Is your charity ready for Charities SORP 2026? Five questions to ask now

The new Charities Statement of Recommended Practice (SORP) 2026 applies to accounting periods beginning on or after 1 January 2026 and introduces significant changes to charity reporting.

Key changes include revised income recognition rules, changes to the accounting treatment of operating leases and enhanced reporting expectations within the trustees’ annual report.

Although implementation may seem some way off, charities should start preparing now. Early planning can help trustees and finance teams understand the impact of the changes, identify any updates needed to systems and processes and avoid unexpected issues at the year end.

Which Charities SORP 2026 reporting tier does our charity fall into?

The new Charities SORP introduces a three-tier reporting framework that determines the disclosure requirements applying to a charity, particularly within the trustees’ annual report.

The tiers are based on gross income reported in the statement of financial activities, excluding receipts of endowment funds and gains on the revaluation of fixed assets or investments.

The three tiers are:

Tier 1: Gross income up to £500,000

Tier 2: Gross income of £500,001 to £15 million

Tier 3: Gross income above £15 million

Once you have established which tier applies to your charity, review the additional disclosure requirements. This is particularly important if your charity is moving into a higher tier under the new framework.

We can provide an easy-to-use checklist setting out the disclosure requirements for each tier.

Does our trustees’ annual report clearly communicate our impact?

The new Charities SORP places greater emphasis on impact reporting, sustainability and stakeholder engagement. Trustees are encouraged to explain not only what the charity has done, but also the difference it has made for beneficiaries.

The guidance also encourages charities to consider using statistics, case studies, testimonials and infographics to make key information more accessible and meaningful to readers.

This makes now a good time to review the trustees’ annual report as a whole. Consider whether it clearly explains your charity’s purpose, activities, achievements and future plans and whether it meets the needs of donors, beneficiaries, funders and regulators.

Reviewing the report at an upcoming board meeting can help identify opportunities to strengthen your charity’s story before the new requirements take effect.

How will lease accounting change under Charities SORP 2026?

One of the most significant accounting changes under Charities SORP 2026 is the requirement to recognise most operating leases on the balance sheet.

Charities will generally need to recognise:

• A right-of-use asset
• A corresponding lease liability

Exemptions are available for short-term leases of less than 12 months and certain low-value assets. However, leases relating to property, vehicles and equipment are likely to need to be recognised.

Now is the time to compile a complete register of leases, including lease terms and payment schedules and identify which arrangements will need to be recognised.

As these balances will generally need to be reflected from the first day of the accounting period, charities should begin calculating lease liabilities, determining appropriate discount rates and assessing the impact on the management accounts and financial reporting.

We can provide a practical spreadsheet tool to help calculate right-of-use assets and lease liabilities.

Will the new income recognition rules affect our charity?

Charities SORP 2026 introduces a new five-step model for recognising income from exchange transactions.

These arrangements arise where a charity provides goods or services in return for consideration under a contractual arrangement. Common examples include:

• Membership subscriptions
• Service level agreements
• Training and course fees
• Admission charges
• Retail sales

The five-step model requires charities to:

• Identify the contract
• Identify the performance obligations
• Determine the transaction price
• Allocate the transaction price to the performance obligations
• Recognise income as performance obligations are satisfied

Trustees and finance teams should start identifying income streams that may fall within these requirements and assess whether the timing or amount of income recognised will change.

Are our trustees and finance team prepared for the changes?

Successful implementation will depend on both trustee oversight and operational readiness.

Trustees should understand the key changes and their implications for the charity’s financial statements, reserves and reporting. Finance teams should assess the practical impact on accounting processes, systems and controls.

Now is the time to:

• Raise awareness across the organisation
• Provide training for trustees and finance staff
• Review existing accounting policies
• Identify affected leases and income streams
• Consider whether any systems or processes need updating

These topics were covered in our recent charity seminar and webinar. If you were unable to attend, you can watch the webinar recording here [insert link].

Next steps for trustees

While Charities SORP 2026 does not apply until accounting periods beginning on or after 1 January 2026, charities that start planning now will be in a much stronger position when the changes take effect.

Whether you need help understanding the new reporting requirements, reviewing income streams, calculating lease liabilities or enhancing your trustees’ annual report, our charities team can support you through the transition.

To discuss how the changes could affect your organisation, contact your usual PKF Francis Clark adviser or speak to one of our charity specialists.