Non-company charities with gross income of over £250,000 during the financial year, and all charitable companies, must prepare accruals accounts that comply with the applicable Statement of Recommended Practice (SORP). 

If your charity prepares accruals accounts, you will already be aware that the new SORP applies to accounting periods beginning on or after 1 January 2026. For many charities, this represents the most significant set of reporting changes in years.

Although the SORP is an accounting document, the changes it introduces have real legal and governance implications for trustees/treasurers, making it important to understand what has changed.

A new, tiered approach to reporting

One of the headline changes is the introduction of a formal three‑tier reporting framework based solely on a charity’s annual income. Smaller charities benefit from lighter reporting requirements, while larger charities are expected to provide more detailed narratives and disclosures. The ‘one size fits all’ approach has gone.

Tier 1 applies to charities with income of up to £500,000, Tier 2 to charities with income between £500,000 and £15 million, and Tier 3 to charities with income over £15 million.

While core reporting expectations still apply across the sector, the tiered approach is intended to be proportionate, allowing charities to focus on matters genuinely relevant to their activities. Trustees should, however, be alert to the fact that moving up a tier can bring additional obligations.

Income recognition: Non-exchange income v exchange income 

The new SORP is much stricter about when a charity can recognise income. The amount of money received is no longer the key question. Instead, charities must consider what has been promised in return for income received and whether any conditions apply. The SORP distinguishes clearly between income that is freely given and income earned through delivering goods or services. 

Non‑exchange income arises where the charity doesn’t provide something of equal value in return, for example, donations. This income is to be recognised when it’s likely to be received. If funding depends on meeting specific performance conditions, income isn’t recognised until those conditions have been met.

Exchange income is different - this is earned when a charity is paid to deliver goods/services. The SORP suggests exchange income to be recognised using a five‑step model:

• Identify the contract with the third party.
• Identify the performance obligations in the contract.
• Determine the transaction price.
• Allocate the transaction price to the separate obligations in the contract
• Recognise income as each performance obligation is satisfied.

Trustees’ annual reports: More than a compliance exercise

The SORP also raises expectations for trustees’ annual reports. Impact reporting is now mandatory, requiring charities to explain what difference they have actually made to their beneficiaries and society as a whole, not just what they have spent. This can be a challenge if the impact of your charity’s activities is hard to quantify or might not be known for many years, for example, some faith-based charities.

There is increased focus on future plans, reserves and being a going concern. Trustees are expected to demonstrate active consideration of financial sustainability, reinforcing the importance of good governance and clear decision‑making.

Leases, liabilities and transparency

Changes to lease accounting mean many leases must now appear on the balance sheet, which may affect how a charity’s financial position appears. There is also clearer guidance on provisions, contingent liabilities and funding commitments — areas that can carry legal risk if not properly identified and disclosed.

What should charities be doing now?

From a legal and governance perspective, the message is simple: the new SORP expects charities to understand their obligations (especially in relation to income recognition), document their decisions and be transparent.

Trustees should ensure they understand income streams and funding conditions, review key contracts and grant agreements, engage early with advisers and treat the trustees’ annual report as a core governance document.