The challenges facing the charity sector show little sign of abating as funding pressures, rising costs and spiralling demand for services pushes many to the brink. Add to this unenviable backdrop a host of technical and regulatory changes – and it’s fair to say that navigating the intricacies of the charity landscape is not for the faint hearted.

The latest edition of the Charities Statement of Recommended Practice (SORP) is effective for accounting periods beginning on or after 1 January 2026 and introduces several changes which the sector must get to grips with.

“Although the Charities SORP 2026 was published almost a year ago, it’s really now that trustees must be considering how it affects their results and reporting for the latest accounting period,” explains Elaine Alsop, co-author of the latest edition of the Charity Treasurer’s Handbook.

The handbook offers guidance on charity finance, risk management and a host of broader charity issues to help treasurers grasp the complexities of the sector and the specifics of their responsibilities. The latest update covers the implications of Charities SORP 2026, including changes to reporting requirements and audit thresholds. Here Alsop outlines what trustees need to know.

Tiered reporting requirements

For charities preparing accruals-based accounts, the Charities SORP 2026 applies to reporting periods from 1 January 2026 and introduces three income-based reporting tiers designed to make the breadth of reporting in the annual report and accounts more proportionate:

• Tier 1: Income up to £500,000.
• Tier 2: Income between £500,000 and £15m.
• Tier 3: Income over £15m.

“Although most of the accounts under the new SORP won’t start to appear until 2027, it’s important for charities to be thinking about how the changes that have been introduced will affect them,” Alsop warns. 

The new reporting structure should not be interpreted as a relaxation of expectations. Even smaller charities are expected to produce clear, coherent and informative reports, with an increased emphasis on narrative quality.

New requirements for trustees’ annual reports

More than simply describe activities at a high level, trustees’ annual reports must tell a story that demonstrates how those activities link to outcomes, impact and long-term objectives.

“The bigger the charity is, the more you have to disclose. But with the trustees' annual report, trustees can disclose as much as they like. It's not only about the numbers, it’s the context behind them, the impacts on beneficiaries and the challenges the charity has faced and learned from,” Alsop says.

The report will, require better coordination, stronger processes and earlier preparation.

Increased reporting requirements for reserves

One of the most notable changes being introduced in the SORP 2026 is the expansion of reserves reporting requirements. There’s now an expectation for charities to go beyond stating a reserves figure and instead to explain:

• the rationale behind their reserves policy,
• how reserves are calculated, and
• how they compare to target levels. 

Trustees need to demonstrate that they understand what reserves represent and how they support financial resilience.

Impact and sustainability

The revised revised SORP places greater emphasis on demonstrating impact so that stakeholders have a better understanding not just what charities do, but what difference they make.

Similarly, the introduction of sustainability reporting for larger organisations reflects a growing focus on environmental and social responsibility. While not mandatory for all, this is likely to become an area of increasing importance.

Changes to lease accounting

Under the new SORP, most leases will now need to be recognised on the balance sheet as a right-of-use asset alongside a corresponding lease liability. Previously, many operating leases were kept off-balance sheet, with future commitments disclosed only in the notes to the accounts.

For charities with leased offices, shops, vehicles or equipment, this could result in material increases in  total assets and total liabilities. “Where a charity leases premises, for example, they'll need to look at that in greater detail,” says Alsop.

This is something that the updated Charity Treasurer’s Handbook looks at specifically. Alsop confirms: “We have a worked example of a lease in the book that is proportionate to a smaller charity, and we also discuss the added complication when a lease may include a donated element.”

Revenue recognition

The way that revenue is recognised has changed because of the new accounting regulations. Key among these are clearer distinctions between exchange and non-exchange income, aligning with updated FRS 102 rules. Alsop highlights that the technical terms used here may be unfamiliar to those involved in small charity finances.

New audit thresholds

Changes to audit thresholds are being introduced in Scotland, England and Wales.

In Scotland audit thresholds increased for accounting years starting on 1 January 2026, from £500,000 to £1m.

In England and Wales, the gross annual income threshold for a full audit will rise from £1m to £1.5m, for years ending from 30 September 2026 onwards. This will remove approximately 2,000 charities from the mandatory audit regime, the government estimates.

Meanwhile, the asset-based audit threshold (in England and Wales only) is also seeing a significant increase, rising from £3.26m to £5m. For charities caught by this asset test, the accompanying income threshold is being doubled from £250,000 to £500,000.

Independent examination

For financial years ending on or after 30 September 2026, the basic threshold at which accounts must be independently examined is also changing, from £25,000 to £40,000. This move is expected to take around 11,000 charities out of scope.

At the same time, in England and Wales, the threshold for professionally qualified independent examiners is to double from £250,000 to £500,000, to align with the new Charities SORP Tier 1 threshold. For charities also registered in Scotland or Northern Ireland, the rules are much tighter.

“It means a lot of charities will fall out of the audit regime and come into the lesser form of the independent examination,” explains Alsop. “There's a chapter on independent examination in the handbook, and that's something that ICAEW members who might be thinking of helping a charity could potentially consider, because a lot of charities need it.”

It’s also worth noting that for the smaller non-company charity, there could be the option of Receipts and Payments accounting (income under £500,000 in England and Wales, or £250,000 in Scotland and Northern Ireland). Reporting well on a Receipts and Payments basis can provide trustees and wider stakeholders with a much more understandable report and accounts.

Implications for charities

The changes introduced by SORP 2026 aim to ensure that regulation remains proportionate to a charity’s size, effectively ‘resetting’ the framework to account for years of inflationary pressure.

Alsop concedes that changes to regulation will in some case place an additional burden on charities, as the intricacies of the new rules bed in. However, the increase to thresholds has helped remove some of the pressure on the smallest charities and is to be welcomed.

ICAEW’s Charity Community has published free resources to explain how charities might be affected by the Charity SORP 2026.

Kristina Kopic, ICAEW’s Charity Sector and Volunteering Director, says: “Most people who set up a charity do it because they feel passionately about a cause. If they can find someone who's knowledgeable about charity finance and regulation and who is willing to help them out, that's incredibly important and welcome.”