Changes for Solicitor Firms

Accounting periods beginning on or after 1 January 2026, introduces a new approach to revenue, disbursements, and disclosures.  These changes will reshape how solicitor LLPs present turnover, profit, and work-in-progress and many firms must be prepared.  If your practice handles fixed fees, disbursements, counsel, or outsourced experts, these rules will directly affect your financial statements.

1. New Five-Step Revenue Recognition Model 

Firms must follow a structured model to recognise revenue. 

Legal services will typically be recognised over time, not at billing or cash receipt. 

This affects: 

• Fixed fees 

• Hourly billing 

• Retainers 

• CFAs and success fees 

2. Stricter Agent vs Principal 

Third-party costs may no longer be included in turnover. 

3. Variable Consideration 

Revenue must be recognised as soon as you have satisfied a performance obligation, provided the payment is highly probable.  Success fees, contingent billing, and outcome dependent pricing will change.   

4. Mandatory Disclosures 

Firms must provide clearer, more transparent information on: 

• Profit sharing arrangements 

• Loans and guarantees 

• Related party transactions 

5. Lease accounting  

Starting in 2026, practises must move most operating leases onto the balance sheet as right-of-use assets and matching liabilities. For firms with major property leases, this overhaul will significantly alter their balance sheet structure.

Updated size thresholds  

For micro, small and medium-sized entities for financial years starting on or after 6 April 2025. 

These thresholds determine whether a statutory audit is required. Now that the thresholds have increased, this may no longer be compulsory for thousands of businesses. 

As a result of these changes, firms will need to review member agreements to ensure correct profit classifications, disclosure requirements, letters of engagement templates and leases.   

If you would like advice and support with this, please get in touch.