Changes to the SORP

Introducing changes, tiered reporting & new thresholds

In October 2025, the Charity Commission announced the most significant changes to the Statement of Recommended Practice (SORP) in recent years. Our Accounts Manager, Michael, produced a presentation for Nottingham CVS and this article captures the key messages. The change effects periods commencing on or after 1st January 2026 (meaning year ends from 31st December 2026 onwards, or earlier if a short period).

It is slightly more technical than our typical resources - the SORP is guidance for accountants - but it may provide a useful summary of the changes for trustees. Although much of the reporting and disclosures are ‘common sense’, the changes aligned FRS102 and income recognition/leases are more complex.

This article will cover:

• New tiers and reporting thresholds

• Key changes to the Trustees Annual Report

• Income recognition

• Leases

• Comparatives

New tiers

• Tier one: All charities applying accruals accounts and with a gross income of not more than​ £500,000.​

• Tier two: All charities with a gross income falling above the tier 1 threshold and with a gross income of not more than £15million.​

• Tier three: All charities with a gross income falling above the tier 2 threshold.​​

New audit and reporting thresholds

• Independent examination threshold increased from​ £25,000 to £40,000 income. Professional examiner​ requirement threshold doubled from £250,000 to £500,000 income.​

• Receipts & payments accounts eligibility threshold doubled from £250,000 to £500,000 income (for non-company charities).​

• ​Statutory audit income threshold raised from​ £1,000,000 to £1,500,000.

• Statutory audit asset threshold increased from £3.26m​ to £5m (where income exceeds £500,000).​

• Group audit requirement threshold raised from £1,00,00 to £1,500,00 aggregate group income.

• Changes scheduled to apply to accounting periods on or after 30th September 2026.

Key changes to the Trustees Annual Report

• Impact Reporting: Tier 2 and 3 charities must get​ across their message on outputs and outcomes/impact of their work and the long-term effect on both beneficiaries and society as a whole.

• ​Volunteers: All charities must disclose information on​ volunteers.

• Reserves Policy: A full explanation is now required for​ all tiers.

• Plans for Future Periods: Charities must outline plans for future periods with detail and linking to strategy and possibly risks/reserves.

• Risk reporting: More comprehensive financial risk​ descriptions required, with reference to operations and future plans.

• Legacy Income Impact: Tier 2 and 3 charities must explain how legacy income impacts their operations including how they account for and manage this income.

• ​Sustainability Reporting: Tier 3 charities are to report on sustainability, including environmental, governance, and social matters. But all are encouraged to talk about this.

Income recognition

​Income from exchange transactions​

Supplies under contract Income received is approximately equal in value to the goods or services promised by the charity to the purchaser E.G. shop sales, some grants, some memberships subscriptions, royalties.

​Income from non-exchange transactions​

The charity receives value without​ providing equal value in exchange​ E.G. donations (including both cash and in kind donations such as goods, services or facilities), legacies, some grants.

​5 step process to income recognition:

1. Identify the contract with a third​ party.​

2. Identify the performance obligations in the contract.​

3. Determine the transaction price.​

4. Allocate the transaction price to the performance obligation.​

5. Recognise income when or as the​ charity satisfies a performance obligation.

Leases

​Recognition in accounts

Under the new approach the lessee recognises, at the commencement of the lease, an asset and a liability with part of the consideration being paid to the lessor treated as a cost of financing the arrangement.​

Control

Lessee obtains control of the underlying asset if:​

1. The lessee obtains substantially all of the economic benefits from using​ the asset (through use,​ sublease etc.)​

2. The lessee has the right to direct the use of the asset.​

Recognition exemptions

• Short term leases (12 months or less).

• ​Low value assets.​ Examples include laptops, printers, small office​ furniture, photocopiers.

Comparatives

When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the reclassification is impracticable.

​When comparative amounts are reclassified, an entity shall disclose the following:​

1. the nature of the reclassification;​

2. the amount of each item or class of items that is reclassified, and;​

3. the reason for the reclassification.

​If it is impracticable to reclassify comparative amounts, an entity shall disclose the reason why.