What are non-current liabilities?

Published Thursday 23 July 2026

Table of contents

• What are non-current liabilities?
• Types of non-current liabilities
• Non-current liabilities on the balance sheet
• Non-current liabilities vs current liabilities
• Financial ratios using non-current liabilities
• Why non-current liabilities matter for your business
• Track your finances with confidence using Xero
• FAQs on non-current liabilities

Key takeaways

• Non-current liabilities are debts or financial obligations your business won't need to pay off within the next 12 months, such as long-term loans, lease agreements, and pension commitments.
• They appear on your balance sheet separately from current liabilities, giving you and potential lenders a clearer picture of your long-term financial commitments.
• Understanding non-current liabilities helps you plan cash flow more effectively and make informed decisions about taking on new debt or investing in growth.
• Key financial ratios like debt-to-equity and interest coverage use non-current liabilities to measure your business's financial health and borrowing capacity.

Every business carries some form of long-term financial commitment, whether it's a loan for new equipment or a lease on office space. Understanding these obligations is essential for making smart decisions about your business's future.

What are non-current liabilities?

Non-current liabilities are debts or financial obligations that aren't due for payment within the next 12 months. They're also commonly called long-term liabilities.

On your balance sheet, non-current liabilities sit below current liabilities and represent the money your business owes over a longer timeframe. Think of them as the bigger, slower-burning commitments; a 5-year bank loan, a property lease, or a pension scheme you're contributing to.

For small businesses, keeping track of these obligations matters because they directly affect how much you can borrow in future, how investors or lenders view your financial health, and how you plan your cash flow over the coming years. If you don't have a clear picture of what you owe long-term, it's harder to make confident decisions about growth.

Non-current liabilities are different from day-to-day expenses like supplier invoices or tax bills. Those short-term debts fall under current liabilities. The distinction helps anyone reading your accounts understand both your immediate and long-term financial position.

Not all long-term obligations look the same. Here's a closer look at the most common types of non-current liabilities you're likely to encounter as a small business owner.

Types of non-current liabilities

Non-current liabilities come in several forms, depending on how your business is funded and structured. Below are the most common types and what they mean in practice.

Many small businesses rely on borrowed funds to get started or to grow. Long-term loans are one of the most straightforward forms of non-current liability.

Long-term loans

Long-term loans include bank loans, commercial mortgages, and asset finance agreements with repayment terms that stretch beyond 12 months. If you've borrowed money to buy premises, vehicles, or equipment, that debt is a non-current liability until it falls within the final year of repayment. At that point, the remaining balance typically moves to current liabilities on your balance sheet.

Some businesses raise funds by issuing bonds, though this is less common for smaller companies. Bonds payable are still worth understanding as a type of long-term obligation.

Bonds payable

Bonds payable are a form of borrowing where your business issues a bond to investors, promising to repay the amount plus interest over a set period. While bonds are more commonly used by larger companies, some growing businesses use them to raise capital without giving up equity. The interest payments are fixed, which makes budgeting more predictable.

If your business rents premises or leases equipment, those agreements often create long-term financial obligations too.

Lease obligations

Lease obligations cover both property leases and equipment leases that extend beyond 12 months. Under current accounting standards, most leases now appear on the balance sheet as a liability alongside a corresponding right-of-use asset. Whether you're leasing an office, a warehouse, or machinery, the long-term portion of that commitment counts as a non-current liability.

Tax timing differences can also create obligations that sit on your balance sheet for extended periods.

Deferred tax liabilities

Deferred tax liabilities arise when there's a timing difference between when you recognise an expense in your accounts and when you actually pay the tax on it. For example, if you claim capital allowances on equipment faster than the asset depreciates in your accounts, the tax you'll eventually owe creates a deferred liability. It's not money you owe right now, but it will come due in future accounting periods.

If your business provides a workplace pension, this can also create a long-term commitment on your balance sheet.

Pension obligations

Pension obligations are a significant non-current liability for businesses that run defined benefit pension schemes, where you commit to paying employees a set amount in retirement. Defined contribution schemes, such as auto-enrolment pensions required in the UK, are simpler because your obligation ends once you've made the contribution. With defined benefit plans, the liability reflects the gap between what the pension fund holds and what it's promised to pay out.

Finally, some businesses use promissory notes to formalise borrowing arrangements outside traditional bank lending.

Notes payable

Notes payable are written promises to repay a specific sum, plus interest, by a set date. They're commonly used between businesses or when borrowing from private lenders rather than banks. If the repayment date is more than 12 months away, the note sits as a non-current liability. They're simpler than bonds but serve a similar purpose for smaller-scale borrowing. You can learn more about other types of financial obligations in the accounting glossary.

Knowing the types of non-current liabilities is useful, but it's equally important to understand where they sit in your financial statements and what they tell you about your business.

Non-current liabilities on the balance sheet

Your balance sheet is split into 3 main sections: assets, liabilities, and equity. Non-current liabilities appear in the liabilities section, listed separately from current liabilities so anyone reading the accounts can quickly see what's owed short-term versus long-term.

