About the UK’s New SORP Charities Reporting Rules
The new Charities SORP 2026 marks a pretty significant overhaul of charity reporting requirements – and this time it’s not just about the numbers. Whether your charity’s a small community group or a national organisation, these changes will impact how you put your accounts together, report on what you’re achieving and show you’re good stewards of donor money. This guide is here to walk you through what charity managers – not just those in finance – need to get their heads around before your next reporting cycle kicks in.
What is Charities SORP 2026?
Charities SORP 2026 is an updated Statement of Recommended Practice for charity accounting under FRS 102, replacing the 2019 one, and it basically tells charities how to put their accounts together. It will apply to reporting periods starting from 1 January 2026, after its publication on 31 October 2025. So, if your charity has a December year-end, your 2026 accounts will be your first lot prepared under the new rules, with comparative figures taken from 2025. And charities with June year-ends will first apply it from mid-2026.
The new SORP is lined up with the revised FRS 102 that came out in 2025, which has sector-specific guidance on revenue, leases and governance embedded into the broader accounting framework. Crucially, all UK charities that are preparing accruals accounts have to follow the new recommended practice, regardless of whether they’re registered in England, Scotland or Northern Ireland. And don’t think smaller charities are exempt – although the new rules do take into account how big you are compared to others.
Here’s a quick rundown of what managers need to get their heads around:
- A three-tier reporting framework based on gross income determines how much detail you need to put in your reports
- New rules on when you can recognise income affect grants, contracts and donations
- Changes to lease accounting will mean most operating leases get put on your balance sheet
- Expanded narrative reporting requires you to show evidence of what you’ve achieved, volunteer contributions and governance (in other words, you’ve got to tell a story, not just stick to the numbers)
The New Three-Tier Reporting Framework Explained
SORP 2026 introduces a proportional, three-tier approach to charity accounting that’s got its own measuring stick based on annual gross income. This means the more money you make, the more detail you need to provide in your reports.
Tier 1: Up to £500,000 gross income Think local food banks, community halls or small arts groups. These charities have the lightest reporting requirements and only need to put in basic narratives about their achievements, policies and so on. No cash flow statement is required.
Tier 2: £500,001 to £15 million Tier 2 charities, which include regional hospices, multi-site housing associations or medium-sized arts trusts, need to provide a bit more information – basically, a governance overview, financial sustainability notes and more detailed risk disclosures.
Tier 3: Over £15 million National NGOs and large grant-makers have to provide the works. This includes cash flows, segmental analysis, ESG disclosures and remuneration benchmarks.
Most charities in Tiers 1 and 2 will qualify as “small entities” under FRS 102, which lets them have reduced disclosures and some exemptions from preparing a statement of cash flows. Only Tier 3 charities and those outside the small entity thresholds have to do the full cash flow statements.
Reporting requirements step up progressively:
- Tier 1: the basics (activities, reserves policy)
- Tier 2: adds in risk management, governance overview and volunteer stories
- Tier 3: comprehensive strategy, main risks linked to your finances, sustainability metrics and detailed segmentals
Key Technical Changes: FRS 102, Lease Accounting and Income Recognition
SORP 2026 has the 2025 revision of FRS 102 embedded in it, with the most significant changes affecting lease accounting and income recognition for charities. This isn’t just for finance teams anymore – it affects how your organisation presents its financial position and reports income.
Charity accounting policies need to be updated to reflect the revised FRS 102 bits on revenue (Section 23) and leases (Section 20), as well as consequential changes to provisions and presentation requirements.
This section has got high-level explanations that are suitable for managers, not just specialists. For detailed tech implementation, you’ll want to get professional advice from qualified accountants.
The two main impact areas are:
- Lease accounting (including peppercorn and concessionary leases)
- Income recognition for grants, contracts, legacies and donations
Lease Accounting for Charities Under SORP 2026
The revised FRS 102 does away with the distinction between operating and finance leases for lessees. As a result, most operating leases will show up on the balance sheet, which will increase reported assets and liabilities for charities.In practical terms, your charity will need to formally acknowledge a “right-of-use” asset and a corresponding lease liability for most property, vehicle & equipment leases longer than 12 months or worth over a certain amount. At the moment, FRS 102 lets charities write off operating leases as an expense, but the new rules will force a change in how these leases are presented in financial statements.
