"We'll just keep it off the balance sheet." Only two routes do, and both are narrower than they look.

"We'll just keep it off the balance sheet."

It is heard less now that FRS 102 Section 20 is live and first audits are under way, but the misconception behind it has not gone away. Under the revised standard only two routes legitimately keep a commercial lease off the balance sheet, and both are elections, not defaults (paragraph 20.5).

Route 1: the short-term lease. A lease with a term of twelve months or less at commencement, with no purchase option, may be expensed instead of capitalised (paragraph 20.5(a)). The election is made by class of asset (paragraph 20.7), and if the lease is modified or its term changes, it is treated as a new lease and tested again (paragraph 20.8).

Watch rolling and evergreen contracts. The lease term is the period for which the contract is enforceable, and a contract is no longer enforceable only when both sides can walk away with no more than an insignificant penalty (paragraph 20.39). Where the business depends on the asset and leaving would cost it, the term runs well beyond the notice period. Several finance teams are learning that in their first 2026 audit.

Route 2: the low-value asset. This is where the UK regime catches preparers out.

Under IFRS 16 the IASB's basis for conclusions mentioned a figure in the region of US$5,000 for a new asset; not a rule, but an anchor. FRS 102 gives no such anchor. The assessment is made on an absolute basis, and the value of the lease payments has no bearing on it (paragraph 20.9). What counts is the kind of asset:

• laptops, tablets, phones, basic office furniture: usually capable of being low-value;
• cars, vans, trucks, forklifts, land and buildings, production equipment: never low-value, whatever they cost (paragraph 20.11).

Cheap does not mean exempt. Classification is what is surfacing audit findings right now: not the discount rate, not the term, the classification.