Charity SORP 2026 Exposure Draft Release: How to plan successfully

16 April 2025

With the Exposure Draft of the 2026 Charity Statement of Recommended Practice (SORP) now released, we look at the key proposed changes and what charities can do now to prepare.

Background

Following on from the release of the most recent iteration of FRS 102 in late 2024, the Exposure Draft of the Charity Statement of Recommended Practice (SORP) was released on 28 March 2025 for a 12-week period of consultation.

The SORP has therefore not been finalised yet. However, if it is adopted in its current form, the main impacts are outlined below.

You can find the full SORP exposure draft here.

Changes to the SORP

The changes to the new SORP will be effective from 1 January 2026 (although early adoption will be permissible in due course). December 2026 year-ends will be the first required to comply with the new requirements. Certain changes to the SORP will require retrospective implementation, so some 2025 information will be needed.

The SORP cannot override FRS 102 and aims to interpret it for the sector, so the key SORP changes are FRS 102 driven.

The SORP has dual aims:

To interpret FRS 102 for the sector; and
To promote high-quality financial reporting by charities.

For most charities in tier 2, the overall requirements will have reduced, whereas those in tiers 1 and 3 have a similar reporting burden overall but with a refocus into areas deemed to be more critical.

A summary document has been prepared to set out the scale of the changes in the Exposure Draft SORP on a section-by-section basis. It can be found here.

The headline changes to the SORP are:

1. New tiering structure

2. Trustees Report narrative reporting

3. Leases

4. Revenue

5. Other aspects

1. Tiering

The previous version of the SORP made a distinction between charities and larger charities (income above £1m unless assets exceed £3.26m) whereby larger charities were required to comply with additional disclosure requirements. The 2026 SORP now has three tiers (noting that tier 1 contains smaller charities rather the largest charities as perhaps would be expected):

Tier 1. Income not more than £500k.
Tier 2. Income not more than £15m (This is also the new income threshold for small companies).
Tier 3. Income £15m or above.

Charities will need to determine which tier they sit in and ensure they meet the requirements of that tier.

Some charities may see benefit from over-disclosure and may wish to comply with the requirements of a higher tier than that mandated.

Care should be taken with the alignment between Charity SORP tiering, Companies Act size requirements (amended for periods commencing on or after 1 January 2026 and using Balance Sheet and Employee Number metrics in addition to income levels to determine the size level) and other aspects of corporate reporting which are driven by size.

Each SORP module explains the different requirements for charities sitting in each of the three tiers.

2. Trustees Report

The requirements of the Trustees Report have altered with a greater emphasis on the narrative explanation.

These changes include impact reporting (for tiers 2 and 3), sustainability reporting (for tier 3), volunteer disclosures (for all tiers), reserves policy explanations (for all tiers) and plans for future periods (with different impact across tiers).

Additionally, there are specific requirements for certain circumstances, such as the need for tier 2 and 3 charities to set out how legacy income impacts a charity. The requirements vary by tier – as laid out on page 25 of the Exposure Draft.

3. Leases

This section is a direct result of the changes to FRS 102. The SORP intends to interpret the requirements for charity specific situations. This explains the greater level of detail in section 10B of the Exposure Draft SORP.

The SORP acknowledges that the sector has situations not commonly seen elsewhere – peppercorn rents being a frequent example.

The SORP sets out principles that charities can use to apply to their circumstances as well as exemptions covering short-term and low-value leases.

In many cases charities will see leases previously classified as operating leases now sitting as both assets and liabilities on the Balance Sheet, albeit these two figures will not always offset each other exactly.

4. Revenue

There is no distinction in requirements between the three tiers. The SORP acknowledges that charities have two broad income types – exchange transactions and non-exchange transactions (which includes donations, legacies and some grant). The previous method of considering entitlement, amount and probability is now largely redundant.

Paragraph 5.12 of the SORP includes:

“For exchange transactions, there are five steps to the income recognition model:

step one – identify the presence of a contract with a third party
step two – identify the performance obligations in the contract
step three – determine the transaction price
step four – allocate the transaction price to the performance obligations in the contract
step five – recognise income when or as the charity satisfies a performance obligation"

The SORP includes situation specific sections covering membership subscriptions and royalties.

