Understanding SORP 2026 and the New Charity Accounting Thresholds – The New Era of Charity Accounting and Reporting
Executive Summary
The UK charity sector is experiencing the most significant change to financial reporting requirements in over a decade. Two major reforms are being introduced:
- Charities SORP 2026, which applies to accounting periods beginning on or after 1 January 2026.
- Updated statutory accounting, independent examination and audit thresholds, which apply to accounting years ending on or after 30 September 2026.
Together, these changes are intended to make charity reporting more proportionate, reducing administrative burdens for smaller charities while ensuring larger charities provide greater transparency and accountability.
For many charities, the changes will result in:
- Simpler reporting requirements.
- Reduced external scrutiny requirements.
- Higher thresholds before an audit becomes mandatory.
- Increased focus on impact reporting, reserves and sustainability.
- Significant changes to lease accounting and income recognition.
Trustees should begin preparing now to ensure compliance and take advantage of simplifications where available.
Why Are the Changes Being Introduced?
The previous charity reporting framework had become increasingly disconnected from the realities of the sector due to inflation and growth in charity income.
The regulators and the Charities SORP-making body have sought to:
- Reduce unnecessary compliance costs.
- Improve proportionality.
- Enhance transparency in areas of public interest.
- Align charity accounting with the latest version of FRS 102.
- Modernise Trustees’ Annual Reports.
The result is a new three-tier reporting framework and substantially increased financial thresholds.
Sources: GOV.UK guidance on charity accounting reforms and SORP 2026.
Key Effective Dates – New Era Of Charity Accounting
SORP 2026
Applies to accounting periods beginning on or after:
1 January 2026
Examples:
| Year End | First SORP 2026 Accounts |
| 31 December 2026 | Yes |
| 31 March 2027 | Yes |
| 31 August 2027 | Yes |
The critical date is the start of the accounting period, not the year-end.
New Accounting and Audit Thresholds
Apply to accounting years ending on or after:
30 September 2026
Therefore:
| Year End | New Thresholds Apply? |
| 31 August 2026 | No |
| 30 September 2026 | Yes |
| 31 December 2026 | Yes |
The Biggest Change: The New Three-Tier SORP Framework
Historically, the SORP effectively distinguished between smaller and larger charities.
SORP 2026 replaces this with a formal three-tier structure based solely on gross income.
Tier Structure
| Tier | Gross Income |
| Tier 1 | Up to £500,000 |
| Tier 2 | £500,000 to £15 million |
| Tier 3 | Above £15 million |
The requirements are cumulative.
This means:
- Tier 2 charities must comply with Tier 1 and Tier 2 requirements.
- Tier 3 charities must comply with Tier 1, Tier 2 and Tier 3 requirements.
Tier 1 Charities
Income Up To £500,000
Tier 1 represents the smallest charities preparing accruals accounts.
The objective is proportionality and simplicity.
Key Requirements
Trustees’ Annual Report must include:
- Charity purposes.
- Public benefit statement.
- Main activities.
- Main achievements.
- Financial review.
- Reserves policy.
- Future plans.
- Governance and administrative details.
Trustees must also:
- Explain impact achieved.
- Reconcile reserves to the accounts.
- Explain any deficit funds.
- Explain how the charity remains a going concern where appropriate.
What Is New?
Under previous SORP requirements many smaller charities produced relatively limited narrative reporting.
SORP 2026 introduces:
- Stronger reserves disclosures.
- More emphasis on impact reporting.
- More explanation of future plans.
- Sustainability considerations.
However the overall disclosure burden remains relatively light.
Tier 2 Charities
Income Between £500,000 And £15 Million
Tier 2 covers the majority of medium-sized UK charities.
Additional Requirements
Alongside all Tier 1 disclosures, charities must also:
Provide Activity-Based Accounts
Income and expenditure must be analysed according to activities undertaken to achieve charitable objectives.
Enhanced Financial Review
Trustees must explain:
- Principal sources of income.
- Significant financial events.
- Use of resources.
- Principal risks and uncertainties.
Risk Reporting
Trustees are expected to discuss:
- Financial risks.
- Operational risks.
- Environmental risks.
- Cyber security risks.
Investment Reporting
Where material:
- Investment policy.
- Investment selection.
- Ethical considerations.
- Social investment policies.
Legacy Income
A narrative explanation is required showing how legacies are recognised in the accounts.
Key Difference From The Old Regime
Previously many medium-sized charities faced relatively limited risk and sustainability reporting obligations.
Under SORP 2026 there is a significantly greater emphasis on:
- Financial sustainability.
- Risk management.
