, and bundled-service agreements where physical assets form part of the arrangement.

Prepare Before the Reporting Deadline

Roofing businesses should not wait until year-end to identify leases.

Start with property, fleet, and equipment contracts, then work through smaller agreements. Confirm which arrangements meet the lease definition, determine whether an exemption applies, and collect the data needed for measurement.

Next, calculate the opening impact and check how the revised treatment affects financial ratios, budgets, reporting processes, and lender covenants.

The new FRS 102 rules do not change what a roofing contractor physically pays for a van, depot, or qualifying piece of equipment. They change how many of those commitments appear in the accounts.

For roofing businesses with substantial leased property, vehicles, or equipment, getting the contract data organized early is the most practical way to avoid inaccurate calculations and difficult adjustments at reporting time.