Charity accounting and reporting changes are effective for accounting periods starting on or after 1 January 2026. The Charities Statement of Recommended Practice (SORP 2026) brings the most significant update to charity accounting and financial reporting in years. These changes aim to make reporting more transparent and aligned with modern accounting standards, helping trustees, stakeholders and donors better understand a charity’s performance and impact.
The Charities SORP sets out how charities in the UK should prepare their financial statements and Trustees’ Annual Reports when using accruals accounting. SORP 2026 replaces the previous version and reflects updates to the Financial Reporting Standard (FRS 102). These changes affect how charities recognise income, account for leases and present narrative reporting.
Key Changes
New Three-Tier Reporting Framework
SORP 2026 introduces a three-tier structure based on a charity’s gross annual income:
Tier 1: Income up to £500,000
Tier 2: Income between £500,000 and £15 million
Tier 3: Income over £15 million
This tiered approach ensures reporting is proportionate to the size and complexity of a charity. For example, only Tier 3 charities will normally be required to prepare a full statement of cash flows, reducing the compliance burden for smaller organisations.
Updated Income Recognition Rules
SORP 2026 incorporates updated guidance on recognising income, particularly from exchange transactions. The new system aligns charity accounting with modern practices and supports consistency in how income is recorded across the sector.
Lease Accounting Changes
Under the revised accounting standards (FRS 102), most operating leases must now be recognised on the balance sheet as a right-of-use asset with a corresponding liability. This change increases transparency around leased assets and can affect key financial metrics.
Enhanced Trustees’ Annual Report
Trustees’ Annual Reports will feature additional narrative requirements, including:
- Clearer reporting on financial reserves
- Future planning and strategy
- Impact reporting
- Environmental, social and governance (ESG) considerations
These enhancements aim to improve accountability and help donors and stakeholders understand how funds are used and what the charity is achieving.
Simpler Reporting for Smaller Charities
Smaller charities benefit from proportional reporting:
Many Tier 1 and Tier 2 organisations will not need to prepare complex reports such as cash flow statements.
Easier requirements for provisions and contingencies make presentation more straightforward.
Changes to Examination & Audit Thresholds
In addition to the SORP changes, the government has announced increases to statutory thresholds that determine whether charities require independent examination or audit. These changes will take effect from 30 September 2026, are aimed at reducing administration activities for smaller charities.
Actions to take.
To prepare for these changes and reduce the risk of reporting issues, we would advise charities to consider undertaking the following actions:
Identify Your Reporting Tier – Review your charity’s most recent gross income figures and determine whether you fall into Tier 1, Tier 2, or Tier 3, as this affects reporting requirements.
Review Lease Contracts – Work with your finance team and advisors to identify all operating leases and determine how they should be recognised under the new accounting framework.
Update Income Recognition Policies – Ensure your accounting policies reflect the updated guidance for income recognition, particularly for exchange transactions and grants.
Refresh Narrative Reporting – Evaluate your Trustees’ Annual Report format and prepare to include information on reserves, future plans and impact reporting as required under the new SORP.
Update Your Finance Team – Ensure staff and volunteer treasurers understand the new standards. Consider external training or professional support to minimise errors in reporting.
The SORP 2026 changes represent a significant shift in charity accounting and reporting in the UK. While they bring additional responsibilities, especially around transparency and reporting, they also provide a clearer and fairer framework for charities of all sizes. Understanding the changes will help trustees and finance teams meet regulatory expectations with confidence and present financial information that reflects both performance and impact.
We have experienced specialists at bennettbrooks that work with a variety of Charities across the UK. If you have any questions about the changes or need support, please contact us.
