The exposure draft of the updated Charities SORP is now open for consultation until 20 June 2025. This is the most significant change to charity accounting in a decade, and it is important for all charities in the UK and Ireland preparing accruals accounts to take note.

For a detailed look at the changes, watch our three recent webinars:

• An Introduction to the New SORP
• Revenue Recognition
• Key Changes to Lease Accounting for Charities

All three are available to watch on request and offer practical examples and technical guidance for finance and leadership teams.

This blog post brings together the key headlines from those webinars to help you prepare and explains how you can take part in the consultation.

Why is the SORP changing?

SORP 2026 is being introduced in response to updates to FRS 102 and growing expectations around transparency and accountability. It includes changes designed to make charity reporting clearer and more consistent.

The new SORP is not just about layout or terminology. It will affect how you report income, explain your impact, and meet the expectations of funders, regulators, trustees and supporters.

What are the main changes?

The exposure draft includes a number of important updates:

• Tiered reporting requirements: the current two tiers of smaller and larger charities will be replaced by three tiers: those with income below £500k, those with income between £500k and £15m, and those above £15m income.
• Think small first: the ambition of the new SORP is to reduce the burden for smaller charities. The smallest tier of charities can reporting their income and expenditure by natural classification rather than by activity and have the least reporting requirements.
• Narrative reporting: The trustees’ annual report will be expected to give a clearer explanation of a charity’s impact, reserves and financial resilience. Sustainability reporting is a must for the largest charities but encouraged for all.
• Revenue recognition: A new five-step model will be introduced to determine when to recognise  income that comes from a contract with a customer. The requirements come through from FRS102 but the SORP sets out to explain them for charities.
• Lease accounting: Another change coming through from FRS102 is accounting for operating leases on the balance sheet. This will require charities to recognise a right of use asset and a lease liability. The SORP sets out how a charity should adopt this and explains some charity specific scenarios such as peppercorn leases and leases set at below market value.
• Statement of cash flows: This is only required of charities who breach the small company thresholds, so two of three of income over £15m, gross assets over £7.5m and 50 staff. This means most charities will not have to present the cash flow statement.

What is the new revenue recognition model?

This is one of the most important and complex changes in SORP 2026. Section 23 of FRS 102 introduces a new approach to recognising income from contracts with customers.

This is based on five key steps:

1. Identify the contract with a customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the price to the obligations
5. Recognise revenue when the obligations are fulfilled

In practice, this means that income should only be recognised when your charity delivers the promised goods or services. Therefore, your charity may need to defer income that you previously recorded straight away.

What are the changes to lease accounting?

This is another significant change under SORP 2026 and primarily affects lessees, with very few changes for lessors.

Charities will now need to bring any significant operating leases for assets such as land and property, vehicles and equipment onto the balance sheet.

This means recognising both:

• A right of use asset, and
• A corresponding lease liability.

This will increase the value of your assets, which could impact audit thresholds, and your liabilities, which may have implications for banking or loan covenants.

The value of the asset and liability is based on a calculation that discounts future lease payments to their present cash value. These calculations can be complex, so if this change applies to your charity, you will need to allocate dedicated resource to understanding the requirements and preparing the figures.

When will these changes apply?

The final version of the new SORP is expected later this year. It will apply to accounting periods starting on or after 1 January 2026.

That means:

• The first accounts prepared under the new SORP will be those for the year to 31 December 2026.
• If your charity has a March year end, the new rules will apply from your 2026–2027 financial year.
• You will need to prepare either full comparative figures under the new rules or apply a modified approach from the date of transition.
• Now is the time to review your income streams and contracts so that you are ready.

What should you do now?

Here are some practical next steps:

• Respond to the consultation
  The consultation is open until 20 June 2025. This is your chance to comment on the proposals, highlight any concerns, or support the changes. You can respond at charitysorp.org
• Review your income types
  Start looking at how your charity earns income. Group income into donations, grants, contracts, and other sources so you can assess how the new rules will apply.
• Create a database of contracts and leases
• Prepare for any review work you will need to do by ensuring that you have a copy of all current contracts and leases, including any modifications or other changes that have been later agreed formally or via email.
• Update your trustees and senior team
  These changes affect more than just finance staff. Make sure your board and leadership are aware of what is coming and how it might impact your reporting.
• Plan for training and support
  Consider what guidance your team will need. This might include training on the new revenue model or support with changes to your financial systems.
• Stay informed
  We will continue to share insights, examples and practical tools to support charities as they prepare for SORP 2026.

In summary

The new SORP will help charities tell a clearer financial story and improve consistency across the sector, but it will also require time, planning and careful implementation.

Whether you are a small organisation or a large charity, it is important to get involved with the consultation, review how the changes will affect you, and start preparing early. If you would like advice or support with the changes ahead, our team is here to help.