Lease-related expenses will split into two categories:
- Depreciation of the right-of-use asset (which gets shown in the Statement of Financial Activities as an expense)
- Interest on the lease liability (again in the SoFA, but clearly identified as a separate item)
Peppercorn leases deserve special attention. Loads of charities are occupying buildings on concessionary terms – we’re talking about a local authority renting a church hall to a charity for £1 a year. Historically, these were just expensed as a tiny rental cost. Now, they might need to be recognised as donated right-of-use assets at fair value, which would create both an asset and a corresponding “donated services” income from the get go.
Charities need to think about how the changes in lease accounting will affect them and make the necessary adjustments to all leases according to the new SORP guidelines.
Practical actions for managers:
- Gather a complete lease register (loads of charities don’t keep track of leases properly)
- Identify any peppercorn or concessionary arrangements
- Think about which leases might qualify as short-term (under 12 months) or low-value exemptions
- Warn your finance team now – this will affect the way your balance sheet looks
Example scenarios:
A charity shop chain with five £50,000 annual leases might add up to about £2 million in assets and liabilities. A community centre with a 99-year peppercorn lease for a church hall could recognise £500,000 as a right-of-use asset from day one, depreciated over the lease term.
Income Recognition: The Five-Step Plan for Charities
SORP 2026 takes up the updated FRS 102 Section 23 “five-step model” for income from deals that involve giving or trading stuff – like service contracts and trading activities. The new FRS 102 Section 23 will introduce a five-step model for income from deals that involve giving or trading, requiring charities to recognise income differently under the new rules.
The five steps in a nutshell: (1) spot an enforceable contract; (2) work out what specific obligations are involved; (3) figure out the transaction price; (4) split that price out across the different obligations; (5) recognise income as each obligation gets met (either over time or as a single lump sum).
When it comes to exchange vs. non-exchange income, it matters. Most charity income (about 80% across the sector) comes from non-exchange sources – we’re talking about unrestricted donations that hit immediately. But conditional grants, performance-related contracts, and milestones need more careful timing.
The updated income recognition rules in Charities SORP 2026 might affect how and when charities recognise grant income, contract income, and donations that have conditions or performance targets attached.
Areas of judgement include:
- Grants that come with refund clauses
- Contracts that depend on reaching certain performance targets
- Restricted grants that last for a number of years
- Corporate partnerships that have performance targets to hit
Practical examples for the voluntary sector:
- A local authority contract for home-care visits (£200,000) splits income per obligation, recognised pro-rata as visits get delivered\
- A multi-year restricted grant for refugee services (£1 million) assesses refund clauses – income gets delayed until the barriers get lifted\
- A corporate partnership with performance targets smooths out income across achievement periods
Charities need to be careful about their revenue recognition accounting policies to ensure they’re complying with the new requirements introduced by the Charities SORP 2026. Getting it wrong can cause volatile surpluses or deficits in your SoFA, confuse your funders, and leave you with audit qualifications.
Trustees’ Annual Report, Governance and Ethical Principles
SORP 2026 makes the Trustees’ Annual Report a central document that links back to your financial statements, rather than just an afterthought.
Key updates to the SORP include more transparency in the Trustees’ Annual Report, mandatory impact reporting, and expanded disclosures. The 2026 SORP puts a big emphasis on mandatory impact reporting for all charities – especially outcomes for Tiers 2 and 3.
New and enhanced TAR requirements include:
- Clearer explanations of the charity’s activities and outcomes (not just outputs – e.g. “reduced isolation for 200 elders”, not just “served 500 meals”)
- A clear reserves policy that matches the balance sheet
- Disclosure of key risks and how you’re going to mitigate them
- A discussion of ethical principles, conflicts of interest management, and how your charity embeds its ethical standards in its operations and fundraising\
- Narrative disclosure of volunteer contributions, including quantified volunteer hours and roles where possible
For context, UK volunteers contributed an estimated 2.1 billion hours in 2024, valued at around £47 billion. Capturing this contribution is now expected, not optional.