- Transparency of income generation.
- Legacy recognition.
Tier 3 Charities
Income Exceeding £15 Million
Tier 3 charities are the largest and most complex organisations in the sector.
They must comply with all Tier 1 and Tier 2 requirements plus enhanced disclosures.
Additional Requirements
Sustainability and ESG Reporting
Trustees must report on:
- Environmental issues.
- Social factors.
- Governance effectiveness.
Climate Reporting
Expected disclosures include:
- Climate-related risks.
- Climate-related opportunities.
- Relevant KPIs.
- Methodologies used.
Fundraising Transparency
Trustees must explain:
- Fundraising performance.
- Fundraising costs.
- Impact on net returns.
Strategic Outlook
Detailed commentary is required about:
- Future performance.
- Future financial position.
- Long-term sustainability.
Key Difference From The Old Regime
This is arguably the most significant development.
Many large charities have never been required to provide formal ESG disclosures within their SORP framework.
SORP 2026 brings charity reporting closer to modern corporate reporting expectations.
Other Significant Accounting Changes – New Era Of Charity Accounting
Lease Accounting
SORP 2026 incorporates the revised FRS 102 lease accounting model.
Many operating leases will now be recognised on the balance sheet as:
- Right-of-use assets.
- Lease liabilities.
This may significantly increase reported assets and liabilities.
Examples affected include:
- Office premises.
- Warehouses.
- Vehicles.
- Equipment leases.
Income Recognition
Income recognition guidance has been revised and aligned more closely with updated FRS 102 principles.
Trustees will need to pay careful attention to:
- Conditional grants.
- Performance-related grants.
- Contract income.
- Legacy income.
Social Investments
Requirements have been simplified and clarified.
The revised guidance better aligns reporting with the Charities Act and improves consistency in presentation.
Provisions and Contingencies
A new dedicated module is introduced.
This consolidates guidance relating to:
- Provisions.
- Commitments.
- Contingent liabilities.
- Contingent assets.
Making reporting easier to understand and apply.
New Financial Thresholds – The New era of Charity Accounting
Old Regime vs New Regime
Independent Examination
| Requirement | Current | New |
| Independent examination required | Income over £25,000 | Income over £40,000 |
Qualified Independent Examiner
| Requirement | Current | New |
| Qualified examiner required | Income over £250,000 | Income over £500,000 |
Receipts and Payments Accounts
| Requirement | Current | New |
| Non-company charities may use receipts and payments accounts | Below £250,000 | Below £500,000 |
Audit Requirement
| Requirement | Current | New |
| Income threshold | £1,000,000 | £1,500,000 |
| Asset threshold | £3,260,000 | £5,000,000 |
Group Accounts
| Requirement | Current | New |
| Consolidated group accounts | £1,000,000 | £1,500,000 |
Impact on Charities
Small Charities
Biggest benefits:
- Less regulatory burden.
- Reduced independent examination costs.
- More charities able to use receipts and payments accounting.
Medium-Sized Charities
Mixed outcome:
- Increased reporting expectations through Tier 2.
- Possible reduction in external scrutiny costs.
Large Charities
Significant new reporting obligations:
- ESG reporting.
- Sustainability reporting.
- Impact reporting.
- Enhanced risk disclosures.
What Trustees Should Do Now
- Determine Your New Tier
Review gross annual income and identify whether your charity falls into:
- Tier 1
- Tier 2
- Tier 3
- Review Trustees’ Annual Report Templates
Existing templates are likely to require substantial revision.
- Assess Audit Requirements
Some charities may no longer require statutory audit.
However trustees should consider:
- Funder expectations.
- Governance needs.
- Stakeholder confidence.
- Review Leases
Prepare for possible balance sheet recognition of lease liabilities.
- Consider Early Planning
Impact reporting, ESG disclosures and reserves reporting may require information that charities have not previously collected.
Conclusion
SORP 2026 and the revised charity law thresholds represent a fundamental reshaping of charity financial reporting.
The reforms are based on a straightforward principle: smaller charities should face less complexity, while larger charities should provide greater transparency and accountability.
For many charities, the new thresholds will reduce compliance costs and administrative burdens. However, for charities preparing accruals accounts, especially those in Tier 2 and Tier 3, the new requirements surrounding impact reporting, reserves, sustainability and risk management will require careful preparation.
Trustees who start planning now will be best placed to achieve compliance while using the new framework as an opportunity to improve stakeholder communication and strengthen governance.
Feel free to contact Millet who have substantial experience in charity reporting and charity audit. info@milletaudit.com
A good source of information is https://www.gov.uk/government/organisations/charity-commission