Upcoming Changes to Charity Accounting: Preparing for SORP 2026 and New Reporting Thresholds
The introduction of the Charities Statement of Recommended Practice (SORP) 2026 and revised financial thresholds represents the most significant change to charity financial reporting in several years.
While some of the practical reporting consequences may not become apparent until the year-end accounts are prepared, many charities are already within the first accounting periods affected by the new requirements. Trustees and finance teams should therefore be considering the implications now rather than waiting until the end of the financial year.
SORP 2026
The updated Charities SORP will apply to accounting periods beginning on or after 1 January 2026, affecting all charities that prepare accounts using the accruals basis.
One of the key objectives of the revised SORP is to make reporting requirements more proportionate to the size of a charity by introducing a new three-tier reporting framework:
- Tier 1: Income up to £500,000.
- Tier 2: Income between £500,000 and £15 million.
- Tier 3: Income above £15 million.
As a summary, Tier 1 charities will benefit from simplified disclosures, Tier 2 charities will continue to apply the standard reporting framework, and Tier 3 charities will be subject to enhanced reporting requirements, including additional disclosures on governance, impact, financial resilience and sustainability.
Whilst not a full list, a number of the key changes introduced by the revised SORP include:
- Changes to cashflow statement requirements
- New guidance on income recognition and lease accounting requirements, in line with the changes proposed in Sections 23 and 20 of FRS 102 respectively.
- Simplified reporting for social investments.
- Clearer guidance on provisions and contingencies.
- Enhanced Trustees’ Annual Report disclosures, including greater emphasis on reserves, future plans, impact reporting and environmental, social and governance (ESG) matters.
While many of these changes are presentational, others have the potential to affect both the timing of income recognition and amounts reported on the balance sheet.
We discuss in more detail three of the key changes:
Cashflow Statement Requirements
Charities that fall into Tiers 1 and 2 (income below £15 million) are no longer required to prepare a cash flow statement, meaning cash flow reporting will generally be limited to Tier 3 charities unless otherwise required by FRS 102.
Lease Accounting Could Be One of the Biggest Changes
For many charities, the most significant practical accounting change may relate to leases.
SORP 2026 incorporates the revised FRS 102 lease accounting model, meaning many leases that have historically been treated as operating leases are expected to be recognised on the balance sheet through the recognition of a right-of-use asset and corresponding lease liability.
The changes are likely to have the greatest impact on:
- Charities operating from leased premises.
- Charity retailers with multiple leased shops.
- Organisations leasing vehicles or equipment.
While the substance of lease arrangements remains unchanged, many charities are likely to report materially higher assets and liabilities on their balance sheets. Trustees should review lease arrangements now to identify those that will fall within the new accounting model and assess any balance sheet implications.
Revenue Recognition Changes Could Require a Different Approach to Income
Another significant change within SORP 2026 relates to the recognition of income. The SORP reflects the revised FRS 102 requirements whilst introducing separate guidance for exchange transactions (such as contracts for the provision of services) and non-exchange transactions (such as donations and grants).
The changes are likely to be most relevant for:
- Charities delivering services under contract arrangements.
- Organisations receiving complex grant funding.
- Charities with multiple income streams and performance obligations.
For exchange transactions, income recognition will follow a new five-step model that focuses on when goods or services are transferred to the customer. As a result, some charities may need to reassess the timing of income recognition, particularly where contracts span multiple accounting periods. Grant income will continue to follow the performance model.
The revised model may alter the timing of income recognition, potentially changing the pattern of surpluses and deficits between accounting periods. Trustees should review significant income streams and funding agreements now to assess whether the revised guidance could affect the timing of income recognition.
New Financial Thresholds from 30 September 2026
Alongside the SORP changes, the Government has announced increases to the accounting and audit thresholds. These changes are expected to take effect for accounting years ending on or after 30 September 2026, and include:
| Requirement | Current Threshold | New Threshold |
|---|---|---|
| Independent examination required | Income > £25,000 | Income > £40,000 |
| Qualified independent examiner required | Income > £250,000 | Income > £500,000 |
| Apply accruals accounting | Income > £250,000 | Income > £500,000 |
| Audit required | Income over £1m OR Income over £250k and assets over £3.26m | Income over £1.5m OR Income over £500k and assets over £5m |
These increases should reduce compliance costs for many smaller charities and may result in some organisations no longer requiring an audit or professional independent examination.
Preparing for Year-End Reporting
With many charities are already within the first accounting periods affected by the new requirements, trustees and finance teams should now be planning for year-end reporting.
Practical steps include:
- Identifying which SORP reporting tier the charity will fall into.
- Reviewing lease and income arrangements, alongside other areas likely to be affected by accounting changes.
- Considering whether disclosures in the Trustees’ Annual Report, particularly those relating to reserves, impact and future plans, require enhancement.
- Reviewing whether the charity’s audit or independent examination requirements may change under the revised thresholds.
- For many smaller and medium-sized charities, the increase in reporting thresholds may reduce compliance requirements. However, charities with significant lease commitments or complex funding arrangements should not underestimate the impact of the new accounting requirements.
If you would like to discuss how the upcoming SORP changes, lease accounting requirements or revised audit thresholds could affect your charity, our specialist charity team would be delighted to help.
