A company must state the total of any financial commitments, guarantees and contingencies that are not on its balance sheet, give an indication of any security it has given for them, and show pension commitments and commitments for group companies separately. Medium sized and large companies must also give particulars, not just a total, and FRS 102 adds its own rules for contingent liabilities and financial guarantees.

Where does the requirement come from?

For small companies the rule is in paragraph 57 of Schedule 1 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 (SI 2008/409). FRS 102 repeats it for small entities applying Section 1A at paragraphs 1AC.29 and 1AC.30, so it sits in the minimum set of notes that every small company must give when relevant. For medium sized and large companies the equivalent is paragraph 63 of Schedule 1 to SI 2008/410, which asks for more detail.

On top of company law, FRS 102 itself has disclosure rules that cover the same ground from a different direction: Section 21 for contingent liabilities and financial guarantee contracts, Section 17 for capital commitments, Section 20 for some lease commitments and Section 33 for guarantees given to or received from related parties. Since the FRS 102 changes effective for accounting periods beginning on or after 1 January 2026, paragraph 1AC.31C also requires small entities to give the Section 21 disclosures in paragraphs 21.14 to 21.17A. The general recognition rules for provisions are covered on the provisions and contingencies page; this page is about the off balance sheet note.

What counts as a commitment, guarantee or contingency?

The law does not define the three terms, but FRS 102 points to where they usually arise. The guidance under paragraph 1AC.29 says such commitments can arise in relation to group entities, investments, property, plant and equipment, leases and pension obligations. Common examples are:

  • Capital commitments: contracts signed before the year end to buy plant, vehicles or buildings that will be delivered later. Paragraph 17.32(b) requires the amount of contractual commitments for the acquisition of property, plant and equipment.
  • Lease commitments not on the balance sheet: under the revised Section 20 most leases are recognised as lease liabilities, but a lessee using the exemption for short term leases or leases of low value assets must disclose that fact and its commitments for those leases, split into amounts due within one year, between one and five years, and after five years (paragraph 20.82).
  • Guarantees: for example a guarantee of a fellow subsidiary’s bank loan, a cross guarantee in a group banking facility, or a guarantee of a director’s borrowing.
  • Contingent liabilities: paragraph 21.12 defines these as possible obligations whose existence depends on uncertain future events, or present obligations not recognised because an outflow is not probable or cannot be measured reliably. Where the company is jointly and severally liable, the part expected to be met by others is treated as a contingent liability.
  • Pension commitments: for example a promise to make deficit contributions that has not been provided for.

What exactly must the note say?

Small companies

Paragraph 57 requires four things: the total amount of financial commitments, guarantees and contingencies not included in the balance sheet; an indication of the nature and form of any valuable security given for them; the total of any commitments concerning pensions, shown separately; and the total of commitments undertaken on behalf of or for the benefit of group undertakings (any parent, fellow subsidiary or subsidiary) and of undertakings in which the company has a participating interest, with the group amounts kept separate from the participating interest amounts.

Medium sized and large companies

Paragraph 63 of Schedule 1 to SI 2008/410 asks for particulars and the total amount, not just a total. It also requires particulars of any charge on the company’s assets to secure the liabilities of another person, including the amount secured; particulars of pension commitments that are included in the balance sheet; separate particulars where a pension commitment relates to past directors; and the group amounts split three ways, between parent and fellow subsidiaries, subsidiaries, and undertakings in which the company has a participating interest.

Off balance sheet arrangements

Section 410A of the Companies Act 2006 adds a separate requirement. Where a company is party to arrangements not reflected in its balance sheet and the risks or benefits are material at the balance sheet date, the notes must give the nature and business purpose of the arrangements and their financial impact, to the extent needed to assess the company’s financial position. A company subject to the small companies regime need not give the financial impact. FRS 102 lists examples such as debt factoring, sale and repurchase arrangements, consignment stock, take or pay contracts and pledged assets.

How are contingent liabilities disclosed under FRS 102?

Paragraph 21.15 requires, for each class of contingent liability, a brief description of its nature and, when practicable, an estimate of its financial effect, an indication of the uncertainties about amount or timing, and the possibility of any reimbursement. If any of these cannot practicably be given, that fact must be stated. Nothing is required if the possibility of an outflow is remote.

Paragraph 21.17 gives a narrow relief for extremely rare cases where disclosure would seriously prejudice the company’s position in a dispute. Even then the company must give the general nature of the dispute and the fact that, and the reason why, the full information has not been disclosed. It is not a general licence to stay silent about litigation.

For financial guarantee contracts accounted for under Section 21, paragraph 21.17A requires the nature and business purpose of the guarantees issued, plus the provision and contingent liability disclosures where they apply.

How are guarantees within a group and with directors handled?

Group guarantees are the most common source of this note in owner managed groups. A trading subsidiary that guarantees its parent’s bank debt has a commitment for the benefit of a parent undertaking, which must be shown separately under paragraph 57(4) or 63(7). The commercial and legal side of giving such guarantees is covered on the intra group guarantees page, and a parent guarantee given so that a subsidiary can claim audit exemption is explained on the subsidiary audit exemption page.

Guarantees involving directors have their own rules. Section 413 of the Companies Act 2006, repeated in paragraph 1AC.36, requires details of any guarantee the company has given on behalf of a director: its main terms, the maximum liability the company may incur, and any amount paid or liability incurred in fulfilling it, with totals. Where a director has personally guaranteed the company’s overdraft, paragraph 33.9(b)(ii) asks for details of guarantees given or received in related party transactions. See advances, credits and guarantees to directors and personal guarantees for more.

What do micro entities have to show?

Micro entities applying FRS 105 still have to give this information. Paragraph 6.2 of FRS 105 requires the notes to be presented at the foot of the balance sheet and to include financial commitments, guarantees and contingencies as required by regulation 5A of, and paragraph 57 of Schedule 1 to, the small companies regulations, alongside off balance sheet arrangements, employee numbers and advances, credit and guarantees to directors. A micro entity balance sheet with nothing below it should prompt the question of whether there really are no commitments.

What does the note look like in practice?

Illustration only. A small company has signed a contract for a new machine costing £40,000 to be delivered after the year end, has given its bank a fixed charge over its property as security for a group facility, and has guaranteed £250,000 of its parent’s borrowings. It also has a supplier dispute where the directors think a payout is possible but not probable, estimated at £15,000.

Item Amount
Capital commitments contracted but not provided £40,000
Guarantee of borrowings of the parent undertaking £250,000
Contingent liability: supplier dispute £15,000
Total not included in the balance sheet £305,000

Underneath, the note would say that the guarantee is secured by a fixed charge over the company’s freehold property, that the whole £250,000 is undertaken for the benefit of a parent undertaking, give a short description of the dispute and its uncertainties, and state that there are no pension commitments. The figures above are invented to show the layout.

What mistakes come up most often?

  • Omitting group guarantees. Cross guarantees in a bank facility are easy to forget because nothing is paid. The bank facility letter and the register of charges at Companies House are useful checks.
  • Disclosing a total but not the split. Pension commitments and group commitments must be shown separately from the rest.
  • Putting probable outflows in the note. A probable outflow that can be reliably estimated is a provision on the balance sheet, not a contingent liability.
  • Forgetting the security. The nature and form of any valuable security given is a separate requirement.
  • Keeping an old lease commitments note. After the Section 20 changes, commitments for leases now on the balance sheet are not off balance sheet commitments, but short term and low value lease commitments still need disclosing.
  • Ignoring the note for micro entities. FRS 105 still requires it at the foot of the balance sheet.

The wider set of notes a small company must give is listed on the notes required in small company accounts page.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.