New SORP – trick or treat?

We got a spooky surprise for Halloween as the next Statement of Recommended Practice (or SORP) was released on Friday, 31 October. At a truly terrifying 307 pages, it’s enough to give all but the most seasoned accounting expert the heebie jeebies.

The SORP essentially describes how charities should prepare their annual reports and accounts. It attempts to translate internationally agreed accounting rules into guidance that allows charities in the UK and Ireland to be transparent about their activity and finances. In principle it is a very important and good thing.

The ‘SORP-making body’, consisting of the charity regulators across the UK and Ireland, have been working on this version for some years, with the last update happening in 2019. Unfortunately, they only launched their public consultation on the final draft of this new version over the summer, giving precious little time to raise awareness about the changes.

As a result, from January 2026 many trustees could be in for a fright. But don’t worry, DSC is here to help settle any nerves! Read on and check out our brand new SORP training course.

New ‘tiers’ (or tears?)

The ‘treat’ in the new SORP is intended to be a new system of tiers, creating a more proportionate system of escalating requirements, where charities at increasing income levels have to provide more detailed information.

DSC set out our arguments in our consultation response in the summer, where we called for a delay in implementation for some of the reporting requirements and made clear recommendations to improve the proportionality and alignment of the draft proposals, especially for the smallest charities. Unfortunately the final version of this SORP has mostly remained unchanged from the draft, and the changes compared to the previous SORP are significant.

If your charity is very small and not required to produce accruals accounts, for example if it is not also a registered company and has income of less than £250,000, you don’t need to worry – you aren’t required to use the SORP. But all other charities need to prepare for substantial changes the next time they start to compile their annual reports and accounts.

There are many technical accounting changes in the new SORP that finance directors and auditors will need to get to grips with, but the main thing that trustees need to start thinking about now involves the new tiered system and how it affects the information they must include in their Trustees’ Annual Report. The tiers are:

• Tier 1 – charities applying accruals accounts with gross income of not more than £500,000
• Tier 2 – charities with gross income above the Tier 1 threshold but with gross income of not more than £15m
• Tier 3 – all charities with a gross income above the Tier 2 threshold (i.e. above £15m)

The SORP-making body chose not to adjust the lowest Tier 1 threshold upward, as DSC and many colleagues argued for. This would have created a more light-touch regime for the smallest organisations and could have dovetailed well with anticipated changes to other charity financial thresholds.

However, the response to the consultation exercise says “the SORP making body is committed to conducting focused consultation work following publication”. Let’s hope that some of that thinking from the expert consultation responses submitted can still be put to good use and possibly further adjustments can be made retrospectively?

Big changes to trustee reports

The new SORP substantially changes what trustees have to report on, mainly about volunteers, impact, and sustainability. The requirements become more onerous as they go up the tiers. In a nod to the consultation feedback, the SORP-making body has included some more definitions in the Glossary of the new SORP, though it’s debatable how helpful these are.

Volunteering

All charities in all the tiers will have to provide some information about volunteering in their trustee reports. This was the case previously under a different part of the accounts, and it gets more specific as you move up the tiers:

“In relation to general volunteers, charities in tiers 2 and 3 should provide information on the number of volunteers and where practicable, the contribution of volunteers may be expressed in terms of full-time equivalent hours.”

Hopefully this shouldn’t be too much of a burden, and as we’re the ‘voluntary’ sector it’s a good thing to have this kind of information in the public domain.

Impact

What constitutes a charity’s ‘impact’ can be a confusing and hotly contested topic. Of course charities should be in the business of ‘impact’ in broad terms: making a difference, delivering outcomes, etc. But the diversity of our sector defies easy categorisations, universal metrics and results that can be demonstrated on an annual basis. Impact for whom? By when? With what resources? In what circumstances? The new SORP says that:

“Charities are increasingly required to explain the impact they are making. As all charities exist to provide public benefit, it follows that they should be able to communicate the benefit provided to the beneficiaries that the charity exists to serve and support.”

That may be true, but as we explained in our response, charities are already required to report on public benefit. Why not beef that up or explain to charities how to do it better, instead of adding something new? We’ve had public benefit reporting for nearly 20 years, after it was brought in by the 2006 Charities Act. It has largely turned into a boilerplate exercise, where charities cut and paste the same statements from year to year. There’s a risk this will yield the same result – increasing the pagination of charity reports and audit costs without really increasing transparency or public knowledge.

At any rate, the new SORP has added prompts for trustees to consider in describing the charity’s impact as well as some definitions in the Glossary. It defines impact as:

“the effect or influence that a charity has on its beneficiaries and wider society” and “Impact reporting is the term used in this SORP to describe the difference a charity’s work has made to the circumstances of its beneficiaries and, if practicable, any wider benefits to society as a whole.”

All clear?

Sustainability

Finally the new SORP brings in new reporting requirements about what it calls ‘sustainability’. This will mainly affect larger charities in Tier 3, who should have the financial wherewithal to report on it. They have added definitions in the Glossary, where the new SORP says that Tier 3 charities will be “required to explain how the charity is responding and managing environmental, governance and social matters [ESG].”

This comes from regulation in the corporate sphere and it’s debatable whether and how it should apply in the same way for charities, which are already required to report much more information compared to companies of similar size. The glossary gives the following definition:

“Sustainability Reporting is the practice of disclosing performance across environmental, social and governance areas, sometimes referred to as ESG”. Trustees must “provide a summary of how the charity is responding to and managing environmental, governance and social matters.”

This might include for example KPIs around managing climate-related risks, cybersecurity or board diversity. Potentially useful information to know about, but is it appropriate? Does it happen elsewhere in charity regulation already?

Larger charities will also probably have sufficient resources and systems to report on these matters, but as we pointed out in our response, it’s not proportionate when you consider that many of our larger charities would be considered SMEs under company regulations.

Thresholds consultation

Co-terminous with the SORP consultation there has been a consultation on changing financial thresholds in charity law carried out by DCMS. This is independent of the SORP-making process but the results could have some bearing on how the SORP develops in the future. Many thresholds in the law which regulate charities were set years ago, with the result that inflation has dragged charities of comparatively smaller size into higher levels of accounting and reporting requirements over the years.

The government just released the results of the consultation and will make some substantial changes to the law following the consultation feedback. However, these will require secondary legislation and the government says these will not come into force before October 2026. These include increasing the thresholds that require charities to:

• use independent examiners – from £25,000 income to £40,000
• use independent examiners with certain qualifications – from £250,000 income to £500,000
• have an audit – from £1m to £1.5m income
• have an audit based on the value of assets – from £3.26m to £5m

The increases to the audit thresholds will be welcomed across the charity sector. Many organisations have called for increasing these because the supply of auditors exceeds demand and this change could relieve some pressure.

Don’t be afraid, get ready!

There’s a lot going on and many things are changing. DSC is here to help and we’ve got a whole training programme on SORP starting in December. Learn more and reserve your place today!