The exposure draft of the Charities SORP 2026 was published on 28 March 2025. This has been long awaited since the Financial Reporting Standard in the UK and Republic of Ireland 102 (FRS 102) was finalised a whole year previously, on 27 March 2024.
Does this affect me?
All charities registered in the UK and Republic of Ireland who prepare their accounts under the accruals basis must comply with the new Charities SORP for accounting periods beginning on or after 1 January 2026. Early adoption is permissible under certain circumstances. Charities will be required to prepare their accounts on an accruals basis if any of the following apply:
- income is greater than £250,000
- the charity is also a company registered with Companies House
- the charity’s governing document requires accounts to be prepared on an accrual basis.
Why has the SORP changed?
Periodically, the Financial Reporting Council (FRC) reviews the UK accounting standards currently in force to ensure high-quality reporting and alignment with international accounting standards. The Charities SORP guides how to apply FRS 102 to charity accounts. Regarding the hierarchy established in accounting standards, FRS 102 requirements and legal requirements take precedence over the Charities SORP. Preparers of charity accounts should always refer to the underlying FRS 102 standard in conjunction with the Charities SORP as the disclosure requirements set out in the SORP are not exhaustive.
What’s changed?
There have been several changes to the Charities SORP from the current version in force, which is the Charities SORP (FRS 102) (second edition). These have been largely driven by the changes to the underlying standard FRS 102.
The SORP does however remain very similar in its looks, and the basis of activity reporting for the majority of charities remains unchanged. So too, does the modular format of the SORP with the majority of modules retaining the same module numbers and headings as the current Charities SORP (second edition).
In this article, we take a look at what I consider to be the top 10 changes in the new Charities SORP that will have an impact:
- Scope and application
- Statement of cash flows
- Related party transactions
- Changes to lease accounting
- Provisions
- Revenue recognition
- Trustees’ annual report
- Designated funds
- Social investments
- Heritage assets
1. Scope and application
Current reporting requirements distinguish between a small charity (income < £500,000 or €500,000) and a large charity (income > £500,000 or €500,000). The Euro (€) amounts are relevant to those charities in the Republic of Ireland that apply the SORP.
New reporting requirements will see a 3-tier reporting regime, to reflect the range of sizes of charities that are present in the sector.
In April 2025, the Charity Commission for England and Wales showed that of around 170,000 registered charities, more than 156,000 of those had income of £500,000 or less. That is approximately 92% of the sector.
The reporting requirements are expected to apply as follows:
Tier 1
All charities applying accruals accounts and with gross income of not more than £500,000 (€500,000).
Tier 2
All charities with a gross income of more than £500,000 and with a gross income of not more than £15 million (€15 million).
Tier 3
All charities with a gross income of more than £15 million (€15 million).
Charities will not only be required to comply with the reporting requirements of their own tier but also the tiers below them.
Each module of the SORP begins by making it clear which reporting tiers have to comply with that module.
As a starting point, consider which tiered reporting regime your charity falls under and familiarise yourself with the expected reporting requirements.
2. Statement of cash flows
Currently, all charities with income over £500,000 are required to prepare a Statement of Cash Flows, which is one of the primary statements of the statutory accounts along with the Statement of Financial Activities and the Balance Sheet.
The new SORP only requires charities in tier 3 (those with a gross income of more than £15 million) to prepare a Statement of Cash Flows, so long as they meet the other criteria of a small entity set out in FRS 102.
This will save time for charities preparing their own accounts, especially smaller charities that may not have the expertise of a qualified accountant familiar with preparing such statements.
The Statement of Cash Flows is however, arguably, a useful piece of financial reporting as it can help to explain to the users of the accounts the ways in which a charity uses or generates its funds. Charities can choose to continue to include this Statement should they wish to.
3. Related party transactions
FRS 102 currently allows an exemption where related parties between group companies do not require disclosure. The current SORP does not prohibit the use of this disclosure exemption but the new SORP does. This will mean that from 1 January 2026, all related party transactions required under Module 9, “Disclosure of trustee and staff remuneration, related party and other transactions” require disclosure, including those between two or more members of a group.
Comparative balances for all charities are required to be disclosed, so you should make a note of any transactions between group entities as these will require disclosure.
The new SORP also explicitly states that a transaction involving a trustee or other related party should always be regarded as material, regardless of its size, unless it falls within one of the disclosure exemptions set out in Module 9. This list of disclosure exemptions in the new SORP is shorter than those set out in the current SORP.
4. Changes to lease accounting
A new Charities SORP module, 10B, sets out the requirements for lease accounting. Our Charities Outlook 2024/25 highlighted that one of the key changes of the underlying FRS 102 requires all operating leases to be brought onto the face of the Balance Sheet as right-of-use assets. This will result in an increase in tangible fixed assets and a corresponding lease liability.
There is some good news in that there are exemptions for assets that are of low value or are on a short-term lease, where charities will not be required to bring them onto the Balance Sheet. FRS 102 does not give examples of low value items and only sets out those assets that should always be accounted for as operating leases. The proposed SORP does however give charities a flavour of the types of assets that would be considered low value. These typically include personal computers, tablet devices, small items of office furniture and telephones.
Given the complexity of this area, this SORP module in the exposure draft currently runs 24 pages long and intends to give guidance on the majority of situations that charities may have, including lease payments at below a market rate and also peppercorn rents – which are not included in FRS 102.
The proposed SORP specifies that peppercorn rents are unlikely to meet the definition of a lease under FRS 102, even though they may have legal form, and therefore they will be outside the scope of the new reporting requirements. This will be welcome news for smaller charities who have these arrangements in place.