What managers will need to collect during the year:
- Case studies that show outcomes
- KPIs linked to your strategic objectives* Risk logs with mitigation actions to help identify potential problems
- Volunteer data – that’s hours, roles and skills they bring to the table
- Evidence of ethical policy implementation – ie making sure charitable work is being done
Dont push this to finance at year end – weak reporting is pretty much guaranteed if managers arent being asked to gather narrative evidence throughout the year.
Additional Requirements for Larger Charities (Tier 3)
Larger charities – those with income above £15 million, or those that dont qualify for small-entity exemptions – are going to have to comply with a lot more under SORP 2026.
The revised SORP is asking larger charities to step up their disclosures, including a brand new section on sustainability which covers environmental , social and governance (ESG) considerations. This means reporting on:
- Environmental impact eg what your carbon footprint looks like, travel emissions.
- Social value eg how you’re tracking diversity KPIs, community impact.
- Workforce and volunteer practices
- Governance arrangements eg checking the board has the right skills and succession planning in place.
Larger charities will also need to put together a more detailed section on principal risks and uncertainties, and they must explicitly cross reference that to their financial statements. So for example if you’re relying on key funders, or have some property leases you need to be worried about, or if you operate overseas, you need to link that directly to relevant notes.
A statement of cash flows will be mandatory, as will more granular segmental analysis if that’s relevant – eg by major programme or geographic area.
Larger charities may need to set up cross-functional project teams (finance, operations, HR, property) to get all the data they need. Setting up those data pipelines now will avoid the scrambles at year end.
Changes to Thresholds, Audits and the Voluntary Sector
As well as SORP 2026 coming in, the DCMS is also making some changes to the thresholds in England and Wales from September 2026.
From September 2026, the accruals accounts threshold for non-company charities is going up from £250k to £500k which, coincidentally, is also the upper limit for SORP 2026 Tier 1.
The audit threshold for charities in England and Wales is going up to a £1.5m income, effective from September 2026. And the thresholds for independent examination will also rise.
Audit and independent examination thresholds are both going up from September 2026, and this should make compliance easier and less expensive for smaller charities – while still keeping a close eye on them. The expectation is that around 15,000 fewer audits annually as a result – which is a big administrative relief for the third sector.
The charity regulators in the UK – the Charity Commission for England and Wales, OSCR in Scotland, and the Charity Commission for Northern Ireland – will all be updating their guidance and timetables in response.
How charity managers should be responding:
- Have a look and see if your charity still needs an audit or if it can go down to independent examination
- Get a chat going with examiners or auditors early
- Keep your internal controls nice and tight – the threshold changes dont mean you can slack off on your charity accounting and governance
International Students, Courses and Charity Management Skills
SORP 2026 is not just something for working pros to worry about, but also for students and future leaders studying charity management or voluntary sector leadership in the UK, including international students.
Many UK postgraduate courses in charity management expect students to have a good grasp of SORP 2026, FRS 102 and the basics of charity accounting, like income recognition and reserves. Programmes at places like Cass Business School or NCVO-certified courses are increasingly teaching SORP 2026 as part of their curriculum.
Typical entry requirements for charity management programmes include:
- A minimum 2:2 degree (or international equivalent)
- A bit of experience in paid or voluntary roles in the third sector
- If English is not your first language: language proficiency eg IELTS 6.5 overall with no component below 6.0, or equivalent
Admissions are assessed on a country by country basis, and applicants need to show that they have some level of sector knowledge, as well as their academic credentials.
Qualifications that show an understanding of SORP 2026 are an asset for trustees and managers when overseeing financial reporting and governance – a valuable thing to have as charities look for people who can get on top of compliance.
