News & Insights

The new Charities Statement of Recommended Practice (SORP) 2026 was published on 31 October 2025 and replaces SORP (FRS 102) 2019. It applies to all charities preparing accruals accounts for reporting periods beginning on or after 1 January 2026, so the first full year caught for most charities will be the year ending 31 December 2026. Early adoption is permitted.

The SORP has been rewritten to follow the Financial Reporting Council’s periodic review of FRS 102, and it has grown substantially in length. Below we summarise the changes that matter most for trustees, finance teams and independent examiners.

1. A new three-tier reporting structure

The old “smaller” and “larger” charity distinctions have gone. Reporting requirements are now scaled across three tiers based on gross income:

• Tier 1 – income up to £500,000
• Tier 2 – income between £500,000 and £15 million
• Tier 3 – income above £15 million

Each tier must meet the requirements of the tiers below it. The SORP also uses consistent language throughout: “must” for mandatory requirements, “should” for recommended practice and “may” for optional disclosures. A welcome simplification is that only Tier 3 charities (and charitable companies that exceed the company size thresholds) are required to prepare a statement of cash flows.

2. Income recognition: the five-step model

The most significant accounting change follows the new revenue section of FRS 102 (Section 23). For income from exchange transactions – contracts where the charity provides goods or services in return for payment – charities now apply an IFRS 15-style five-step model:

1. Identify the contract with the customer.
2. Identify the performance obligations in the contract.
3. Determine the transaction price.
4. Allocate the transaction price to the performance obligations.
5. Recognise income as (or when) each performance obligation is satisfied.

Non-exchange income such as donations, legacies and most grants continues to be recognised under the existing entitlement, probability and measurement criteria. The practical challenge is drawing the line between the two. Contracts for services, performance-related grants and arrangements that mix a service element with a donation element will need careful review, and the SORP now includes worked examples to help.

There are also clarifications on legacies, including when receipt is considered probable, and on the disclosure of material unrecognised legacies for the larger tiers.

3. Leases come onto the balance sheet

Following the revised FRS 102 Section 20, the distinction between operating and finance leases largely disappears for lessees. Most leases will now be recognised on the balance sheet as a right-of-use asset with a corresponding lease liability. Exemptions remain for short-term leases (12 months or less) and leases of low-value assets.

The effects on the statement of financial activities and balance sheet can be material:

• Gross assets and liabilities increase.
• Rent expense is replaced by depreciation on the right-of-use asset and interest on the lease liability, which front-loads the cost over the lease term.
• Reserves, net current asset positions, loan covenants and grant conditions may be affected.
• Gross assets could move a charity closer to the audit asset threshold.

Charities with property, vehicle or equipment leases should collate the key terms of every lease now, rather than at the year-end.

4. The trustees’ annual report

Alongside the accounting changes, the trustees’ annual report has been substantially revised. The emphasis has shifted from describing what a charity did to explaining what changed as a result. Key points include:

• All charities must report on their future plans.
• Tier 1 charities must summarise their main achievements and may give a simple narrative on volunteer activity. Some legal and administrative details are no longer required.
• Tier 2 charities must explain the impact of their work in more depth, with expanded reporting on objectives, performance, governance and the financial review, including investment performance where investments are material.
• Tier 3 charities must also review fundraising performance against objectives and include a new sustainability section covering environmental, social and governance matters. Sustainability reporting is optional, but encouraged, for Tiers 1 and 2.

Even where a disclosure is not mandatory for your tier, a clear narrative linking your mission, activities, results and resources will strengthen your accounts with funders and donors.

5. Other changes

• Provisions and contingencies – guidance has been simplified and clarified.
• Social investments – definitions have been aligned with the Charities Act 2011 and the accounting simplified.
• Volunteers and legacies – enhanced disclosures apply to the larger tiers.
• New modules – the SORP has been restructured, with each module opening by setting out who it applies to.

Higher audit and examination thresholds

Separately from the SORP, new financial thresholds for charities in England and Wales took effect from 1 October 2026:

• The audit income threshold rises from £1 million to £1.5 million.
• The gross assets threshold for audit rises from £3.26 million to £5 million, with the accompanying income threshold doubling from £250,000 to £500,000.
• An independent examiner must be professionally qualified only where income exceeds £500,000 (previously £250,000), aligning with the SORP Tier 1 threshold.
• Non-company charities may prepare receipts and payments accounts where income is below £500,000 (previously £250,000).

In Scotland, the audit threshold increased from £500,000 to £1 million for accounting years starting on or after 1 January 2026. Registration and annual return thresholds are unchanged.

What trustees should do now

• Confirm which tier your charity falls into and what that means for your trustees’ report.
• Review all income streams and identify contracts and grants that fall under the five-step model.
• Compile a lease register with start dates, terms, payments and break clauses.
• Model the effect on reserves, covenants and the audit thresholds.
• Update accounting policies, templates and systems, and brief trustees on the changes.
• Consider whether you still require an audit, or could move to an independent examination, under the new thresholds.

How we can help

Silverthrone works with charities on accounts preparation, independent examination and tax. If you would like help assessing the impact of SORP 2026 on your charity, please get in touch.