To identify non-current liabilities, look for any obligation with a due date beyond the next 12 months. Common line items include long-term borrowings, lease liabilities, deferred tax, and pension provisions. Each one represents money your business has committed to paying, just not within the immediate future.

The relationship between your assets, liabilities, and equity follows a simple formula: assets minus liabilities equals equity. If your non-current liabilities grow significantly without a matching increase in assets, your equity shrinks. That's why lenders and investors pay close attention to this section; it tells them how much of your business is funded by long-term debt versus your own capital.

Understanding where non-current liabilities sit is helpful, but the real clarity comes from comparing them to current liabilities and seeing how the 2 categories differ in practice.

Non-current liabilities vs current liabilities

The core difference is timing. Current liabilities are debts you need to settle within 12 months, such as supplier invoices, short-term tax bills, and credit card balances. Non-current liabilities are obligations that extend beyond that 12-month window.

Purpose also sets them apart. Current liabilities tend to fund day-to-day operations; you buy stock on credit, you pay it off within a few weeks. Non-current liabilities typically fund bigger, longer-term investments like property, equipment, or business expansion.

The impact on your finances is different too. Current liabilities affect your short-term cash flow and working capital. Non-current liabilities influence your long-term solvency and overall financial structure. A business can have healthy short-term cash flow but still carry significant long-term debt, or the reverse. Looking at both categories together gives you the full picture.

Beyond simply categorising your debts, you can use non-current liabilities to calculate financial ratios that reveal deeper insights about your business's health.

Financial ratios using non-current liabilities

Financial ratios help you turn raw numbers into meaningful insights. Here are 3 key ratios that use non-current liabilities to assess your business's financial position.

The debt-to-equity ratio compares your total liabilities to your total equity. It tells you how much of your business is funded by debt versus your own investment. A higher ratio means more reliance on borrowed money, which can signal higher risk to lenders. For small businesses, keeping this ratio manageable makes it easier to secure future funding.

The debt ratio measures your total liabilities as a proportion of your total assets. It shows what percentage of your assets is financed by debt. A debt ratio above 0.5 means more than half your assets are debt-funded. This ratio gives you a straightforward view of your overall leverage.

The interest coverage ratio looks at how comfortably your business can meet its interest payments from operating profit. You calculate it by dividing your operating profit by your interest expenses. A higher number means you're earning well above what you need to cover interest costs, which reassures lenders that you can handle your debt obligations.

Ratios are useful benchmarks, but the real value of understanding non-current liabilities lies in how they shape your everyday business decisions.

Why non-current liabilities matter for your business

Non-current liabilities have a direct impact on how you plan, grow, and manage your business finances. Here's why they deserve your attention.

Cash flow planning becomes clearer when you know exactly what long-term repayments are coming. If you have a 5-year loan and a 10-year property lease, you can map out those outgoings alongside your expected income using a cash flow forecast. That makes it easier to spot months where cash might be tight and plan accordingly.

Lenders and investors look closely at your non-current liabilities when deciding whether to back your business. A company with manageable long-term debt relative to its assets and income is seen as lower risk. If you're planning to apply for a loan or seek investment, understanding and presenting your non-current liabilities clearly can strengthen your case.

Business valuation also depends on your long-term obligations. When you or someone else values your business, non-current liabilities reduce the net value. Keeping these obligations under control and well-documented means fewer surprises during a sale, merger, or partnership negotiation.

Good financial management starts with knowing what you owe and when you owe it. Tracking your non-current liabilities doesn't need to be complicated.

Track your finances with confidence using Xero

Staying on top of non-current liabilities is simpler when your financial data is accurate, up to date, and easy to access. Xero's cloud-based accounting software helps give you a clear view of your balance sheet, so you can see where your long-term obligations stand. With automated bank reconciliation and real-time reporting, you can spend less time on manual bookkeeping and more time making informed decisions about your business's future. Get one month free.

FAQs on non-current liabilities

Here are some frequently asked questions about non-current liabilities.

What is the difference between current and non-current liabilities?

Current liabilities are debts due within 12 months, while non-current liabilities have repayment terms that extend beyond 12 months. The distinction helps you and anyone reviewing your accounts understand both your short-term cash needs and your longer-term financial commitments.

How do non-current liabilities appear on a balance sheet?

They're listed in the liabilities section of your balance sheet, below current liabilities. Each type of long-term obligation, such as loans, leases, or pension provisions, typically appears as a separate line item with its outstanding balance.

Can non-current liabilities become current liabilities?

Yes. When a long-term debt enters its final 12 months before the payment date, the remaining balance is reclassified as a current liability. This happens automatically in most accounting software, helping your balance sheet reflect accurate timing.

How do non-current liabilities affect financial ratios?

They're a key input in ratios like debt-to-equity and interest coverage, which lenders use to assess your borrowing capacity and financial stability. Higher non-current liabilities relative to equity or income can signal greater financial risk, while manageable levels suggest your business can comfortably handle its long-term commitments.