Are changes coming to SORP? Why your charity finances may need to change

The charity sector is preparing for one of the most significant financial reporting changes in a decade.  The updated Charities SORP (Statement of Recommended Practice) is now live, marking the start of a new era in charity accounting and reporting. 

Applicable to accounting periods starting on or after 1 January 2026, the new SORP will affect how charities in the UK and Ireland recognise income, account for leases and report on their financial performance and impact. 

For trustees and finance teams alike, understanding what’s changing and why, is key to ensuring a smooth transition. 

Why is SORP changing? 

SORP 2026 is being introduced to align with updates to FRS 102 and to meet increasing expectations around transparency, accountability and sustainability. These changes are designed to make charity reporting clearer, more consistent and more meaningful to funders, regulators and supporters.  

However, they will also require many organisations to rethink how they record, analyse and explain their financial results. 

What are the key proposed changes? 

Here are the key changes within the SORP to consider:  

New tiered reporting structure 

The current two-tier system for small and large charities will be replaced with three tiers: 

• Under £500,000 income 

• £500,000–£15 million income 

• Over £15 million income 

The aim is to reduce the administrative burden for smaller charities while ensuring larger organisations provide greater disclosure. 

A ‘think small first’ approach 

Smaller charities will be able to report income and expenditure by natural classification rather than by activity, simplifying the process. 

Narrative and sustainability reporting 

Trustees’ annual reports will need to provide a clearer picture of the charity’s impact, reserves and financial resilience. Sustainability reporting will be mandatory for the largest charities and encouraged for all. 

Income recognition – The five-step model 

SORP 2026 introduces a new, structured approach to recognising income from contracts in line with FRS 102 and the wider international IFRS 15 standards.  

This five-step model requires income to be recognised when the charity fulfils its performance obligations, not necessarily when the funds are received. For some, this could mean deferring income previously recognised immediately. 

Lease accounting changes 

Charities will need to bring most operating leases onto the balance sheet by recognising both a right-of-use asset and a lease liability. This will increase reported assets and liabilities and could affect audit thresholds or banking covenants. 

Cash flow statements 

Only charities that breach the small company thresholds will be required to present a statement of cash flows, meaning most charities will be exempt. 

How this could affect your charity 

These changes go beyond technical adjustments. They may influence how your charity: 

• Manages contracts and funding agreements 

• Reports income and expenditure to funders 

• Communicates financial sustainability and impact 

• Plans for long-term reserves and lease commitments 

Finance teams will need time to understand the new recognition rules and review accounting systems, while trustees should ensure they are confident in interpreting the revised financial statements. 

Preparing for SORP 2026 

Here are some steps charities can take now: 

• Review your income and leases – Understand how the new rules could affect your reporting. Group income streams into donations, grants and contracts to assess where the new recognition model applies. 

• Create a contracts and leases register – Keep up-to-date copies of all agreements so you can model future accounting impacts. 

• Update trustees and senior leaders – The new SORP affects strategy, not just finance. Ensure your board understands what’s changing. 

• Plan training and support – Consider what additional guidance your finance team or external advisers may need. 

The new SORP aims to help charities tell a clearer financial story, one that balances accountability with accessibility. However, the shift will take time, planning and collaboration between trustees, finance teams and auditors. 

How we can help 

Our team is already supporting clients to assess the likely impact of SORP 2026, from income recognition to lease accounting and narrative reporting.  

If you’d like advice on how these changes may affect your charity’s financial statements or systems, please contact Partners Hazra Patel (hazrapatel@lubbockfine.co.uk) and Lee Facey (leefacey@lubbockfine.co.uk)