How a Good Charity CRM can help you Deliver SORP 2026 in Practice
A good purpose built UK charity CRM is not just a fundraising tool – it’s the foundation that lets you actually comply with SORP 2026. A good system lets you centralise all the data you need for enhanced reporting, without having a panic at year end.
Impact reporting (mandatory for all tiers) SORP 2026 wants to see you showing the outcomes, not just just what you were doing. A good CRM tracks outcomes per campaign, programme, donor, volunteer, and builds up a library of evidence every month, rather than leaving it all for a Q1 panic.
Volunteer contributions (new requirement) Track volunteer hours, skills, roles – and then be able to export reports for the Trustees Report narrative disclosures.
Financial and fund management A good system lets you categorise restricted and unrestricted funds neatly, keep track of real-time fund balances with transaction traces, and get revenue recognised at the right time for transparent donor reporting. Features to integrate or export features to accounting systems make reconciliation a doddle.
ESG & Sustainability Reporting (Tier 3) If you’re a larger charity, getting all your programmes to use the same data makes it a lot easier to report on your sustainability – things like where you’re providing services, how much travel is involved or what kind of impact you’re having on the local community all feed straight into the ESG bits.
Audit Ready, Every Time Every time there’s a donor interaction or a transaction, the date and time gets stamped on it – and it’s all fully searchable with a clear record of what’s happened. Programme reports can actually fill in about 70% of the kind of narratives you’ll need for the trustees annual report, if you set things up right.
90 Day Plan to Get Ready for SORP 2026
Charity managers still have a couple of months to get their act together on SORP 2026 if they start planning right now. Here’s what you need to do to get ready, broken down into three manageable chunks:
Month 1: Sort Out the Audit and Mapping
- Work out which SORP tier your charity falls into based on your income
- Get a clear map of all your revenue streams using the five-step model
- Sort out your lease register – that means pulling together every lease you have, including any dodgy peppercorn deals
- Identify any gaps in your data when it comes to measuring your impact and tracking volunteers
Month 2: Update and Get Drafting
- Get your accounting policies up to date – that means dealing with income recognition and how you account for leases
- Slog away on the enhanced bits of the Trustees Annual Report – that’s the outcomes, risks, reserves, and contributions bit
- Make sure all your programme managers know what data they need to be capturing
Month 3: Test, Review, and Get Your Staff On Board
- Do a test run with some mock year-end data to see how it all works
- Review the way you collect and store data on CRM and other systems
- Hold a SORP 2026 briefing for your trustees and senior staff
- Get in touch with your auditors or independent examiners to make sure you’re on track
Manager’s Quick Checklist:
- Double check if you still need to do an audit under the new income limits
- Get your finance procedures and templates up to date
- Make sure all your non-finance staff know what data they need to be capturing
- Document every change you make to your accounting policies, and explain why you made it
Final Checklist and Key Resources for Managers
Your SORP 2026 Readiness Checklist:
- Know what tier you are and what that means for your reporting
- Get to grips with the new rules for income recognition and lease accounting
- Map all your leases (including any dodgy peppercorn deals)
- Get in place a system for measuring your ongoing impact and collecting volunteer data
- Align your charity’s values with the reporting narratives
- Check on the changes to the threshold and whether you need to have an audit or examination
- Brief your trustees and programme managers on what’s changed
Next Steps:
- SORP 2026 Official Landing Page – full modules, summary changes, application guidance
- OSCR (Scotland) FAQ & Video – concise FAQ and introductory webinar
- Charity Commission for Northern Ireland – three-tier breakdown from official announcement
- Gov.uk Charity Commission guidance – threshold updates and England/Wales requirements
- Professional body webinars (ICAEW, ACCA) – many running January 2026 series
SORP 2026 is not just some boring compliance thing – it’s actually a chance to tell the world about the real impact your charity is having. And when charities can show they’re handling things responsibly, everyone benefits – and that’s got to be a good thing.
Get a move on, use the data you already have, and get your teams working together across the charity to make this happen. Your 2026 year end – and the people you serve – will thank you.
