FRS 102 Section 20 might cost you your EIS eligibility

The new lease accounting rules do not only change the presentation of the balance sheet. They change the gross asset total, and that is the figure HMRC uses to test eligibility for some of the UK's most valuable tax reliefs.

When leases are capitalised as right-of-use assets, gross assets go up. For a company near a boundary, that can mean crossing it:

• EIS (Enterprise Investment Scheme): gross assets of no more than £15m immediately before the investment.
• SEIS (Seed Enterprise Investment Scheme): gross assets of no more than £350,000.
• EMI (Enterprise Management Incentives): gross assets of no more than £30m.

A company with £14m of gross assets that capitalises £2m of leases previously held off the balance sheet is suddenly at £16m, and may lose access to EIS altogether.

This is not hypothetical: it is a direct consequence of the accounting change, and advisers have already flagged it.

If the business relies on EIS or SEIS for fundraising, or on EMI to retain staff, the effect of lease capitalisation on the gross asset position should be modelled before the next filing, and discussed with the tax adviser.