UK GAAP — Generally Accepted Accounting Practice in the United Kingdom — is the body of accounting standards issued by the Financial Reporting Council that governs how most UK companies prepare and present their financial statements. It sits underneath the Companies Act 2006, which requires directors to ensure the accounts give a true and fair view of the company’s assets, liabilities, financial position, and profit or loss. The FRC’s standards fill in the detail: which recognition and measurement rules apply, what has to be disclosed, and which format the accounts take. The framework is tiered by company size, so a ten-person business is not held to the same reporting burden as a listed group.
The Standards That Make Up UK GAAP
FRS 100 is the entry point. It directs each entity to the correct reporting standard based on its legal structure and circumstances. From there the framework branches into three main standards a private company might apply.
FRS 102 is the workhorse. It covers recognition, measurement, and disclosure across every major accounting topic and is used by the vast majority of medium and large private companies. Section 1A within FRS 102 provides a simplified version of those requirements for small entities that still want to sit within the main standard.
FRS 105 is the micro-entities regime. It strips out complex requirements such as deferred tax accounting and asset revaluations, keeping reporting proportionate to the limited resources of the smallest businesses.
FRS 101 is a reduced-disclosure route for subsidiaries and parents that already prepare accounts under international standards. Qualifying entities apply full international recognition and measurement rules but skip certain disclosures, which cuts administrative work without breaking alignment with a group’s global policies.
One boundary is worth flagging. Companies with securities traded on a UK regulated market must use UK-adopted International Accounting Standards for their consolidated accounts, and have done so since 1 January 2021. That obligation sits outside the FRS framework and is not something a listed group can opt out of by choosing FRS 102.
Which Standard Your Company Uses Depends on Size
Size is measured against thresholds in the Companies Act 2006, which were raised significantly for financial years beginning on or after 6 April 2025. A company qualifies for a size category by meeting at least two of the three criteria for that category.
Micro-Entities
A company is a micro-entity if it meets at least two of: turnover of no more than £1 million, a balance sheet total of no more than £500,000, and ten or fewer employees on average. Micro-entities can use FRS 105 and file the most abbreviated accounts.
Small Companies
A company is small if it meets at least two of: turnover of no more than £15 million, a balance sheet total of no more than £7.5 million, and 50 or fewer employees. Small companies can use Section 1A of FRS 102 and benefit from reduced disclosure and filing requirements.
Medium-Sized Companies
A company is medium-sized if it meets at least two of: turnover of no more than £54 million, a balance sheet total of no more than £27 million, and 250 or fewer employees. Medium-sized companies apply the full version of FRS 102 but receive certain disclosure exemptions, such as reduced requirements for non-financial key performance indicators in the strategic report.
Anything larger than medium-sized applies the full version of FRS 102 with no size-based exemptions.
The Two-Year Rule
Ordinarily a company must meet the criteria for two consecutive financial years before it can move into a smaller size category, and it only loses its current classification after exceeding the limits for two consecutive years. This stops companies bouncing between frameworks after a single good or bad year. For financial years beginning on or after 6 April 2025, a transitional provision allows companies to assume the new, higher thresholds applied in the previous year as well, so most companies feel the effect of the increase immediately rather than waiting a year.
Getting the category wrong matters. Filings can be rejected at Companies House, and in serious cases directors can be personally liable.
What a Set of UK GAAP Accounts Contains
Companies reporting under FRS 102 produce a suite of financial statements that together give a complete picture of the business. The exact composition varies by size, but the building blocks are consistent.
The balance sheet — formally the Statement of Financial Position — shows what the company owns, what it owes, and the residual equity at the reporting date, separating current items like cash and trade receivables from non-current items like property and long-term borrowings. The income statement (the profit and loss account, or Statement of Comprehensive Income) captures all revenue and expenses for the year and produces the net profit or loss.
The Statement of Changes in Equity tracks how retained earnings and share capital moved during the year, showing whether profits were distributed as dividends or reinvested. Medium and large companies must also include a cash flow statement, which breaks cash movements into operating, investing, and financing activities. That statement often tells you more than the profit and loss account, because it shows whether the business actually generated enough cash to pay its bills.
The notes sit alongside these primary statements and provide the context that raw numbers cannot. They disclose the accounting policies applied — how equipment is depreciated, how inventory is valued — and cover material items like significant debts, contingent liabilities, and related-party transactions. Larger companies face more detailed disclosure requirements, but even small entities must provide enough information for the accounts to be understandable.
