SORP 2026 income recognition: preparing for the new rules

This blog is part of our SORP 2026 series and builds on the tier framework discussed in the first article.

Exchange and non-exchange income

SORP 2026 requires charities to clearly distinguish between exchange and non-exchange transactions.

Exchange transactions arise where a charity provides goods or services of approximately equal value in return for income. Common examples include contracted services, training courses, membership subscriptions and charity shop sales.

For these transactions, charities must apply a five-step revenue recognition model:

identify the contract with the customer
identify the performance obligations in the contract
determine the transaction price
allocate the price to the performance obligations
recognise income as performance obligations are satisfied.

Non-exchange transactions include donations, legacies and many grants, where the charity does not provide goods or services of equal value in return.

An important change affects government grants. The accrual model previously permitted under FRS 102 is not allowed by the SORP. Charities must apply the performance model, recognising income only when entitlement exists and performance conditions are met.

Legacy income recognition broadly continues as before, but the SORP clarifies that probability and reliable measurement may change as new information becomes available, such as valuations or disputes.

The next step

Map your income streams and identify which are exchange and non-exchange transactions. This groundwork will reduce year-end adjustments and audit queries. In the next blog in the series, we explore lease accounting changes and their impact on the balance sheet.