SORP 2026: What charities need to know and do now

The new SORP 2026 brings some significant changes for charities, and it’s worth starting to think about them now rather than waiting until your next set of accounts.

We asked Neal Trup, our trainer for Implementation of SORP & FRS 102, to explain some of the key changes and what charities should be doing to prepare.

So, what’s the biggest change charities need to be aware of?

One of the overarching aims of SORP 2026 is to make the trustees’ annual report and the accounts feel like one document, rather than two separate elements simply brought together.

This means there will be greater emphasis on cross-references, explanations and reconciliations between the report and the accounts. This includes areas such as reserves, legacy income and activity costs.

There are also significant changes to income recognition for contracts and to accounting for leases, particularly for property, vehicles and major equipment.

These changes mean charities will need to look beyond simply producing their annual accounts and consider how the information they report fits together as a whole.

What could charities get wrong?

SORP 2026 brings a lot of judgement into areas such as leasing and income recognition.

For example, charities may need to consider questions such as:

• Is it a grant or a contract?
• Are there separable elements within a contract?
• What is the value to the charity of a lease?

These aren’t always straightforward questions, and getting the judgement wrong could have a significant impact on reported figures.

It will therefore be important for charities to understand the assumptions they are making and, crucially, document them. Good records explaining how and why a particular accounting treatment was reached will be invaluable.

What should charities be doing now?

There is another important change that goes beyond the technical accounting requirements.

SORP 2026 represents a clear directional shift away from activity-led reporting towards outcome-focused reporting and learning.

SORP 2019 encouraged charities to describe their activities and outputs. The 2026 version asks for something more demanding: evidence of change and impact on people’s lives.

That means charities should start thinking now about what evidence they have of the difference their work makes and how they capture that information.

The sooner charities think about this and start keeping relevant data, the easier it will be when year-end reporting comes around.

It is also a good time to review your accounting policies, contracts and leases so you can identify where the new requirements may affect you.

What about smaller charities?

There will be some additional work for smaller charities around the trustees’ annual reporting requirements. However, charities with income below £500,000 (Tier 1) will have a lighter-touch approach, particularly around activity and impact reporting.

The changes to revenue recognition, and potentially even more so to leasing, could have a significant effect on the balance sheet. For some smaller charities, these could become some of the largest figures on their balance sheet.

It will be important that trustees and finance teams can explain these changes clearly to users of their accounts and to funders.

This is particularly important because changes to reported figures could potentially affect eligibility criteria for some funding.

It’s not just about the annual accounts

Perhaps the most important thing for charity finance teams and trustees to understand is that SORP 2026 isn’t just something to worry about when preparing the annual report and accounts.

The changes have implications for bookkeeping, budgets, accounting systems and management accounts, too.

Most accounting software systems, including Xero, QuickBooks and Sage, do not currently have the functionality to recognise income based on the delivery of “promises”. This means some spreadsheet workarounds may be needed.

Similarly, lease calculations may require spreadsheets and journals.

Finance teams should therefore be thinking now about how they will manage these changes in practice. This could include considering whether management accounts should be aligned more closely with SORP reporting.

For example, instead of simply budgeting and reporting on rent costs, charities may need to consider how depreciation and interest arising from leases will be reflected.

Start preparing now

SORP 2026 brings important changes, but charities don’t need to tackle everything at once.

The key is to start identifying where the changes could affect your organisation, review your contracts and leases, consider what information you’ll need to capture, and make sure your accounting policies and systems are ready.

Understanding the changes now will make implementation much easier when you reach the year end.

Want to get to grips with the changes?

Join Neal for our Implementation of SORP & FRS 102 online course. The session will help you understand the new requirements and, importantly, what they mean for your charity in practice. Sign up here for the next session on Wednesday 16 September.