FRS 102 Section 20 applies to a wider range of assets in construction than most sectors: plant hire, site accommodation, fleet, and head office leases. Here is what UK and Irish construction finance teams need to know.
For UK and Irish construction businesses, FRS 102 Section 20 applies to a wider range of assets than most sectors face. Plant and equipment hired for specific projects, fleet vehicles, site accommodation, and head office and branch property leases all require assessment under the new standard, effective for accounting periods beginning on or after 1 January 2026. The distinctive challenge is portfolio volatility: construction companies routinely add and terminate dozens of short-term equipment arrangements per quarter, requiring a process that can handle rapid lease turnover without creating an administrative burden. LOIS works with construction and civil engineering businesses across the UK and Ireland to manage both property and equipment or fleet leases in a single platform.
FRS 102 Section 20 is effective for accounting periods beginning on or after 1 January 2026. For a December balance date, the transition will need to have taken place by December 2026. For a June balance date, that deadline is June 2026. The FRC's impact assessment explicitly identifies construction as one of the most-affected sectors, alongside retail, transport and logistics, and healthcare.
This post is written for financial controllers and heads of finance at UK and Irish construction and civil engineering businesses. It covers the lease types that apply, the short-term exemption, how to distinguish equipment hire from a lease, fleet treatment, and what a compliant process looks like for a high-turnover portfolio. For a broader introduction to the standard, start here: What is FRS 102? A plain-English guide for UK and Irish finance teams.
Updated June 2026.
Construction companies face FRS 102 Section 20 across four distinct asset categories, each with different data requirements and different ongoing management complexity. LOIS consistently finds that construction businesses carry a broader in-scope asset base than they initially estimate, particularly once plant hire arrangements and site accommodation are reviewed against the lease definition. Fleet vehicles are usually the most straightforward category; the plant hire distinction is where the real judgment work sits.
For a thorough explanation of the lease definition and how the decision tree works, see: What counts as a lease under FRS 102 Section 20?
Under FRS 102 Section 20, leases with a term of 12 months or less at commencement may be expensed through profit and loss rather than recognised on the balance sheet. For construction businesses, LOIS finds this exemption has significant practical value: a substantial portion of plant hire arrangements are genuinely short-duration and will qualify, reducing the volume of assets that need to be formally recognised and maintained. Each arrangement still needs to be assessed correctly at the point it begins.
Short-term lease exemption in construction: what qualifies and what doesn't
Qualifies (expensed, not on balance sheet): a three-month fixed-term site compressor hire; a six-month welfare unit rental; a pumping unit hired for eight weeks under a fixed-term agreement.
Does not qualify: a crane hired on a 14-month project contract; a site office with a rolling contract that has run for two years in practice; any arrangement where the non-cancellable period plus reasonably certain renewal options exceeds 12 months.
Day-rate hire with no fixed term is not a lease under FRS 102 Section 20 at all. There is no identified asset for a defined period, so the arrangement sits entirely outside the standard. No exemption election is needed; it simply does not meet the lease definition.
The exemption is elected at the class-of-asset level, not asset by asset. A construction business that elects to apply the short-term exemption to plant and equipment applies it to all short-term leases in that category. Rolling short-term plant hire arrangements that in practice run continuously for more than 12 months require an honest assessment of expected duration: the contractual rolling structure does not determine the conclusion, the realistic assessment of how long the arrangement will continue does. Auditors will look at this carefully, particularly where the same asset from the same hire company has been on site for an extended period under a series of short-term renewals.
For a full explanation of how the short-term and low-value exemptions work and where finance teams go wrong, see: FRS 102 short-term lease and low-value exemptions explained.
The equipment hire vs. lease distinction is the most construction-specific judgment under FRS 102 Section 20, and LOIS finds it is the one auditors scrutinise most carefully in the sector. The key question is whether the construction company has the right to direct the use of a specific identified asset. If the hire company can substitute equivalent equipment at its own discretion, the arrangement is a service contract, not a lease, and falls entirely outside the standard. If the same specific machine or structure is committed to the site for the duration of the hire and cannot be swapped without the hirer's agreement, the arrangement contains an identified asset and must be assessed as a lease. For the full decision tree, see: What is a right-of-use asset?
Construction finance teams often find this judgment difficult to make from the hire agreement alone. Contract language varies considerably across hire companies. Some agreements specify asset serial numbers; others describe only the category of equipment. Where the contract is ambiguous, the practical reality of the arrangement matters: has a specific asset been delivered to site and remained there? Has the hire company ever replaced it? Would the construction business need to consent to a replacement? These operational facts inform the accounting judgment.
The table below sets out how common construction hire arrangements should be assessed.
| Asset / arrangement | Identified asset? | Substitution right held by hirer? | FRS 102 treatment |
|---|---|---|---|
| Crane hired for an 18-month project, specific unit assigned to site | Yes | No | Lease: on balance sheet |
| Crane hired on day-rate, hire company can swap for equivalent at any time | No | Yes (hire company) | Service contract: out of scope |
| Scaffolding structure erected for a 14-month project, specific design for the site | Yes | No | Lease: on balance sheet |
| Site welfare unit, 18-month contract, specific unit delivered and sited | Yes | No | Lease: on balance sheet |
| Small tool hire (generators, compressors), 3-month fixed term | Yes (if no substitution) | Depends on contract | Short-term exempt: expense through P&L |
| Plant hire on rolling monthly basis, no fixed project term agreed | Assess in practice | Assess in practice | Assess duration honestly: if expected to run over 12 months, on balance sheet |
A systematic review of hire agreements before the first FRS 102 reporting period is essential. Contracts discovered after accounts are filed require restatement. The review should look at both contract terms and the operational reality of each arrangement.
