The new Charities SORP: Key changes and how to prepare
The new Charities SORP has now been finalised and published (31 October), following a consultation period earlier this year. Designed to align with updates to FRS 102, the revised framework brings the most significant shift to charity reporting for several years. Charities have time to prepare, with the new SORP applying to periods beginning on or after 1 January 2026.
Below is a clear breakdown of the main updates and what they mean for your charity.
A three-tier reporting framework
One of the most notable changes is the move from two tiers to three reporting tiers, based on income:
- Tier 1: under £500,000
- Tier 2: £500,000 to £15 million
- Tier 3: above £15 million
The new thresholds align with the revised small companies’ criteria under the Companies Act.
As before, the SORP applies only to charities preparing accruals-based accounts. Unincorporated charities under £250,000 may still be able to use receipts and payments accounting if allowed by their governing document.
Income recognition: exchange vs non-exchange transactions
Income recognition is one of the most significant areas of change.
Exchange transactions
These occur where both parties receive equal value – for example, fee-paying education or service contracts. These must now be recognised using a five-step model, which includes:
- Identifying the contract (written, verbal or implied)
- Identifying performance obligations
- Determining the transaction price
- Allocating the price to performance obligations
- Recognising income when those obligations are satisfied
This shift means charities may need to revisit processes, contract reviews and internal controls.
Non-exchange transactions
These remain broadly consistent with the current SORP, but the distinction between a grant and a contract will now require closer assessment. A funder labelling something as a “grant” does not automatically make it non-exchange; the substance of the agreement is what matters.
Legacies
Legacies remain non-exchange and should be recognised when receipt is probable and measurable – typically once probate is granted, assets are confirmed, and conditions are met. In some cases, contingent assets or post-balance-sheet event disclosures may be required.
Membership income
This may now fall into either exchange or non-exchange depending on whether equal value is provided (e.g. entry to a historic building vs a newsletter or token gift).
Lease accounting: Operating leases move onto the balance sheet
Operating leases for lessees will now be recognised on the balance sheet, aligning treatment with finance leases. This means:
- A right-of-use asset is recognised
- A corresponding lease liability is recorded
- Lease payments are discounted using an appropriate interest rate (requiring judgement)
There are, however, important exemptions:
- Short-term leases (under 12 months)
- Low-value assets (requires judgement; SORP provides examples of what is not low value)
- Peppercorn or nominal-value leases
Charities electing to use exemptions must disclose this and continue narrative reporting of commitments. A helpful flow chart has been added to the final SORP to assist with determining whether a lease is in scope.
In a rare move, comparatives will not be restated, so lease disclosures may look different year-on-year during transition.
Other notable changes
Trustees’ report
Additional clarity is given on what must be included at each tier. Key updates include:
- All tiers must now explain volunteer activity and its impact.
- More detail is required on reserves.
- All charities must include sustainability/ESG reporting, with more detail for larger charities.
Cash flow statements
Only required for Tier 3 charities (unless smaller incorporated charities exceed companies-act thresholds).
Statement of financial activities
No major structural changes, but new tables support consistent presentation of support costs.
Preparing for the changes
Although implementation is still some way off, now is the time to begin planning. Recommended actions include:
- Confirm whether the SORP applies and establish your reporting tier
- Review income streams to determine whether they are exchange or non-exchange
- Assess all lease arrangements to understand balance-sheet impacts
- Update internal systems, controls and accounting policies where required
- Seek advice early from your accountant, independent examiner or auditor
Regulators including the Charity Commission, ICAEW and FRC have already produced helpful guidance, with more expected over the coming year.
If you’d like tailored guidance on how these changes may affect your charity, please contact our Not-for-Profit team for further advice.
