The new Charities SORP raises the bar — are your trustees ready?

The Charities SORP 2026 was published on 31 October 2025 and applies to accounting periods beginning on or after 1 January 2026. For a charity with a 31 December year end, the first set of accounts caught by the new rules will be those for the year ending 31 December 2026 — but, importantly, comparative figures need to be gathered from 1 January 2025, so for many charities the practical work has already started, whether they realise it or not.

The new SORP is aligned with the revised FRS 102 issued by the Financial Reporting Council, and trustees who treat it as a routine technical update risk being caught short. The changes are not just about ticking different boxes in the trustees' annual report; they reflect a wider shift in what regulators, funders and the public expect from charity reporting.

In short: reporting is now expected to deliver insight, not just information.

The new three-tier framework

One of the most significant structural changes is the move from two reporting tiers to three, based on gross income:

• Tier 1 — smaller charities, with the lightest reporting requirements

• Tier 2 — the "squeezed middle"

• Tier 3 — the largest charities, with the most extensive disclosures

The intention is to make reporting more proportionate — recognising that a community group should not be asked to report on the same scale as a national charity. One welcome consequence is that the income threshold for preparing a statement of cash flows has lifted significantly, so only Tier 3 charities will now be required to produce one. For many medium-sized charities in Wales, that is a genuine reduction in reporting burden.

Audit and independent examination thresholds are also being reviewed by DCMS and are expected to increase from 1 October 2026, separately from the SORP itself.

The big technical change: leases on the balance sheet

The headline technical change comes from FRS 102 and concerns lease accounting. Under the current rules, operating leases (for buildings, vehicles, photocopiers and the like) are simply expensed through the SoFA as the rent is paid. From 2026, most of those leases will need to be brought onto the balance sheet.

In practice, this means recognising a "right-of-use" asset and a corresponding lease liability for nearly every lease the charity holds. There are exemptions for short-term leases (12 months or less) and low-value leases, but they need to be applied consistently.

The implications go beyond bookkeeping. Balance sheets will get bigger, the profile of expenditure in the SoFA will change, and reported reserves and surpluses can shift even though nothing has actually changed about the charity's underlying finances. Trustees should be alive to the possibility that:

• Bank covenants or funder conditions tied to reserves, debt, or balance sheet ratios may be affected

• Free reserves calculations may need revisiting

• The narrative report will need to explain any apparent dip clearly, so that funders and donors do not misread a technical adjustment as financial mismanagement

There is also a specific point worth flagging for charities occupying premises at peppercorn or below-market rent — common in the sector. Under Module 10B of the new SORP, these arrangements are treated as non-exchange transactions rather than leases, with the fair value of the asset recognised as a donated right-of-use asset. That is a meaningful change in treatment and worth raising with your independent examiner or auditor early.

Revenue recognition: a new five-step model

The second major technical change is the introduction of a five-step model for revenue recognition under exchange transactions, broadly aligned with international standards. In simple terms, for income earned under a contract — for example certain service-level agreements with local authorities, training income, or performance-related grants — revenue will be recognised as performance obligations are met, rather than under the older "entitlement, probable, measurable" approach.

Donations, legacies and most pure grants are non-exchange transactions and are not expected to be significantly affected. However, grants with strings attached can be genuinely difficult to categorise, and getting it wrong could shift income between years and even change whether the charity crosses an audit threshold. This is an area where it is worth taking advice rather than guessing.

Stronger expectations on the trustees' annual report

Across all three tiers, the new SORP places greater emphasis on narrative reporting. Trustees are expected to provide clearer commentary on:

• Aims and objectives — what the charity is actually trying to achieve

• Achievements and performance — evidence of impact and delivery, not just activity

• Plans for the future — strategic direction

• Financial review — including reserves policy, financial resilience and going concern

Crucially, the narrative report and the financial statements now need to tell a consistent story. Where the trustees' report talks confidently about a new programme of work but the accounts show no corresponding spend, or where reserves are described as healthy while the SoFA shows a deficit, those gaps will be much harder to defend — to auditors, independent examiners, the Charity Commission and funders alike.

Why this is a trustee issue, not a finance issue

It is tempting to delegate the new requirements to the treasurer or the bookkeeper and assume the rest of the board can sign off as usual. That approach is no longer realistic.

Much of the information the new SORP calls for — impact data, beneficiary outcomes, risk management, governance arrangements, decision-making processes — sits outside the finance function entirely. Finance teams (or in many smaller charities, the bookkeeper and the treasurer between them) cannot manufacture it at year end if it has not been captured during the year.

That has two practical implications. Trustees need to engage with the reporting process actively, not just review a draft a fortnight before the trustee meeting. And the charity's systems — minute books, project records, risk registers, impact measurement, even something as simple as how reserves policy is reviewed — need to be working throughout the year, not retrofitted in October.

Proportionality is not the same as minimalism

The new SORP retains the principle of proportionality, which the new tiered framework reinforces. A community hall in the valleys will not be expected to report on the same scale as a national charity with multiple income streams.

However, proportionality is not a get-out clause. Tier 1 charities are still expected to produce reports that are clear, well-structured and meaningful to a reader. A short trustees' report can absolutely be a good trustees' report — but "short and vague" will increasingly stand out for the wrong reasons.

Practical steps to take now

If your charity has a December or March year end, the time to act is now rather than later. Three things worth doing in the next few months:

Build a lease register. List every lease the charity holds — premises, vehicles, equipment, copiers — with start dates, end dates, rent, break clauses and any peppercorn or below-market arrangements. This is the foundation for the new lease accounting and is more time-consuming than most charities expect.

Review your income streams. Identify any income that comes from contracts or performance-related grants, and flag those for review under the new five-step model. Your independent examiner or auditor can help with the categorisation.

Look at last year's trustees' report against the new tiered requirements. Identify the gaps, and decide between you what information needs to be captured during the year so that next year's report writes itself — or at least writes more easily.

How Alera can help

If you are a trustee, treasurer or charity manager and would like to talk through what Charities SORP 2026 means for your particular charity, whether that is identifying the right tier, working through the new lease accounting, restructuring the trustees' report, or strengthening the systems that sit behind it — please get in touch. We are always happy to have an initial conversation without obligation.