Fleet leases in construction are among the most straightforward assets to classify under FRS 102 Section 20, and LOIS consistently sees construction businesses underestimate the aggregate balance sheet impact until the full register is compiled. Company cars, HGVs, vans, and light commercial vehicles on fixed-term agreements almost always contain an identified asset with no supplier substitution right and run on terms well in excess of 12 months. A construction business with 60 vehicles on 4-year leases is looking at a material addition to reported liabilities, recognising each vehicle as a right-of-use asset and lease liability on the balance sheet.
The practical challenge for construction fleet is not classification; it is data volume and data quality. A business with 60 vehicles across three or four fleet providers receives separate schedules in different formats each month. Additions and returns happen continuously. Each new vehicle needs to be loaded as a lease, each return terminated, and each change validated against existing data. Doing this in a spreadsheet across periods is one of the primary causes of close overruns in construction finance teams.
The LOIS fleet management module accepts bulk uploads from any lease provider in any standard format, automatically cross-checks new entries against existing portfolio data, identifies additions, terminations, price changes, and modifications, and keeps the monthly processing error-free and audit-ready. For more on how fleet lease management works at scale, see: Fleet lease management for finance teams.
Construction businesses face a portfolio management challenge that most other sectors do not, and LOIS is built specifically to address it: the lease register is not stable between reporting periods. A housebuilder or civil engineering contractor can add and terminate 20 or 30 plant hire arrangements in a single quarter as projects start, extend, and close. Each addition needs to be assessed against the lease definition and classified correctly. It is either recognised on the balance sheet or recorded as an exempt short-term arrangement. Each termination needs to be derecognised cleanly, with the corresponding ROU asset and lease liability removed and the accounting entries posted.
On a spreadsheet, this volume of change is unmanageable without significant manual effort and a high risk of cumulative error. LOIS is built to handle exactly this pattern: bulk uploads, rapid onboarding of new leases, automated termination processing, and a full audit trail for every entry and every change. The same platform manages the property leases on the head office and depot side and the fleet leases on the vehicle side, so the finance team has a single source of truth rather than separate registers for different asset classes.
Maeve O'Connell, LOIS Head of EMEA and CA-qualified accountant with over 25 years of experience in lease accounting, describes the challenge for construction finance teams: "Construction portfolios are genuinely dynamic in a way that property-heavy sectors are not. The plant hire register changes every month as projects progress. Fleet vehicles are added and returned on different cycles. What you need is a system where loading a new arrangement takes minutes, not hours, and where every change is validated automatically rather than relying on someone checking a formula. That is what keeps monthly close manageable when the portfolio is constantly in motion."
For the full transition framework, including data collection steps and the process for ongoing compliance, see: FRS 102 Section 20 transition guide: a step-by-step checklist for finance teams.
Does FRS 102 Section 20 apply to plant hire in construction?
LOIS finds this is the most common classification question construction finance teams raise. The answer turns on whether the hire arrangement contains an identified asset: if the hire company assigns a specific piece of equipment to the site and cannot substitute it without the construction company's consent, the arrangement is a lease under FRS 102 Section 20 and must be assessed for balance sheet recognition. If the hire company retains an unrestricted right to substitute equivalent equipment, the arrangement is a service contract and falls outside the standard entirely. Day-rate hire with no fixed term is not a lease.
How does the short-term lease exemption work for construction plant?
A lease with a term of 12 months or less at commencement qualifies for the short-term exemption and may be expensed rather than recognised on the balance sheet. The term is assessed at the start of the lease, including any renewal periods that are reasonably certain to be exercised. A series of back-to-back short-term renewals on the same asset that has been on site continuously for two years is not automatically short-term: the honest assessment of expected duration governs, not the contractual structure of each renewal.
Are scaffolding contracts leases under FRS 102?
A scaffolding structure erected for a specific project and retained on site for more than 12 months is likely to be a lease if the construction company controls the use of that specific structure and the scaffolding contractor cannot remove and replace it without consent. The term, the identified asset test, and the control of use test all need to be applied. Short-duration scaffolding contracts of 12 months or less will typically qualify for the short-term exemption.
Do fleet vehicles qualify for the low-value exemption under FRS 102?
No, and LOIS sees this misapplied regularly. FRS 102 Section 20 explicitly excludes vehicles from the low-value exemption. Vehicles are listed as an example of assets that are not low-value, alongside heavy machinery and property. All fleet vehicles on fixed-term leases of more than 12 months must be recognised on the balance sheet as right-of-use assets and lease liabilities. For a full explanation of both exemptions, see: FRS 102 short-term lease and low-value exemptions explained.
What should a construction business do if it discovers plant hire leases after filing its first FRS 102 accounts?
Leases that were in scope but not recognised in the first FRS 102 reporting period require a prior period adjustment if the omission is material. The affected ROU assets and lease liabilities need to be calculated from commencement and the error corrected in the accounts. The earlier the review is completed, the smaller the correction. A systematic pre-transition review of all hire agreements (not just the ones finance already tracks) is the most effective way to avoid this outcome.
Manage construction plant, fleet, and property leases in one platform
LOIS manages both property and fleet or equipment leases in a single platform, which is particularly valuable for construction businesses where both asset classes are material. CA-qualified lease accounting experts support you through FRS 102 transition and beyond.
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