New accounting rules for charities are coming: are you ready?
Julian Lomas
Any charity with annual income over £250k and all charitable companies must prepare accounts in accordance with the Charities SORP (Statement of Recommended Practice): basically it’s a big rulebook for preparing charity accounts and its going to change dramatically.
The SORP-making body has recently consulted on proposed changes to this rulebook and, despite an outcry that the new rules will be too complicated and onerous for smaller charities, it looks like the proposed new rules will anyway be implemented in 2026 with very few changes.
The new SORP is being introduced in response to updates to FRS102 (the relevant UK Financial Reporting Standard) and increased expectations around transparency and accountability. The changes are intended to make charity reporting clearer and more consistent, but it’s 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 main proposed changes are in the following areas:
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. The way income and expenditure is reported for the smallest charities will be simpler than for the rest.
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 will be required for the largest charities but will be encouraged for all.
Revenue recognition: A new five-step model derived from FRS102 will be introduced to determine when to recognise income that comes from a contract with a customer. This can get quite complicated, particularly for those of us who are not accountants!
Lease accounting: Another change from FRS102 is accounting for operating leases (including peppercorn leases) on the balance sheet with associated depreciation. This will be a huge change for many charities and could get very complicated for them.
When are the changes coming?
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, i.e. 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.
Charities will need to prepare either full comparative figures under the new rules or apply a modified approach from the date of transition.
What can you do to prepare?
First and foremost, get advice from a specialist charity accountant. If you don’t have one already, we have several associates who are qualified accountants and specialise in supporting small and medium sized charities. Get in touch and we’ll be happy to connect you with them.
Some other practical steps you can take to prepare include:
Review how your charity earns income. Group your income into donations, grants, contracts, and other sources and work out how the new rules will apply to you.
Review your contracts and leases and put together a list or database so you can assess the impact of the new rules on how you present your accounts.
Get your key people trained - not only finance staff/volunteers but also trustees and managers.
Decide how you will communicate with stakeholders - the new rules could make your accounts look very different and could lead to questions from funders and other stakeholders who may not understand what the new numbers mean.
In summary, while the new SORP should help you tell a clearer story about your financial position, there will be adverse impacts on costs (particularly for some smaller charities) due to increased complexity, and there will be some confusion during the transition period. Make sure you are ready so your 2026-27 accounts are compliant and not late.
To find out more about the governance support and training we and our associates offer, including help with charity accounting, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.