Narrative Reports
Every company except micro-entities must prepare a directors’ report. At a minimum it names each director who served during the year, states any recommended dividend, and confirms the directors have provided all relevant information to the auditors. Small companies taking the small companies exemption must include a statement to that effect above the signature.
Companies that do not qualify for the small companies exemption must also prepare a strategic report. Its job is to help shareholders assess how the directors have promoted the success of the company, and it must include a fair review of the business, the principal risks and uncertainties, and analysis using financial key performance indicators. Medium-sized companies get a lighter touch and can omit certain non-financial KPIs.
Parent companies outside the small companies regime must also prepare consolidated financial statements combining the results of all subsidiaries into a single set of group accounts, eliminating internal transactions so the accounts reflect only genuine dealings with the outside world. Directors who are required to prepare group accounts and fail to do so commit an offence under the Companies Act 2006, with each director personally liable and, on conviction, facing an unlimited fine.
Who Needs an Audit
Not every company needs a statutory audit. For financial years beginning on or after 6 April 2025, a private limited company qualifies for audit exemption if it meets at least two of: turnover of no more than £15 million, assets of no more than £7.5 million, and 50 or fewer employees. Those thresholds match the small company thresholds because the audit exemption is built into the small companies regime.
Even a company that qualifies on size can be forced into an audit. Shareholders holding at least 10% of the shares can require one by making a written request to the registered office at least one month before the financial year ends.
Some companies must always be audited whatever their size:
- Public companies, unless dormant
- Banking companies and insurance companies
- E-money issuers and MiFID investment firms
- UCITS management companies
- Companies with shares traded on a regulated market
- Scheme funders of master trust pension schemes
- Members of an ineligible group, meaning any group containing a traded company, a regulated financial services firm, or an insurance market participant
The ineligible group rule catches small subsidiaries of large regulated parents. A two-employee subsidiary of a bank cannot claim the small company audit exemption.
Filing Deadlines and Penalties
A private limited company must file its annual accounts at Companies House within nine months of its accounting reference date. For a first set of accounts covering more than twelve months, the deadline is the longer of 21 months from incorporation or three months from the accounting reference date. Public companies have six months.
Corporation Tax is on a different clock and goes to HMRC. The Company Tax Return (CT600) is due within 12 months of the end of the accounting period, but the Corporation Tax bill itself must be paid within nine months and one day of the period end — payment falls due three months before the return.
Companies House late filing penalties for private companies scale with how late the accounts arrive:
- Up to one month late: £150
- One to three months late: £375
- Three to six months late: £750
- More than six months late: £1,500
If accounts are late in two successive financial years, the penalty doubles. A private company consistently six months late would face £3,000 in the second year. The penalties land on the company automatically, but directors carry personal criminal liability for the failure and can face an unlimited fine on summary conviction.
Filing itself now runs through commercial software. As of 31 March 2026 the joint HMRC and Companies House online filing service has closed, so all returns and accounts go through third-party software. Company Tax Returns must use inline XBRL (iXBRL) format for both the accounts and the tax computations, with tagging applied across the balance sheet, income statement, notes, and prior-period comparatives. Responsibility for correct tagging stays with the company whether the work is done in-house or outsourced.
The Revised FRS 102 for 2026
The FRC completed a major periodic review of FRS 102 in March 2024, and the revised standard takes effect for accounting periods beginning on or after 1 January 2026. It is the most substantial overhaul since FRS 102 was first published in 2013, and two areas change materially.
Revenue Recognition
The old approach was built around the transfer of risks and rewards. The revised Section 23 replaces it with a five-step model aligned with international standards. A company must identify the contract, identify each distinct performance obligation within it, determine the transaction price (including estimates of variable consideration such as discounts or rebates), allocate that price across the performance obligations, and recognise revenue as each obligation is satisfied. For businesses selling bundled products and services or running long-term contracts, the timing of when revenue hits the income statement will often change.
Lease Accounting
Under the old rules, lessees classified leases as either finance leases (on balance sheet) or operating leases (off balance sheet as a simple expense). The revised standard largely eliminates that distinction. Most leases now require the lessee to recognise a right-of-use asset and a matching lease liability measured at the present value of future payments. For a company with significant property or equipment leases previously treated as operating leases, both assets and liabilities on the balance sheet will grow, and the expense profile shifts from a straight-line rental charge to a combination of depreciation and interest.
Both changes require preparation ahead of the first reporting period under the revised standard, because opening balances have to be restated. Contracts should be reviewed now rather than at year end.