Changes to accounting regime for UK charities

Changes to accounting regime for UK charities 

Following extensive consultation and deliberation, the accounting framework for UK charities, the Statement of Recommended Practice (SORP), has been updated and will apply to accounting periods starting on or after 1 January 2026.   

The changes are significant and include a new three-tier reporting structure (based on income), enhanced requirements for the Trustees' Annual Report with mandatory impact reporting and new rules relating to lease and income recognition.  We expand on these changes below.   

Three tiers of reporting based on income

A three-tier reporting model is being introduced, based on three tiers of annual income levels.  This has been introduced with the intention of making reporting more proportionate to a charity's size.  The tiers are as follows:

• Tier 1 – Income up to £500,000.
• Tier 2 – Income between £500,000 and £15 million.
• Tier 3 – Income above £15 million.

The reporting burden on tier 1 and 2 charities will be reduced as only charities in Tier 3, or those required under FRS 102 that are not classed as small entities, will need to include a detailed cashflow statement.

New reporting requirements

Reporting requirements on areas of particular public and donor interest have been expanded with impact reporting now being mandatory for all charities.

The Trustees Annual Report must now include more comprehensive disclosures including on reserves policy, future plans and risk.  Further, the Annual Report must now report on:

How a charity is responding to and managing environmental, social and governance ('ESG') matters; and

Medium to large charities (i.e., those which fall within Tier 2 and Tier 3) must now provide a detailed narrative on how legacies are treated within the accounts.

Further, social investments, provisions and contingencies have clearer treatment, including the alignment of the definition of social investments with the Charities Act 2011 when previously the SORP had instead referred to mixed motive investments.

Threshold changes for simpler accounting

The income threshold for non-company charities to move from receipts and payments accounts to accruals accounting under the SORP will be doubled from £250,000 to £500,000.   This change means that many smaller charities will have the option to use simpler accounts.

The Government has confirmed that regulators will work with key sector bodies to support and assist with the transition to the new regime.