There are scenarios where the timing of income recognition could change because of the above requirements differing from those of the previous SORP.

Paragraph 5.68 of the SORP states:

“A charity must recognise income from non-exchange transactions as follows:

transactions that do not impose specified future performance-related conditions on the recipient are recognised in income when the resources are received or receivable
transactions that do impose specified future performance-related conditions on the recipient are recognised in income only when the performance-related conditions are satisfied
when resources are received or receivable before the performance related conditions are satisfied, a liability is recognised"

The SORP includes situation specific sections covering grants and legacies.

5. Other aspects

There are numerous other areas of change mandated by the SORP which include:

The threshold beyond which a cashflow statements is mandated is now higher (tier 3 only unless a Medium or Large Company).
Total return investments and social investments have some disclosure requirement changes.
Clarification of reserves policy disclosure requirements to aid consistency of disclosure across charities (albeit no change to the policy methods available).

How can charities prepare?

The final version of the SORP is scheduled for release in October 2025 for a 1 January 2026 effective date. As such, charities will need to begin preparations without knowing the specifics of the final SORP (albeit significant further changes are not expected).

Step one: Determine the requirements of a charity of your size.

This should consider the Charity SORP size tiering, Companies Act based company size, as well as other corporate reporting requirements such as environmental reporting.

Step two: Understand the narrative disclosure changes impacting your charity and ensure the Charity proactively considers the matters to be disclosed.

Two elements – firstly, ensuring that the headline changes are understood and secondly, that the ‘devil in the detail’ aspects are identified. Some charities use the same Trustees Report structure from year to year – the new requirements provide an opportunity to efficiently make other changes at the same time to obtain the greatest benefit from the exercise.

Step three: Understand the Trial Balance changes and the financial disclosure changes in your charity’s situation and ensure that the information required to comply with the changes is available (e.g. lease agreements).

It may be beneficial to use the opportunity created by mandatory alterations to the Trial Balance and financial statements make-up to consider the overall mapping used. For example, in many cases, IT costs have historically been deemed to be an overhead, but in recent years, there may be direct IT costs of working with beneficiaries, so an assessment of support costs may highlight some reclassifications which can be made.

Step four: Understand the transition arrangements.

For some items, there is an expectation that comparatives will be adjusted, whereas for others (such as leases), there is an expectation that the impact is factored into the current year.

Step five: Understand the consequences of the changes.

For example, if your charity has borrowing with financial covenants, the new requirements could alter your financial position and your ability to meet the covenants. Early engagement with funders is encouraged. Additionally, where the year-end accounts will show different figures under the new SORP, consideration should be given to their inclusion (or otherwise) in management accounts and the impact on budgeting.

Step six: Consider the communication impact of these changes

Ensure that the Boards of Trustees are aware of the upcoming changes and any decision-making that will be required (such as adjustments to reserves policy); consider the need to communicate with lenders especially should there be an impact on covenants, and communicate with grant funders to ensure you have a full picture of their assessment process.

Step seven: Undertake a stand-back check

A charity’s financial statements must comply with the SORP but (equally importantly) should provide readers with the information they require to make decisions. This requires an understanding of who is expected to be reading the financial statements, the information they will be looking for and how they will use them to make their decisions. This may mean that over-disclosure is beneficial, either by adopting some or all of the requirements of a higher tier or by including additional information specific to your situation.

Adopting a structured approach to the conversion will allow your charity to achieve the greatest benefit from the required time investment.

What guidance is available?

The SORP-making Committee intend to provide additional guidance to support the sector, however, no conclusion has been made by the SORP Committee as to whether template financial statements will be prepared. When FRS 102 was introduced in 2015, these were helpful documents to show how accounts would look, and we encourage everyone to express their views on this matter as part of the consultation process.

Get in touch

Your usual contacts within the Forvis Mazars Social Sector team are on hand to guide you through the upcoming changes. We know that all our clients are different and will require tailored support. If your charity isn’t currently a client of Forvis Mazars, please get in touch using the button below.