SORP 2026 – what it is and how to react to it

The Charities Statement of Recommended Practice 2026 (SORP 2026) is enforced by the UK’s charity regulators: the Charity Commission for England and Wales (CCEW), the Office of the Scottish Charity Regulator (OSCR) and the Charity Commission for Northern Ireland (CCNI). It marks the most significant change to UK charity reporting in a decade. Applying to accounting periods starting on or after 1st January 2026, SORP will already be influencing financial reporting decisions as many charities prepare year‑end accounts, comparative figures and trustees’ annual reports. 

What to know  

Since SORP 2026 formally applies from 1st January, this means that: 

• Comparative figures may need adjustment or explanation 
• Accounting policies must reflect revised income and lease rules 
• Trustees’ Annual Reports must align with new narrative expectations 
• Early decisions made now will shape disclosures for years ahead 

Postponing preparations means that you risk last‑minute revisions, audit delays or avoidable governance scrutiny. 

 

What has changed?   

A New Three‑Tier Reporting Framework 

One of the most important changes introduced by SORP 2026 is a three‑tier structure based on gross income to ensure reporting is proportionate: 

• Tier 1: Income up to £500,000 
• Tier 2: £500,001 to £15 million 
• Tier 3: Over £15 million 

Higher tiers must meet all requirements of lower tiers, plus additional disclosures (see below). For many charities, this year will be the first time they formally assess and report under a tiered regime. 

 

Annual Report requirements have been enhanced  

SORP 2026 positions the trustees’ Annual Report as a strategic accountability document. The requirements for what must be included in the report are organised by tier according to the charity’s gross income (see above), but core content applies to all charities.  

 

Requirements for all tiers 

Objectives and activities 

• The charity’s purposes as set out in its governing document 
• Main activities undertaken to further those purposes 
• How trustees have considered and complied with public benefit guidance 
• Explanation of the scale and nature of activities, including the role of volunteers 

 

Achievements and performance (impact reporting) 

• A clear explanation of what the charity has achieved during the year 
• An assessment of the impact on beneficiaries and society 
• Use of qualitative and quantitative measures where appropriate 
• Explicit linkage between objectives, activities, outcomes and impact
  (Impact reporting is now mandatory for all charities under SORP 2026)  

 

Financial review 

• Overview of the charity’s financial position and performance 
• Explanation of significant income and expenditure 
• Reserves policy, including rationale and how the reserves support sustainability 
• Key financial risks and the way in which they are managed 

 

Plans for future periods 

• Summary of future aims, objectives and planned activities 
• Commentary on financial resilience, going concern and use of reserves 
• Short‑ and (for larger charities) longer‑term strategic outlook  

 

Structure, governance and management 

• Legal structure, governing document and organisational framework 
• Trustee recruitment, appointment and training 
• Key management arrangements and decision‑making processes 
• Related parties and governance risks (expanded for higher tiers)  

 

Reference and administrative details 

• Charity name, registration number, principal address 
• Trustees and senior management 
• Advisors (auditors, bankers and – where applicable – legal advisors)  

 

Key additional requirements (Tiers 2 & 3)

1. Enhanced trustees’ Annual Report

• Impact reporting: Mandatory, explicit reporting on the charity’s impact, including explaining the difference their work makes (not just activities). 
• Volunteer data: Detailed quantitative data on volunteer involvement (numbers and hours). 
• Reserves reconciliation: A clear reconciliation showing how free reserves were calculated. 
• Risk management: Detailed reporting on principal risks, specifically covering environmental and cyber security risks. 
• Future plans: Enhanced narrative requirements on strategic direction. 

 

 2. Accounting and disclosure requirements 

• Activity-based accounting: Tier 2 and 3 must use activity-based accounts (reporting by charitable activity rather than by natural classification). 
• Income recognition: New, more complex requirements for reporting income and lease arrangements (adopting new FRS 102 standards). 
• Legacy income: Mandatory explanation of how legacy income is recognised. 
• Restricted funds: Disclosure of legal powers used to amend restricted funds.

 

3. Specific additional requirements for Tier 3  

• Mandatory cash flow statement: A full, detailed cash flow statement is required for Tier 3. 
• Sustainability reporting: Mandatory reporting on environmental, social and governance (ESG) issues. 

 

 New income recognition rules 

SORP 2026 reflects changes to FRS 102, aligning income recognition more closely with a contractual, performance‑based model: 

• Exchange transactions (such as service contracts) must follow a five‑step revenue recognition model 
• Income is recognised as obligations are fulfilled, not simply when funding is received 
• Grant and donation income still uses the performance model, but with clearer guidance 

These changes may affect the timing of income recognition, particularly for contract‑heavy charities and may result in deferred income appearing on the balance sheet for the first time. 

 

Lease accounting  

Most leases must now be recognised as a right‑of‑use asset and a corresponding lease liability. Charities must also assess whether leases qualify as short‑term or low‑value exemptions and whether peppercorn or nominal leases should be treated as donated assets rather than leases. 

This may significantly affect reported assets, liabilities and key financial ratios. 

 

Any other changes?  

Additional updates include: 

• Simplified accounting for social investments 
• A new dedicated module for provisions and contingencies 
• Updated guidance on fund accounting, including disclosures when restrictions are modified 
• Removal of the cash flow statement requirement for charities under £15 million income (unless required by FRS 102) 

 

What should you be doing now?  

As reporting cycles approach throughout the year, charities should prioritise the following actions:

1. Confirm your reporting tier

Determine which tier applies based on gross income and make sure that your trustees are aware of the implications for reporting depth and disclosure. For higher tiers, the requirements are considerable and will require resources and expertise. 

 

2. Look at accounting policies and bring them up to date where necessary

Update documented policies for: 

• Income recognition 
• Lease accounting 
• Provisions and contingencies 

These policies should be approved by trustees before year‑end.

 

3. Assess income streams and contracts

Map contract and service income against the new recognition model. Identify areas where income may now need to be deferred.

 

4. Identify and reassess leases 

Draw up a complete lease register and assess whether arrangements class as leases, donated assets or qualify for exemptions.

 

5. Start the trustees’ Annual Report early

Considering the amount of information required this year, trustees will need more time than previously to: 

• Gather and present evidence of impact 
• Explain financial resilience and future plans 
• Address ESG issues (where relevant)

 

6. Brief trustees and senior leadership

SORP 2026 is not an issue only for your finance team. Trustees remain responsible for the annual report and you should make sure that they get a full and early briefing on the new expectations.

 

7. Speak to your auditor or independent examiner

Early engagement can help avoid surprises, particularly around income timing, lease valuation and narrative disclosures.