The module for lease accounting applies to all charities.
5. Provisions
One of the consequences of charities being required to bring right-of-use assets onto their Balance Sheets is that more charities will be required to bring in provisions, for example relating to dilapidations of leased property.
The SORP-making committee has recognised this and included a new module, 10A, Provisions, contingent liabilities and contingent assets and funding commitments in the new SORP.
This module will also be hugely beneficial to grant-making charities that provide multi-year commitments to their beneficiaries. The terms of these arrangements can vary from charity to charity which can make the current treatment of whether to account for them as a creditor, contingent liability, or simply a disclosure narrative complex.
This module applies fully to all charities.
6. Revenue recognition
Last year’s 2024/25 Charity Outlook also detailed the upcoming changes to revenue recognition as a result of FRS 102 being more closely aligned with international accounting standards.
The changes as a result of revenue recognition are not expected to impact charities in most of their income streams, however there are areas that are expected to be impacted such as life membership, gift aid and contracts for the provision of services.
Module 5 of the SORP, Recognition of income, including legacies, grants and contract income, is ten pages longer than the current module on income recognition. It not only goes through the new 5-step process for recognising income in detail but also clarifies the expected accounting treatment for income streams, such as membership subscriptions and income from dividends. These clarifications may mean you need to amend your accounting treatment and accounting policies in your statutory accounts.
The module for income recognition applies to all charities.
7. Trustees’ annual report
The Trustees’ annual report is a narrative account of what has happened in the charity during the financial period.
Good reporting explains what the charity is set up to do, how it is going about it and what it has achieved as a result of its work. It is often an area of a charity’s report and accounts that can be rolled forward each year by trustees but, done well, can add real value and enhance your reporting. This is an excellent opportunity to start from scratch and think about what it is you would like to get across to the users of your charity's accounts.
Large companies have been required for a few years to report on environmental matters as part of their directors’ reports. Charities are now also advised in the SORP that stakeholders increasingly want to understand how charities are responding to environmental matters and trustees may wish to consider how their trustees’ annual report could best address these expectations. A new trustees' annual report heading of ‘Sustainability’ will be included in the format for the trustees’ annual report under the new SORP. This is a requirement for all charities in tier 3, but charities in tier 1 and tier 2 are encouraged to provide a narrative as well.
Other than the above, the headings for the reporting areas of the trustees’ annual report will look familiar:
- Objectives and activities
- Achievements and performance
- Financial review
- Structure, governance and management
- Reference and administrative details
- Sustainability
- Exemptions from disclosure
- Funds held as holding trustee on behalf of others.
With the exception of ‘sustainability,’ all other report headings apply to all tiers of charities. This is a change to the current SORP as small charities do not currently have to report on their plans for future periods but will have to do so going forward.
Many charities also prepare separate impact reports. The new Charities SORP requires charities to explain the impact the charity is making as part of their ‘achievements and performance’ section and must consider the long-term effect of activities on individual beneficiaries and on society as a whole. A number of our charity clients already quote testimonials from their beneficiaries as part of their trustees’ annual report and the new SORP adds weight to the value these bring in this area of charity reporting.
8. Designated funds
For a number of years, designated funds could only be created when trustees have formally minuted their intention to create a designated fund ahead of the Balance Sheet date, as until then there is not considered to be a constructive obligation in place.
Should a large legacy be received post year-end that is required to be accounted for in the financial period, this can present reporting challenges if you wish to designate the funds for a specific purpose, as the current rules prevent designation until the following accounting period. The new SORP recognises that charities may not be in a position to designate funds until they have the year-end results, so the current ‘in year’ requirement has been removed. This also ties in nicely with the new reporting requirements of the ‘financial review’ section of the trustees’ annual report to discuss the impact any material legacies have had on financial performance.
9. Social investments
Social investments and mixed motive investments are areas that have expanded significantly since the last Charities SORP was published in 2015. The new SORP recognises this and provides more clarification on what is defined as a social investment and the differing types. The current terminology around programme-related investments is removed and replaced with the term ‘concessionary loans’, which makes the reporting clearer.
10. Heritage assets
The treatment of heritage assets is a significant change to the current Charities SORP. These changes have been made to be consistent with FRS 102.
Heritage assets are not a common area of accounting for charities as they may either not be able to attribute a value to them, or they may be held for operational purposes and so classified as a tangible asset instead.
Under the current SORP, heritage assets are not depreciated. The new SORP brings in the requirement to depreciate and consider the impairment implications for heritage assets in the same way as for operational tangible fixed assets. Trustees will therefore need to consider the useful economic lives of these assets. The new SORP does recognise that there may be assets within this class that have indefinite lives and will not be depreciated. This is an area that will require robust consideration, and trustees should make sure their thought process is documented. I would also recommend having discussions with charities with similar assets so that you can be sure your accounting treatment is comparable with other charities in similar sectors as this adds further weight to any justification.
What next?
The exposure draft of the Charities SORP 2026 is subject to a 12-week consultation period which will end in June 2025. Following this, the FRC will consider feedback with a view to publishing the final SORP towards the end of 2025.
Following the consultation feedback, there may be some minor amendments made to the Charities SORP in its current form, so it is worth ensuring that you review the final SORP once it is published.
Next steps
Our UHY charity team will be in contact with our clients ahead of the 2026 implementation date, however, please do not hesitate to contact Tracey Moore or your usual UHY charity adviser, should you wish to discuss any matters relating to the Charities SORP 2026.
Download our 2025/26 Charity and NFP Sector Outlook
This article is taken from our latest publication written by our team of charity experts and special guests. Read more about the latest Outlook and download it as a PDF here.
