Changes are coming to how charities prepare and report their accounts. These updates are likely to affect charities in a number of ways, so it is important to understand the new requirements. The reforms focus on two main areas: updates to the Charities SORP (Statement of Recommended Practice) and new financial thresholds under charity law. The goal is to make reporting clearer, fairer, and more proportionate for charities of all sizes.
Updated Charities SORP
The Charities SORP has recently been updated, with SORP 2026 applying to reporting periods beginning on or after 1 January 2026.
The SORP is a cornerstone of charitable accounting, providing guidance that ensures transparency and consistency in financial reporting. The latest update aligns the SORP with changes introduced by the Financial Reporting Council to FRS 102, particularly regarding leases and the recognition of income. Below, we highlight some of the key changes that charities should be aware of.
New reporting tiers
There are three new tiers to make sure reporting is more proportionate to the charity’s level of income:
- Tier 1: Income up to £500,000;
- Tier 2: Income between £500,000 and £15 million;
- Tier 3: Income over £15 million.
A new section is included to explain the criteria for each tier, how to report under the new tiering structure and interaction between the tiers in SORP and Companies Act thresholds.
Lease accounting
This new module explains the requirements introduced by FRS 102 and includes a flowchart and examples to help users identify the sections relevant to their circumstances.
The changes are significant. Under the previous FRS 102, operating leases were simply expensed, whereas the updated standard requires most leases to be recognised on the balance sheet. This will increase reported assets and liabilities and alter how lease-related expenses are presented in the Statement of Financial Activities.
The SORP-making body recognises that this is a complex area. Charities will need to assess the impact of these changes and apply them to all relevant leases.
Recognition of income
To align with the amendments to FRS 102 (Section 23), the updated SORP provides guidance on understanding the nature of income – specifically distinguishing between exchange and non-exchange transactions, as these must be accounted for differently in a charity’s financial statements.
Exchange transactions involve the charity providing goods and/or services in exchange for money or other consideration, e.g., performance-related grants or fees for providing residential care services. Non-exchange transactions include donations and legacies.
For non-exchange transactions, the key remains that income is generally recognised when the charity is entitled to the income, it is probable the income will be received, and the amount can be measured reliably. The SORP provides amplified guidance in these areas, especially on legacy income.
For exchange transactions, a five-step model has been introduced for recognising income from exchange contracts.
The five steps of income recognition for exchange transactions
- Identify the presence of a contract with a third party.
- Identify the performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations in the contract.
- Recognise income when or as the charity satisfies a performance obligation.
Charities should review and, where necessary, update their revenue recognition policies to ensure compliance with the new requirements.
Trustee’s Annual Report
The requirements for this have been refreshed. There is now extra guidance on how to report financial reserves and plans about the future. There are also specific sections on areas of interest to the public and donors, including:
- Impact reporting is now a ‘must’ for all charities;
- How a charity is responding to environmental, social and governance matters; and
- Tier 2 and tier 3 charities should provide more narrative on how legacies are recognised in the accounts.
You can access SORP 2026 here.
Changes to accounts and examination requirements
Charity law aims to regulate organisations proportionately, ensuring public trust while allowing operational flexibility. Larger charities, handling more public funds, face stricter oversight, whereas smaller charities are subject to lighter requirements.
Financial thresholds determine the level of regulation, including registration, reporting, and independent examination or audit. Following a public consultation, the Department for Culture, Media and Sport (DCMS) has announced updates to these thresholds to reduce costs and administrative burdens for smaller charities.
The changes are expected to take effect on 30 September 2026, applying to accounting years ending on or after that date.
| Requirement | Current threshold | New threshold (from 20 September 2026) |
|---|---|---|
| Accounts must be independently examined | Income over £25,000 | Income over £40,000 |
| Examination must be by a professionally qualified Independent Examiner | Income over £250,000 | Income over £500,000 |
| Non-company charities can choose to produce receipts and payments accounts | Income below £250,000 | Income below £500,000 |
| Accounts must be audited | Income over £1,000,000 Assets over £3,260,000 |
Income over £1,500,000 Assets over £5,000,000 |
| Group accounts must be prepared and audited | Aggregate income of group £1,000,000 | Aggregate income of group £1,500,000 |
How M+A Partners can help
The updated Charity SORP will affect charities of all sizes. Our experienced team can help ensure your charity complies with the new requirements, manages processes efficiently, and prepares accurate accounts. We provide professional, objective advice to support charities in meeting these changes effectively.
