IFRS 15 Disclosure Checklist for UK IP Licensing: Practical Guide for Startups

Understanding IFRS 15: A Founder’s Introduction

For UK startups in biotech, deeptech, or SaaS, an intellectual property licence is more than a contract; it is often the core asset. Yet, meeting the IFRS 15 requirements for IP licensing UK founders must navigate is a significant hurdle, especially without a dedicated finance team. Incorrect revenue recognition can distort your financial health and complicate future funding rounds. This guide provides a practical framework for compliant Companies House reporting for IP agreements using the tools you already have.

The most important shift IFRS 15 introduces is moving from when cash is received to when value is delivered. As the standard states, "The core principle is that revenue is recognized when control of a good or service is transferred to the customer." This means your bank balance and your revenue figure can tell two different stories. For any UK-based company preparing IFRS accounts, this is not optional. The regulation makes IFRS 15 disclosure a mandatory part of annual financial statements, a critical compliance task.

Step 1: Identify Each Performance Obligation in Your IP Licence

Is your IP licence a single deliverable or a bundle of separate promises? Under IFRS 15, you must identify each distinct ‘performance obligation’ in your contract. A promise is distinct if the customer can benefit from it on its own and it is separately identifiable from other promises. A consistent pattern across early-stage tech companies is that founders often underestimate the number of distinct promises made in a single agreement.

Case Study: A SaaS Company

You sign a £50,000 annual contract that includes access to your software platform, a one-off implementation service, and ongoing phone support. These are three distinct performance obligations. The software access provides value over the year, the implementation provides value once complete, and the support provides value throughout the term. You cannot recognise the full £50,000 upfront. For your SaaS contract revenue disclosure, you must allocate a portion of the price to each promise and recognise revenue as each is fulfilled.

Case Study: A Biotech Company

You license a patented compound to a larger pharmaceutical partner for an upfront fee and agree to provide three months of transitional research support. The licence to the compound and the research support are likely distinct obligations. Revenue from the licence might be recognised when control transfers, while the research support revenue would be recognised over the three-month service period. This is a common scenario in biotech licensing financial statements.

Step 2: Determine the Transaction Price and Handle Variable Consideration

Many IP licences include future royalties and milestone payments. This is known as ‘variable consideration’, and it is common in deeptech royalty income reporting. It includes performance bonuses, milestone payments, and sales-based royalties that depend on future events.

IFRS 15 requires you to estimate this future income, but with a major caveat. According to the standard, "The 'Constraint' Rule: Variable consideration is included in the transaction price only if it is 'highly probable' that a significant revenue reversal will not occur." For an early-stage biotech or deeptech company, a future R&D milestone is often not 'highly probable' until the technical hurdles are cleared. In practice, this means you typically recognise milestone revenue only when the milestone is achieved.

Sales-based royalties follow a more straightforward rule. The standard specifies that "Revenue from sales-based royalties is recognized when the underlying sale by the licensee occurs." You do not need to estimate future sales. Instead, you wait for your partner to report their sales of the licensed product and then recognise your royalty revenue in that same period.

Step 3: Recognise Revenue at the Right Time (Point in Time vs. Over Time)

The crucial timing question for IFRS 15 revenue recognition for licensing is whether to recognise revenue all at once or spread it over the contract life. The answer depends on if you grant a 'Right to Use' or a 'Right to Access' the intellectual property.

Right to Use (Point in Time Recognition)

This applies when you grant a licence to IP that has significant standalone functionality and will not be changed by your ongoing activities. An example is licensing a fully developed patent to a third party to commercialise. The customer receives control of the right to use that IP as it exists at that moment. Revenue is generally recognised upfront, at the point in time when the customer can first use the licence.

Right to Access (Recognition Over Time)

This is more common for UK SaaS companies where the IP is dynamic. If your activities significantly affect the IP the customer has rights to, you are providing a service of access over time. Think of a software subscription; the customer is paying for access to an evolving, updated platform, not a static piece of code. The revenue for this promise must be recognised on a straight-line basis over the duration of the licence term.

Step 4: Build a Practical System for Companies House Disclosures

For a startup without a large finance team, a well-structured spreadsheet system that complements accounting software like Xero is a powerful tool for your Companies House reporting for IP agreements. The reality for most pre-Series B startups is more pragmatic: a manual system is often the most effective starting point.

What founders find actually works is creating two key spreadsheets to manage the data.

First, build a Contract Summary Sheet. This is your master log of all IP agreements and should track:

• Customer Name
• Contract Start and End Dates
• Total Contract Value
• Performance Obligations (e.g., 'SaaS Licence', 'Implementation', 'Support')
• Transaction Price Allocated to Each Obligation
• Variable Consideration Details (e.g., '5% royalty on net sales', '£100k for Milestone A')
• Revenue Recognition Method (e.g., 'Over time - 12 months', 'Point in time')

Second, create a Revenue Schedule. This sheet pulls data from your summary and calculates the monthly revenue for your financial statements. It should include:

• Contract ID
• Month/Year
• Performance Obligation
• Revenue Recognised This Period
• Deferred Revenue Balance (cash received but not yet earned)

This two-sheet system provides the data needed for the disclosure notes in your annual accounts. It creates a clear, auditable trail of how you arrived at your revenue figures, directly addressing core UK accounting standards for IP deals and providing clarity for investors.

Key Principles for IFRS 15 Compliance

Navigating IFRS 15 for IP licensing does not require enterprise-level software at your stage. It requires a disciplined, logical approach to your contracts and financial reporting. The essential first steps are straightforward.

First, deconstruct every new IP agreement into its fundamental promises. Do not look at it as a single source of income. Second, build your spreadsheet-based Contract Summary and Revenue Schedule immediately to save time and reduce errors later. Third, and most importantly, get comfortable with the distinction between the cash hitting your bank account and the revenue you are permitted to recognise. This is the core mental shift required for compliant IFRS 15 reporting.

By focusing on the nature of your promises, the probability of future income, and the timing of value delivery, you can build a robust process that satisfies Companies House requirements and gives a true picture of your startup’s financial performance. See the IP licensing hub for broader guidance.

Frequently Asked Questions

Q: What happens if our IFRS 15 disclosures are incorrect for Companies House?
A: Incorrect disclosures can lead to a qualified audit opinion, which may deter investors and lenders. Companies House could reject the accounts, leading to late filing penalties. In serious cases, it can trigger a formal investigation and require you to restate your financials, damaging your company's credibility.

Q: Does IFRS 15 apply to small UK startups that use FRS 102?
A: No. While IFRS 15 is mandatory for listed companies, many UK startups can apply FRS 102. The revenue recognition principles in Section 23 of FRS 102 are similar but less prescriptive than IFRS 15. However, adopting IFRS 15 principles early can prepare you for future growth, international investment, or an IPO.

Q: How should we handle contract modifications under IFRS 15?
A: A contract modification is treated as a separate contract if it adds distinct goods or services at a standalone selling price. If not, the accounting depends on the remaining obligations. It may require a cumulative catch-up adjustment to revenue or be accounted for prospectively over the remaining term.