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Two changes are landing on charity accounts at once. They start on different dates.

By Buzz Accounting · 2026-08-05

Charity finance has two significant changes running at once, and because they have different start dates and different scope, trustees keep merging them into one vague sense that "something is changing with the accounts". They are separate, and it is worth being precise about which one hits your charity and when.

Charities SORP 2026 changes how accruals accounts are prepared. It applies to accounting periods beginning on or after 1 January 2026.
New statutory thresholds in England and Wales change whether you need an audit, an independent examination, or accruals accounts at all. They apply to financial years ending on or after 30 September 2026.

For a normal twelve-month accounting period the two changes arrive together for any year end from 31 December 2026 onwards. A charity with a 31 March year end meets both in the accounts for the year ending 31 March 2027: that period began on 1 April 2026, so SORP 2026 applies, and it ends well after 30 September 2026, so the new thresholds do too.

The exception is the narrow band of year ends falling between 30 September and 30 December 2026. A charity with a 31 October 2026 year end gets the new audit and examination thresholds for that year, but its period began on 1 November 2025, so those accounts are still prepared under SORP 2019.

Change one: SORP 2026 and the three tiers

The revised SORP was published on 31 October 2025. Its most visible change is that reporting requirements are now scaled across three tiers rather than two, set purely by gross income:

Every module of the SORP now states which tiers it applies to. Tier 1 charities get a genuinely lighter set of disclosures. Cash flow statements become mandatory only for Tier 3 and for charities that do not qualify as small under FRS 102. Sustainability and impact reporting requirements bite hardest at Tier 3.

One warning about the tiers: they are set on a single year's gross income, so a charity hovering near £500,000 or £15m can move between tiers year to year. If you are within about 10% of a boundary, plan for the heavier tier rather than discovering it after the year end.

Leases come onto the balance sheet

This is the change with the largest practical effect, and it flows from the periodic review of FRS 102 rather than from the SORP itself. Most leases that were previously treated simply as rent now sit on the balance sheet as a right-of-use asset with a matching lease liability. Short leases of twelve months or less, and leases of low-value items, are exempt.

Illustratively: a charity five years into renting an office at £24,000 a year, with five years still to run, discounts the remaining payments at its incremental borrowing rate. At an illustrative 5%, that is a right-of-use asset and a lease liability of roughly £103,900 appearing on a balance sheet that previously showed neither. The charge in the statement of financial activities also changes shape, splitting into depreciation of the asset and interest on the liability instead of a flat rent line.

Nothing about the charity's cash has changed. But its balance sheet total and its liabilities have, which matters if you have loan covenants, if a funder assesses you on balance sheet strength, or if your reserves narrative compares free reserves to total liabilities. Work out the number before the year end, not after, and warn the board.

Income recognition splits in two

Income from exchange transactions — service contracts, fees, trading, anything where the funder gets something specific in return — now follows a five-step model, recognised as you satisfy your obligations rather than on a simpler entitlement test. Non-exchange income such as donations, legacies and most grants is broadly unaffected and still turns on entitlement, probability and measurement.

The practical work is telling the two apart. A restricted grant that requires a report is usually non-exchange. A local authority contract to deliver a set number of sessions at a set price usually is not. Charities with a mix of grant income and contract income should expect this to be the technical conversation of the year. Our post on restricted and unrestricted funds covers the fund-accounting side that sits alongside it.

The trustees' annual report gets harder to write badly

Several narrative elements that used to be encouraged are now required: a statement of the impact and outcomes achieved for beneficiaries, board-approved plans for the future, disclosure of the contribution volunteers make, and a reserves narrative that reconciles to the balance sheet. That last one is the sharpest. A reserves policy that says "we aim to hold three to six months of expenditure" without stating what free reserves actually are, and reconciling that figure, no longer clears the bar.

Change two: the thresholds move on 30 September 2026

Separately, secondary legislation raises the financial thresholds for charities in England and Wales, for financial years ending on or after 30 September 2026. The figures are in the table above. The audit asset test also has its accompanying income condition doubled, from £250,000 to £500,000, and the group accounts threshold rises to £1.5m.

These are England and Wales rules. Scottish charities follow OSCR's regulations and Northern Irish charities follow the Charity Commission for Northern Ireland; neither is changed by this instrument. If you are cross-border, take the stricter position.

A worked example of who this frees up

Illustratively, take a CIO running a community centre. Gross income £430,000. Gross assets £3.5m, almost all of it the building. Year end 31 March 2027.

Under the old thresholds:

Income above £250,000 — accruals accounts required, and the independent examiner must hold a recognised professional qualification.
Gross assets above £3.26m with income above £250,000 — a full statutory audit is required, despite income being well under £1m.

Under the new thresholds, for a year ending after 30 September 2026:

Income of £430,000 is below £500,000 — receipts and payments accounts become permissible, and the examiner no longer needs to be professionally qualified.
Gross assets of £3.5m are below £5m — no statutory audit.

That charity moves from audit to independent examination, which in most cases is a materially smaller fee. The government's own estimate is that the package saves the sector around £47m a year.

