A new era for charity reporting
The charity sector is preparing for one of the most significant reporting changes in a decade. From the 1 January 2026, the new Charities SORP (Statement of Recommended Practice) comes into force, reshaping the way charities explain their financial performance, their governance and, crucially, their impact.
For small, volunteer-led charities, this may feel like another layer of overwhelming complexity. For medium and larger charities, the concern may be how to integrate new accounting rules without overloading already stretched finance teams. Yet SORP 2026 is more than just a new checklist. It represents a shift towards clearer, more meaningful storytelling and more consistent financial reporting across the whole sector.
Whether your charity turns over £50,000 or £50 million, these changes will impact you and your charity.
A more proportionate system
One of the most widely welcomed aspects of SORP 2026 is its new three-tier reporting structure, based on annual income. This replaces the "one size fits all" approach with a more realistic model:
- Tier 1: income up to £500,000.
- Tier 2: income between £500,001–£15 million.
- Tier 3: income above £15 million.
The intention here is simple – larger charities with greater public accountability will report more, while smaller charities can focus on the essentials.
For small charities, this actually means fewer technical disclosures and no requirement to prepare a cash flow statement, unless they fall outside the "small entity" definition under FRS 102. For larger charities, it means more detailed narrative reporting, including on environmental, social and governance (ESG) matters, and fuller integration between the Trustees' Annual Report and the financial statements.
Whatever your size, identifying your tier is the first step in understanding the scale of change ahead.
Narratives that matter
Whichever tier you come under, your Trustees' Annual Report becomes more central. SORP 2026 doesn't expect charities to simply recount activities. It now requires them to explain their impact, their risks, and their future plans in a way that can be understood by supporters, regulators and the public. This means reporting on:
Impact and outcomes
Impact reporting is now a must, not a nice to have, but don't panic! This doesn't mean the addition of complex social value metrics unless your charity already uses them. Put simply, charities must give a clear explanation of:
- What you set out to do.
- What actually happened.
- What changed for the people or causes you support.
For medium and large charities, this will require more structured measurement and social value metrics. For smaller ones, a simple and meaningful narrative is enough, as long as it's honest and coherent.
Reserves clarity
SORP 2026 introduces a clearer definition of reserves and requires charities to reconcile the reserves figure in the annual report to that shown in the financial statements. This means that every charity, regardless of size, will need to ensure its reserves policy is well understood, properly documented and clearly explained.
Volunteer contribution
Volunteers are the lifeblood of the charity sector, and the new SORP places greater emphasis on explaining and attributing value to their role. Larger charities should provide more detailed narrative and, where practical, volunteer numbers and estimated hours. Smaller charities simply need to demonstrate the significance of volunteer effort in a clear and informative way.
Sustainability and ESG
Under the new rules, Tier 3 charities, i.e. larger charities, will need to report on ESG under a new sustainability heading. This reflects broader societal expectations about environmental responsibility, fair employment practices and transparent governance.
Income recognition
One of the more technical areas of change relates to income recognition. The rules are now aligned more closely with the updated FRS 102, which introduces a five-step model for recognising income from exchange transactions.
Though this may sound purely academic, its purpose is practical to ensure charities recognise income at the right time, not too early or too late.
For small charities, the most important principle remains straightforward. You can only recognise income when you are entitled to it, know roughly how much it will be, and are reasonably sure you will receive it.
For medium and larger charities – those with grants, contracts, service agreements and legacies to manage – the new SORP offers clearer guidance on when income should be treated as exchange or non-exchange, and when performance obligations mean income must be spread over time.
This is an area where early preparation will pay dividends, particularly for charities with complex funding arrangements.
Lease accounting
If the new income rules sharpen practice, the updated lease accounting rules reshape it entirely and are a significant technical shift. Most operating leases will now need to be reflected on the balance sheet, showing both an asset (the right to use the leased item) and a liability (the obligation to pay for it).
This affects charities differently depending on their circumstances/tier:
- Small charities which rent village halls by the hour or operate mostly in shared spaces may be largely unaffected.
- Medium charities with office suites, vehicles or equipment leases will need to prepare for a moderate amount of additional work.
- Large charities with extensive property estates or service delivery infrastructure will face the most significant change.
The SORP includes examples and flow charts to guide charities through the process, but gathering the necessary information is the crucial first step. Compiling a simple list of all rental or lease arrangements, no matter how small, is a good starting point for charities to take.
Cash flow statements
One of the most immediate benefits for smaller charities is that only Tier 3 charities must prepare a cash flow statement. Tier 1 and 2 charities are exempt under SORP 2026, provided they meet the small entity criteria.
For larger charities, the cash flow statement remains important, particularly as lease accounting may increase the complexity of cash movements between financing and operating activities.
Practical steps for charities
While the rules might feel complex, preparing for SORP 2026 doesn't need to be. Your accountant is a crucial partner in navigating this change, and should be used as such. The most effective approach is to focus on what's relevant to your size and situation.
Across the sector, charities should take action now by:
- Confirming their tier to determine which disclosures apply and where to focus effort.
- Reviewing narrative reporting – Waiting until year-end is too late. Small charities should ask: Does our report truly explain what changed because of our work? While large charities should be asking: Is our narrative clear, consistent and linked to our financial statements?
- Mapping income sources and truly understanding grant agreements, contracts and legacies early to prevent year-end surprises.
- Creating a lease inventory – Don't overthink it. A simple spreadsheet listing rental agreements is enough to begin.
- Assessing systems and capacity – Medium and large charities may need to update finance systems; smaller charities may need to strengthen record-keeping. Know where your gaps are and what needs to change.
- Talking to examiners and auditors early – Whether your charity is examined by a volunteer independent examiner or a partner from a major audit firm, early conversations will help shape the year ahead.
Offering clarity and compliance
Regardless of size, SORP 2026 presents a moment of opportunity for the charity sector. It has long faced challenges in how to effectively demonstrate impact, accountability and financial stewardship in a way that ordinary supporters can understand.
This new SORP encourages charities to lift the lid on what they do, explain their choices and be open about their challenges. For small charities, this means telling their story confidently without being weighed down by bureaucracy. For medium and large charities, it means aligning narrative, governance and financial reporting more closely than ever before. Across the sector, it's a chance to be offer supporters and funders both clarity and compliance.
Whatever your size, your accounting partners should act as your trusted advisers every step of the way. With the right accountant charities of all sizes should feel empowered and confident that they can navigate this transition smoothly.
With the right preparation, SORP 2026 is not a burden. It can strengthen public trust, improve internal understanding and support better strategic decision-making.
