Changes to FRS 102 Section 1A

New disclosures on related parties and dividends

From accounting periods starting 1 January 2026, UK small entities applying FRS 102 Section 1A must provide expanded related party disclosures and a new mandatory dividend disclosure. These notes sit within the financial statements and will therefore form part of the record available on public filing.

Key points:

• Related parties: UK small entities must now disclose all related party transactions (not just those “not at arm’s length”), including the nature of the relationship, amounts, balances, terms and any guarantees. They are not required to disclose total key management personnel compensation.
• Dividends: UK small entities must disclose dividends declared and paid or payable during the period. If an entity presents a Statement of Changes in Equity and has more than one share class, dividends paid (aggregate and per share) are disclosed separately by class.
• Why now: Post‑Brexit, the FRC used its ability to specify disclosures for UK small entities and expanded Appendix C to Section 1A to reduce judgement and ensure a true and fair view.
• Directors’ remuneration: There’s no explicit requirement in FRS 102 Section 1A for UK small entities to disclose directors’ remuneration. However, additional information may still be needed to give a true and fair view, and certain transactions with directors outside “key management compensation” may still require disclosure as related party transactions.

 

WHAT HAS CHANGED?

1) Related party disclosures – now required in full for UK small entities

UK small entities must now provide the disclosures in FRS 102 para 33.9 (with aggregation permitted by 33.14), subject to normal exemptions (e.g., wholly‑owned intra‑group transactions per 33.1A and certain government‑related disclosures per 33.11). In practical terms this means disclosing:

• the nature of each related party relationship;
• transaction amounts;
• outstanding balances and commitments at period end;
• terms and conditions (including whether secured), and guarantees given/received;
• provisions for uncollectible receivables and bad debt expense recognised.
  (Section 1A refers UK small entities specifically to 33.9 and 33.14 and does not require the 33.7 total of key management personnel compensation.)

Directors’ loans / guarantees remain explicitly required (amounts, interest, main terms, repayments, write‑offs, waivers, guarantee terms and maximum liability).

Clarification on directors’ remuneration: FRC guidance states there is no explicit requirement in FRS 102 for UK small entities to disclose directors’ remuneration; nevertheless, true and fair view may require additional disclosure in some cases, and non‑compensation transactions with directors fall under the related party rules.

2) Dividend disclosure – new mandatory note for UK small entities

Section 1A now requires a UK small entity to disclose dividends declared and paid or payable during the period (Appendix C para 1AC.40). If an entity presents a statement of changes in equity and has multiple share classes, dividends paid (aggregate and per share) must be shown for each class.

What this could mean for remuneration strategy

For many owner‑managed businesses that historically favoured dividends over salary/bonus, the total dividends will now be visible in the notes. Some clients may prefer to rebalance between salary/bonus, pension contributions and dividends to align with privacy, cash‑flow and tax outcomes. Note that while directors’ remuneration totals are not explicitly required under Section 1A, related party transactions (e.g., director‑landlord rents, director‑provided services, loans) are disclosable, and advances/credits/guarantees to directors carry detailed statutory note requirements.

 

GLOSSARY OF DEFINITIONS

Who can apply Section 1A of FRS 102?
(Eligibility for UK small entities)

Section 1A of FRS 102 applies to entities that qualify as small under the UK Companies Act 2006. An entity is small (for periods beginning on or after 06 April 2025), if it meets at least two out of the following three criteria for two consecutive years:

Small Company Size Criteria

• Turnover: not more than £15 million.
• Balance sheet total: not more than £7.5 million.
• Average employees: not more than 50.

Parent companies must assess the criteria on a group basis, unless group exemption rules apply.

 

Other considerations

• Public interest entities, authorised insurance companies, banking companies, and certain regulated entities cannot apply Section 1A.
• A subsidiary may apply Section 1A if it qualifies as small in its own right, even if the group is large, provided it’s not preparing IAS-compliant accounts.
• If the company opts into full FRS 102, it must apply all recognition, measurement and disclosure requirements; switching back to Section 1A is permitted but should be applied consistently.

 

Related Party 

A related party is any person or entity that has the ability to control, jointly control, or exert significant influence
over the reporting entity or is controlled/significantly influenced by the reporting entity. It also includes individuals and entities connected to those key persons.

In practice, related parties typically include:

• Directors of the entity (including shadow directors).
• Close family members of directors or key management.
• Entities that directors or their close family members control or significantly influence.
• Parent companies, subsidiaries, and fellow subsidiaries.
• Key management personnel of the entity or its parent.
• Any entity under common control or joint control.

The concept captures relationships where the involvement of the related party might affect, or could reasonably be expected to affect, the terms of transactions with the entity.

 

Definition of Key Management Personnel 

Key management personnel are the individuals who hold the authority and responsibility to shape, lead and oversee an entity’s operations, whether they do so directly or through others.

This group includes all directors, executive or non-executive, but isn’t limited to them. Senior managers who play a significant role in directing strategy or making key operational decisions may also fall within this definition.