SORP 2026

A new SORP 2026 was published Autumn 2025 that applies to accounting periods ending after 1 January 2026 although early adoption is permitted if desired.

There are number of potentially significant changes applying essentially to those charities reporting under the Accruals (Income and Expenditure) regime. The accounting changes ensure that the SORP aligns with changes to the financial reporting standard FRS102. The other objective to to simplify reporting for smaller charities.

Tiered reporting framework

The proposed tier structure is as follows:-

Tier 1
Charities with a income up to £500,000 may choose to adopt either the activity basis of reporting (essentially as now) or the natural classification of expenditure.For example, expenses could be analysed by salary related costs, premises-related costs, interest expense, transport costs and grants made. Alternatively, the headings used by the charity to record expenses in it sown accounting records could be used, provided they are capable of being understood by the users of accounts.
Tier 2
Charities with income between £500,000 and £15 million are required to use the activity basis of reporting (in effect no change from the current situation) to demonstrate how the charity has used its resources to further it charitable aims for the public benefit.
Tier 3
Charities with income above £15 million must also adopt the activity basis.

Enhanced narrative reporting in the Trustees Report

Revised Income Recognition Rules

The SORP 2026 module 5 distinguishes between two broad categories of income, income from exchange transactions and income from non-exchange transactions. It is important for charities to distinguish between the two as they are recognised differently in a charities accounts.

Income from exchange transactions
Income is received by the charity for goods or services supplied under contract with third parties. The income the charity receives for the transfer of promised goods and services is an amount that reflects the consideration to which the charity expects to be entitled in exchange for those goods or services.
Income from a non-exchange transaction
Income that the charity receives as value from a donor, who may be an individual or an entity, without directly providing equal value in exchange.

Transactions must be accounted for and presented in accordance with their substance and not simply their legal form. Charities must therefore consider the substance of any conditions attached to donations or grants and of any contractual terms when determining whether income should be recognised. Similarly

This is a potentially complex area and the module 5 should be explored in more depth and the user is encouraged to take professional advice if uncertain.

Amendments to lease accounting

The SORP 2026 module 10B deals with amendments to lease accounting for all charities.

A lease is a contractual agreement between the charity and another party for the use of an asset, usually property, plant or equipment for an agreed lease term in exchange for an agreed series of payments. The party granting the lease is called the lessor and the lessor makes the lease to the party making use of the asset, the lessee.

For a charity as a lessee there is no longer a distinction between lease agreements that transfer all the risks and rewards of ownership of the asset (finance leases) and lease agreements that do not (operating leases). There is now a single accounting treatment for lessees. Under the new approach the lessee recognises, at the commencement of the lease, an asset and a liability with part of the consideration being paid to the lessor treated as a cost of financing the arrangement.

This is a complex area and the module 10B should be explored in more depth and the user is encouraged to take professional advice.