Changes to Charities SORP 2026

Charities SORP 2026 has been released and includes significant updates to both quantitative and qualitative reporting for charities.

There are updates to incorporate the changes to FRS 102, specifically for income recognition and lease accounting, as well as more clarification and alignment with FRS 102 in other areas.

The other significant change is to introduce a tier system of reporting. Charities will be placed into a tier based on gross income, which will shape the disclosures and reporting required by a charity.

Tier Reporting

Charities SORP 2026 introduces three tiers as follows:

For simplicity the tiers will only be determined using gross income and will not consider other thresholds set by Companies Act 2006 such as gross assets and employee numbers.

Once a charity has determined their tier, specific attention should be paid to the following modules where different requirements are set for each tier:

• Module 1 (Trustees' annual report)
• Module 4 (Statement of financial activities)
• Module 8 (Allocating costs by activity in the statement of financial activities)
• Module 9 (Disclosure of trustee and staff renumeration, related party and other transactions)
• Module 14 (Statement of cash flows)

Key changes – Tier 1 charities may choose whether to present the statement of financial activities on a natural or activity based classification. Tier 2 and 3 charities must present on an activity based classification.

There are significant changes in the Trustees' annual report at all tiers with some new areas being introduced including sustainability disclosures.

Charities in tier 1 and 2, who also qualify as a small company under Companies Act 2006, will no longer be required to present a statement of cash flow

Income recognition

Charities SORP 2026 now reflects the changes in FRS 102, specifically referencing the 5 step model for income recognition, as follows:

Charities should continue to consider for all income, whether performance obligations exist, if the transaction is exchange or non-exchange and whether there are any restrictions placed on the income. Where a transaction is exchange, the above 5 step model should be used to determine when the income is recognised. For non-exchange transactions, charities should continue to use the performance model however noting that a restriction does not always equate to a performance obligation.

Although some charities will find their income recognition timing will not change, they must still review all their income referring to Module 5 of Charities SORP 2026 where necessary.

To prepare for the above changes charities should:

• Refer to Module 5 of Charities SORP 2026 for upcoming changes
• Ensure they have contracts for exchange transactions
• Review the terms of such contracts for performance obligations

Charities will also need to consider any impacts on forecasting, financial covenants or auditing thresholds.

Leases

Charities SORP 2026 introduces Module 10B (Lease accounting) to align with FRS 102 updates. Previously leases needed to be defined as either a finance or operating lease, however the updated SORP will mean most operating leases will need to be recognised on the statement of financial position. The recognition will be similar to current finance lease accounting.

There will be an exemption for some leases if the lease is considered short-term or is of low value. In this case the lease would be recognised as an expense over the lease period.

Charities will also need to consider where any lease payments are made below the market rate there may be a donated benefit that should be recognised as non-exchange income. This is unlikely to relate to leases where payments are considered peppercorn.

To prepare for the above changes charities should:

• Refer to Charities SORP 2026 for upcoming changes
• Ensure lease arrangement documentation has been retained for all leases
• Consider whether the short-term or low value lease exemptions may apply
• Identify leases to be included on the statement of financial position

Charities will also need to consider any impacts on forecasting, financial covenants or auditing thresholds.

Summary

There are several changes in Charities SORP 2026 which charities should review and consider impacts as soon as possible. These changes must be implemented for the first accounting period commencing after 1 January 2026. Specific consideration should be made to the potential impacts on reporting requirements, financial covenants and auditing thresholds.