How will Charity SORP 2026 impact your charity?

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The new Charity Statement of Recommended Practice (SORP) has now been published and will take effect for accounting periods starting on or after 1 January 2026. For many organisations in the sector that have March year ends, this means the changes will first apply to accounts prepared in 2027, and charities will need to ensure they are ready.

The Charity SORP is based on FRS 102 (core UK accounting legislation approved by the Financial Reporting Council) and incorporates changes to income recognition and lease accounting, but the updated SORP also brings with it a range of other important changes that charities need to understand.

Tiered reporting

One of the most welcome changes is the introduction of clearer tiered reporting requirements based on charity income, which aims to ensure reporting is more proportionate to a charity’s size, providing guidance on what charities need to include in their financial statements. It will reduce the burden on smaller charities while ensuring larger organisations provide detailed information.

• Tier 1: Income up to £500,000 — simplified disclosures
• Tier 2: Income between £500,000 and £15m — moderate disclosure requirements
• Tier 3: Income over £15m — comprehensive disclosures, including a cash flow statement and ESG reporting

Income recognition and lease accounting

The changes to income recognition and lease accounting represent the most significant technical shifts in the new SORP and will be a big adjustment for many charities.

Income recognition will primarily affect charities that earn income in exchange for delivering services, such as social care providers, some membership organisations, and care homes. These charities will need to adopt a five-step model to determine when and how much revenue to recognise. The impact could be substantial, affecting reported surpluses and reserves.

Lease accounting will require most operating leases to appear on the balance sheet from 2026, with both a right-of-use asset and a corresponding liability. For charities with significant property leases—whether head offices, warehouses, or charity shops—this fundamentally changes the balance sheet structure and the pattern of charges hitting the income and expenditure account each year.

These changes could impact reserve policies, banking covenants, and even whether a charity requires an audit or can opt for an independent examination.

Trustees' annual reports

The new SORP places greater emphasis on the trustees' annual report, requiring a clearer and more meaningful narrative about the charity's activities, achievements, and challenges, with guidance on how to report financial reserves and plans for the future.

Trustees will need to provide better explanations of:

• ESG reporting: Reporting on how a charity is responding to and managing environmental, governance and social matters
• Impact reporting: An emphasis on the benefits the charity delivered, rather than just what it did

The focus is on providing information that helps donors, funders, and beneficiaries understand what the charity does and how well it is doing it. For many charities, this will mean rethinking their approach to the annual report, moving away from formulaic compliance towards meaningful communication that demonstrates how they make a difference.

Social investments

The SORP sets out for all charities how social investments—those made to achieve the charity's purposes as well as generating a financial return—must be presented and disclosed when accounts are prepared.

Previously, these investments were divided into “programme-related investments” and “mixed-motive investments,” depending on the primary purpose. This has been simplified by only referring to “social investments,” which now aligns with charity law.

Social investments may take a variety of forms such as making loans, taking on a commitment (for example, by giving a guarantee), or buying shares in a private company.

Provisions and contingencies

Clearer guidance is set out on accounting for provisions and contingent liabilities, areas where practice has often been inconsistent across the sector. The main additional guidance here is most relevant for grant-making charities, and clarifies circumstances where a grant funding commitment given by the charity would result in a liability being booked.

It also sets out situations that would not result in the need to record a liability, but where a contingent liability might be disclosed.

Getting provisions wrong can significantly distort a charity's financial position. Under-provisioning creates a false picture of financial health, while over-provisioning unnecessarily restricts resources that could be deployed for charitable purposes. It is hoped that the new guidance in the SORP will deliver greater consistency of approach between organisations.

How to prepare for Charity SORP 2026

Trustees should start to prepare for the incoming changes now by:

1. Reviewing income streams: If you deliver services in exchange for payment, work through the five-step model to understand the impact on income recognition.
2. Listing all leases: Gather lease agreements and assess which will need to be brought onto the balance sheet, and model the financial impact.
3. Consider your annual report: Think about how to make it more engaging and informative, focusing on impact and outcomes.
4. Review social investments: If your charity makes investments for social purposes, consider how these should be classified and presented.
5. Assess provisions: Ensure you're accounting for obligations appropriately and that provisions are reasonable and well-documented.
6. Model the impact: Forecast how these changes will affect your reserves, any banking covenants, and whether you'll still meet audit thresholds.

The complexity of these changes means early preparation is essential. By getting ahead of the requirements now, you can ensure a smooth transition.