17 March 2026

The new Charities Statement of Recommended Practice (“SORP”) is here! It could significantly affect your charity reports income, leases, performance, and its impact reporting. The revised SORP, aligned with the latest updates to FRS 102, aims to make charity reporting clearer, more transparent and more proportionate.

Here’s what trustees and finance teams need to know:

When does the new SORP apply?

The new SORP applies for accounting periods starting on or after 1 January 2026. Early adoption is permitted, though unlikely in practice. This means 31 December 2026 year‑ends will be the first full year to report under the new framework.

What’s changing?

1. Tiered reporting

The current “large charity” concept is gone, replaced with a new three‑tier system designed to make reporting more proportionate to the size of the charity.

The tier system is based on income levels with tier one up to £500,000, tier two from £500,001 to £15m and tier three for charities with income above £15m. The tier your charity falls in will determine the levels of disclosures required in each module of the new SORP.

2. Income recognition overhaul

The biggest change for most charities:

  • The familiar “entitlement, probability and measurement” test is replaced
  • Exchange transactions now follow a five‑step model
  • Non‑exchange income (donations, grants, legacies, gifts in kind) has clearer, more detailed guidance but won’t be caught by the new five-step model
  • Legacy income rules are clarified around probability and measurability
  • Income such as membership income must be assessed carefully to determine whether it’s donation‑based or an exchange transaction

3. Lease accounting - a major shift

All charities with qualifying leases must now recognise:

  • A right‑of‑use asset, and
  • A lease liability

This removes the distinction between operating and finance leases. Short‑term and low‑value leases may be exempt, and peppercorn leases are treated as non‑exchange transactions by the SORP.

The change may affect how a charity’s assessment against audit thresholds (covered further below), particularly for those with medium to long-term property leases as right‑of‑use assets increases gross assets.

4. Statement of Financial Activities (SOFA)

  • Activity‑based classification is retained
  • Notes must break down charitable activities more explicitly
  • Tier 1 charities may use natural classification, though many may prefer to stick with activity basis with this being more familiar from the previous SORP

What you can do now to prepare

To prepare for the lease accounting changes gather all live lease agreements for discussion with us.

Assessing your income streams may require some more in-depth work. You will need to reassess contracts and grant terms to identify exchange vs non‑exchange transactions. Specifically, for “bundled services” (e.g., training programmes), prepare to attribute the total income across each distinct service offered.

Other important updates

Trustees’ Annual Report strengthened across areas such as impact reporting, sustainability, volunteer contribution, future plans, and reserves.

Cashflow statements are no longer required for Tier 1 and Tier 2 charities. However, consider company cashflow requirements if your charity is registered with Companies House.

We’re here to help

The new SORP represents the most significant shift in charity reporting for several years. Our charity specialists can guide you through the transition - from reviewing leases and contracts to updating accounting policies and preparing trustees for the upcoming changes.

If you would like to discuss any of this article further, please contact your usual Dodd & Co adviser or email hello@doddaccountants.co.uk.