Being allowed to do less is not the same as being right to

Three honest caveats before anyone celebrates:

Your governing document may set its own bar. Plenty of constitutions require an audit regardless of income, and several major funders require audited accounts as a condition of grant. The statutory floor rising does not override either.
Charitable companies cannot use receipts and payments accounts at all. Company law requires accruals accounts, whatever the charity thresholds say. The relaxation on accruals is only available to unincorporated charities and CIOs.
Receipts and payments accounts fall outside the SORP. Dropping down means losing the statement of financial activities, the fund analysis and the comparability that funders and the Charity Commission are used to seeing. For a charity with restricted funds and grant reporting obligations, that is often a step backwards even when it is legal. Our comparison of independent examination versus audit sets out the trade-offs.

What trustees should do this quarter

Write down your year end and work out which change hits which set of accounts. The two dates are different and the answer is not obvious.
List every lease the charity holds with more than twelve months to run, with the annual payment and the remaining term. That list is the input to the balance sheet change.
Split your income between exchange and non-exchange. Contracts and trading on one side, grants, donations and legacies on the other.
Check your governing document for an audit requirement of its own, and check your three largest funders' grant conditions, before assuming the new thresholds reduce anything.
Look at your reserves policy and ask whether the figure in it reconciles to a number a reader can find on the balance sheet. If it does not, that is a SORP 2026 problem waiting to happen.
Tell the board now. A trustee body that hears about a £100,000 lease liability at the audit clearance meeting will not enjoy it.

Where we help

We prepare SORP accounts, handle independent examinations and set up fund accounting properly for charities and CICs — and this year that includes working out which of these two changes lands on your accounts first, and what the lease numbers do to your balance sheet before they appear on it. Our guide to charity accounts and SORP covers the framework in full. Fixed fees from £39 + VAT a month. Get started.

Quick answers

About this post

When does Charities SORP 2026 first apply to my accounts?

It applies to accounting periods beginning on or after 1 January 2026, so the first affected accounts depend entirely on your year end. A charity with a 31 December year end began a new period on 1 January 2026 and so meets SORP 2026 for the year ending 31 December 2026. A charity with a 31 March year end does not, because its period beginning 1 April 2025 predates the start date; its first SORP 2026 accounts are those for the year ending 31 March 2027. SORP 2019 governs everything before that.

What are the new SORP tiers and which one am I in?

SORP 2026 replaces the old two-tier split with three tiers set purely by gross income. Tier 1 covers charities up to £500,000, Tier 2 covers £500,001 to £15 million, and Tier 3 covers anything above £15 million. Each module of the SORP states which tiers its requirements apply to, with Tier 1 getting a genuinely lighter set of disclosures and Tier 3 carrying the heaviest, including cash flow statements and sustainability reporting. Because the test uses one year of income, charities near a boundary can move between tiers year to year.

Do charity leases really have to go on the balance sheet now?

Most of them, yes. The change flows from the periodic review of FRS 102 and is carried into SORP 2026, and it means a lease previously shown simply as rent now appears as a right-of-use asset with a matching lease liability. Leases of twelve months or less and leases of low-value items are exempt. A charity with five years left on a £24,000-a-year office lease would recognise roughly £103,900 of each at an illustrative 5% discount rate. The cash position is unchanged, but balance sheet totals and reserves narratives are not.

Which charities stop needing an audit from 30 September 2026?

For financial years ending on or after that date in England and Wales, the audit income threshold rises from £1 million to £1.5 million, and the gross assets test rises from £3.26 million to £5 million with its accompanying income condition doubling from £250,000 to £500,000. The biggest winners are asset-rich, income-modest charities that own their building: a charity with £430,000 of income and £3.5 million of assets needed a full audit before and needs only an independent examination now. Scotland and Northern Ireland are not affected.

Can we switch to receipts and payments accounts now the threshold has doubled?

Possibly, but check three things first. Charitable companies cannot use receipts and payments accounts at all, because company law requires accruals accounts regardless of the charity thresholds, so this only helps unincorporated charities and CIOs. Your own governing document may require more than the statutory minimum. And receipts and payments accounts sit outside the SORP entirely, so you lose the statement of financial activities and the fund analysis that funders and the Charity Commission expect to see. Being permitted to report less is not always wise.

What is changing in the trustees' annual report?

Several things that were previously good practice become requirements. You must state the impact and outcomes achieved for beneficiaries rather than only listing activities, set out board-approved plans for the future, disclose the contribution made by volunteers, and give a reserves narrative that reconciles to the balance sheet. The reserves point is the one most likely to catch charities out, because a policy expressed only as a target range of months of expenditure, with no stated free reserves figure that a reader can trace to the accounts, no longer meets the standard.

How is income recognition changing for grants and contracts?

The SORP now splits income in two. Exchange transactions, meaning contracts, fees and trading income where the payer receives something specific in return, follow a five-step model and are recognised as you satisfy your obligations. Non-exchange income such as donations, legacies and most grants is broadly unchanged and still recognised on entitlement, probability and measurement. The practical work is classifying your income correctly: a restricted grant requiring a report is usually non-exchange, while a local authority contract for a set number of sessions at a set price usually is not.

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