ICAEW members working across the charity sector are being urged to prepare for changes to the Charities SORP announced at the end of October, which will take effect for accounting periods starting on or after 1 January 2026.

The SORP-making body, which is made up of the charity regulators across England and Wales, Scotland and Northern Ireland, says the new accounting framework incorporates a desire for simplicity and clarity for charities with the importance of transparency for donors and interested third parties.

Three-tier reporting framework

Key changes include the introduction of a three-tier reporting framework with increasing disclosure and presentation requirements for larger charities:

• Tier 1 – for charities with gross income up to £500,000 (€500,000).
• Tier 2 – for charities with gross income between £500,001- £15m (€500,001 - €15m).
• Tier 3 – for charities with gross income above £15m (€15m).

Although consultation feedback broadly supported the model, many respondents, including ICAEW, argued that the £500,000 threshold was too low. The final SORP keeps the limits unchanged.

Under the new Charities SORP 2026 the requirement to prepare a statement of cash flows is restricted to Tier 3 charities and charities that do not qualify as a “small entity” under FRS 102, meaning Tiers 1 and 2 will normally be exempt.

Fiona Condron, National Head of Charities at BDO, said: “Preparers will still need to be cognisant of the requirement to consider the relevant requirements based on the income in each year as there is no exemption akin to Companies Act thresholds, where consideration is given to two out of three criteria over consecutive years.”

Lease and income accounting

The new Charities SORP also introduces requirements for how charities should report on certain types of income and lease arrangements. Incorporating major FRS 102 changes effective for periods beginning 1 January 2026, most operating leases now appear on the balance sheet as right-of-use assets with matching liabilities. The SORP adds charity-specific guidance for low-value or “peppercorn” leases.

“It's clear that the technical aspects of lease and income accounting will present the greatest challenges for many charities. We strongly recommend that charities start planning for the changes now by ensuring that they have pulled together all the contracts and lease information and have documented the arrangements in place,” Condron added.

Trustees’ annual report

Meanwhile, requirements for the trustees’ annual report have been refreshed to emphasise transparency and impact. Charities must now:

• link the financial statements clearly to the narrative report,
• reconcile the reserves figure in the report to the accounts,
• report on the scale and nature of activities undertaken by volunteers, and
• explain the charity’s plans for the future. 

Larger charities must explain how the charity is responding to environmental, social and governance matters under a new sustainability heading within the report, and describe the principal risks and uncertainties facing the charity.

David Holdsworth, Chief Executive of the Charity Commission for England and Wales, said clear and transparent reporting is essential to maintaining public trust in charities.

“People want reassurance that their donations are being used effectively to support good causes. We hope the updated SORP helps charities achieve this by enabling them to communicate both their financial position and the impact of their work more effectively.”

Accounting threshold increase

In related changes announced by the Department for Digital, Culture, Media & Sport, the threshold for non-company charities in England and Wales to produce accruals accounts is to be doubled from £250,000 to £500,000. This change is expected to take effect from 30 September 2026 and means that more than 5,130 non-company charities in England and Wales may then opt to produce receipts and payments accounts instead. In Scotland and Northern Ireland, accruals accounts are required where the gross income is £250,000 or more.

The increase in accounting thresholds for charities is part of a package of changes that also includes changes to the thresholds for audit and independent examination, rising to £1.5m and £0.5m gross income respectively (asset threshold rising to £5m).  While the move is welcomed by Condron as helping to reduce the cost of regulation, she warned: “Many of the thresholds have remained unchanged and the range of different thresholds will still require careful consideration. Further simplification may be welcome over time.”

Daniel Chan, Partner and Charities Leader at PwC and Chair of the ICAEW Charity Committee, said: "The government's intention to increase the financial thresholds in charity law is welcome, and the wider commitments to working with the Charity Commission to support smaller charities will be important."

Navigating challenges

Richard Bray a member of the Finance Regulatory & Taxes team at Cancer Research UK, said: “It is a relief that the new Charities SORP is finally with us. But the hard work starts now! In particular, the increased complexity of income recognition and lease accounting requires additional materials and training to help charities navigate these challenges.”

Bray said the preparation of example accounts would be a vital resource for many smaller charities weighed down by accounting requirements that similar commercial entities do not have to face.

Chan said the focus now should turn to the practical application of the new SORP. “It is important for charities to assess the impact of the changes to the SORP, in addition to the revisions to FRS 102, on their particular circumstances and activities. In considering the changes to the SORP, I would encourage charities to read the SORP-making body’s basis for conclusions."

Kristina Kopic, Head of Charity and Voluntary Sector at ICAEW, said: “I welcome the publication of the Charities SORP 2026 and the revised financial thresholds for charities in England and Wales. The coordinated timing and steps to simplify certain thresholds, including the alignment of the accruals accounts threshold for non-company charities with Tier 1 in the new SORP, are positive developments.

“We’re committed to supporting our members through the transition with targeted resources on Charities SORP 2026 and training offered within our Charity Community.”

LLP SORP

Meanwhile, a new edition of the Statement of Recommended Practice – Accounting by Limited Liability Partnerships (LLP SORP) has been published, effective for periods commencing on or after 1 January 2026 (with early adoption permitted).

The 2026 LLP SORP includes amended requirements and revised guidance relating to:

• disclosures required by small entities,
• post-retirement payments to members, and
• presentation of members’ remuneration.  

One particularly noteworthy new requirement relates to the calculation of the line-item “Members’ remuneration charged as an expense” in consolidated financial statements. The SORP now requires a parent LLP to include only amounts payable to members of the parent in this line-item, rather than allowing a policy choice in this respect as had originally been proposed.