Current financial

Despite the framework being implemented since January, for trustees and finance teams, the challenge is not simply understanding the technical changes, but ensuring charities are prepared operationally and strategically.

Here are the most important changes charities should prioritise now and how early planning can reduce compliance risk while strengthening governance and stakeholder trust.

Which reporting tier applies

One of the biggest structural changes under SORP 2026 is the introduction of a new three-tier reporting framework, which reflects wider expectations around transparency. Rather than applying largely uniform requirements across the sector, the revised SORP introduces scaled reporting obligations based on gross annual income.

• Tier 1: Charities with gross income up to £500,000:
  • simplified reporting obligations,
  • can report income and expenditure by natural classification rather than by activity,
  • may apply the exemption in Section 7 of FRS 102 for small entities, which removes the requirement to prepare a statement of cash flows.

• Tier 2: Charities with gross income between £500,000 up to £15 million:
  • must adopt activity-based reporting,
  • are subject to more detailed disclosure requirements than Tier 1,
  • are generally exempt from preparing a statement of cash flows if they meet the small entity exemption under FRS 102.

• Tier 3: Charities with gross income over £15 million:
  • have the most comprehensive reporting requirements,
  • must prepare mandatory statement of cash flows,
  • must provide enhanced disclosures on impact reporting, volunteer contributions and sustainability covering environmental, governance and social matters.

Building on the previous level

Each tier builds upon the requirements of the previous level, meaning larger charities face significantly greater disclosure obligations.

Although this approach is intended to simplify reporting for smaller charities, it also means trustees must have a clear understanding of where their charity sits and how future growth could alter reporting obligations. Charities should monitor gross income closely to anticipate tier movements and avoid unexpected compliance pressures.

Changes to income recognition

Income recognition is another area where SORP 2026 introduces significant reform. The updated guidance aligns more closely with revised FRS 102 requirements and changes how charities account for grants, contracts and legacy income.

For many charities, distinguishing between grant income and contract income will become increasingly important. Charities delivering services under contractual arrangements may need to recognise income differently depending on when performance obligations are met.

Exchange transactions occur where your charity provides goods or services of approximately equal value to what it receives (e.g. contracted services, membership fees, training courses and charity shop sales). In these cases, the five-step model below applies:

1. Identify the contract with a 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 revenue when (or as) the entity satisfies a performance obligation.

Non-exchange transactions occur where resources are given without receiving equal value in return (e.g. donations, grants without service delivery obligations, and legacies).

Performance model instead

For government grants specifically, the "accrual model" permitted under FRS 102 Section 24 is not allowed by the SORP. Charities must use the performance model instead, recognising income only when entitlement and performance conditions are met.

Legacy income also remains an area of complexity. Under the revised guidance, charities will need stronger evidence and more robust internal processes to determine when legacy income can be recognised within the accounts.

These changes may require charities to revisit funding agreements, review accounting policies and improve communication between finance and fundraising teams. Without early preparation, charities risk inconsistent reporting or delays during year-end processes.

Keep an active log of all legacies and updates from executors as changes in valuations or disputes can quickly affect when and how much income you can recognise.

Leases and financial commitments

SORP 2026 introduces revised lease accounting requirements that will affect many charities, particularly those operating from leased properties or using leased equipment.

Under the updated rules, most leases will need to appear on the balance sheet, increasing visibility around financial obligations and long term liabilities. For some charities, this could significantly alter reported financial positions and key financial ratios.

This is not simply an accounting exercise. Trustees will need to understand how these changes could affect reserves, covenant compliance, future borrowing and stakeholder perceptions. Finance teams should begin reviewing lease agreements now to identify which arrangements may be impacted.

The revised SORP also includes updated guidance around provisions and contingencies, helping charities better assess commitments and liabilities. For grant-making charities with multi-year funding commitments, this area will require particular attention.

To stay one step ahead, maintain a live lease register including lease terms, renewal options and payment schedules to streamline transition and impact assessment. When leases are granted at below market rates, calculate the social donation value by comparing market rent to actual charges. This difference may be material and, when recognised as income, could impact your charity's tier classification.

Trustees’ annual reporting

The Trustees’ Annual Report is expected to become far more important under SORP 2026. Rather than acting solely as a narrative overview, it is increasingly being treated as a critical accountability document that links organisational impact directly to financial performance.

All charities will need to provide clearer commentary on aims and objectives, achievements, future plans and financial resilience. The revised guidance also places stronger emphasis on impact reporting and demonstrating how charitable activities benefit both individuals and wider society.

Tier 2 and Tier 3 charities face additional expectations around environmental, social and governance matters, including sustainability practices and governance transparency. Charities will also be encouraged to recognise volunteer contributions where measurable.

For trustees, this represents an opportunity as much as a compliance challenge. Stronger narrative reporting allows charities to communicate impact more effectively, reinforce donor confidence and demonstrate responsible stewardship of resources.

Systems, processes and governance

Many charities underestimate the operational impact of SORP changes. However, compliance is not achieved solely through updated financial statements. It depends on whether underlying systems and controls can support the new requirements.

Finance teams should review whether current accounting systems can accommodate revised income recognition rules, enhanced disclosures and lease accounting obligations. Charities may also need stronger processes for collecting non-financial information related to impact, sustainability and governance.

Trustees should consider whether internal expertise is sufficient to manage the transition. In some cases, additional training or external support may be required to ensure staff and trustees fully understand the implications of the new framework.

Using SORP as an opportunity

While much of the discussion around SORP 2026 focuses on technical accounting changes, charities should also view the reforms as an opportunity to strengthen organisational transparency and stakeholder confidence.

The sector is operating in an environment of increased scrutiny, with donors, regulators and funders placing greater emphasis on accountability, impact and sustainability. The revised SORP framework reflects this broader shift.

Charities which approach the changes strategically can use enhanced reporting to improve governance, strengthen relationships with stakeholders and better demonstrate the social value they create. In many cases, clearer reporting may also support future fundraising efforts and funding applications.

For trustees and finance teams, preparation will be critical. Reviewing accounting policies, strengthening reporting processes and understanding the wider operational implications should begin well before implementation deadlines.

Ultimately, charities which plan proactively will be best positioned to adapt successfully and demonstrate long term resilience under the new SORP framework.