Charity financial reporting changes: What trustees need to prepare for

Charity trustees and managers are facing a period of significant change, with new financial reporting requirements, evolving risks and continued pressure on funding and financial resilience.

At our recent charity seminar on 16 September, held in collaboration with Irwin Mitchell and NatWest Bank, we brought together charity leaders and advisers to look at some of these changes and, importantly, the practical steps charities should be considering now.

The seminar covered changes to charity financial reporting and disclosures, employment law, income diversification and funding strategies, making the most of reserves, and some of the key fraud risks currently affecting charities and not-for-profit organisations. These reflect the wider environment in which charities are operating and the increasing focus on governance, transparency and financial reporting. 

Preparing for SORP 2026 

A key focus for our charity team was to explain the new Charities SORP 2026, and the changes charities need to prepare for. The new SORP introduces a three-tier reporting system, with disclosure requirements increasing according to the size of the charity.  

• Tier 1 covers charities with gross income up to £500,000;  
• Tier 2 those with gross income from £500,000 up to £15 million;   
• Tier 3 those with gross income of £15 million and above.

The Trustees’ Annual Report will therefore need to reflect the appropriate reporting requirements. Tier 1 charities have simplified reporting obligations, while Tier 2 charities build on these reporting requirements with additional disclosures relating to aims and objectives, volunteers and their contribution and material legacies accrued. Tier 3 charities have the most comprehensive requirements, including enhanced disclosures around sustainability and material fundraising performance.

For all charities, the reserves reported in the Trustees’ Annual Report must match the accounts or include a reconciliation demonstrating how the reserves figure reported ties into the accounts.  Charities will need to explain the likely timing of material designated funds and committed expenditure. 

The message for trustees is to start preparing rather than waiting until the next reporting cycle. Reviewing the existing Trustees’ Annual Report now can help identify information that is missing or needs to be collated. 

Lease accounting and income recognition 

Another significant area of change is lease accounting. Under SORP 2026, most leases will need to be recognised on the balance sheet, creating a new category of right-of-use assets within tangible fixed assets alongside corresponding lease liabilities and enhanced disclosure requirements.

Charities should therefore compile a full list of operating leases and gather the relevant agreements, considering issues including break clauses and extension options, whether exemptions for low-value or short-term leases apply, and the appropriate discount rate. Charities that have leases with a peppercorn rent or a lower than market value lease, will need to account for the ‘donation’ element of these leases, which is another change to current accounting treatment.

Income recognition is changing too. Charities will need to distinguish between exchange and non-exchange transactions, with a five-step model applying to income from exchange transactions. While this does not change the total value of income recognised over the period, it may change when that income is recognised. Other SORP changes discussed included the treatment and disclosure of legacies, related parties, trustee remuneration, heritage assets and social investments. 

Changes to audit thresholds and filing 

There are changes beyond SORP for charities to consider.

From 30 September 2026, changes in England and Wales increase a number of financial thresholds. For example, the income threshold above which accounts must be independently examined rises from £25,000 to £40,000, while the income threshold for audit increases from £1 million to £1.5 million.  For charities significant gross assets the audit threshold is increasing from £3.6 million of gross assets and income of £250,000 to gross assets of £5 million and income of £500,000.

Looking further ahead, charitable companies also need to prepare for changes to Companies House filing. From 1 April 2028, accounts will need to be filed digitally using compliant software and submitted in iXBRL format, replacing paper accounts and the existing web-based filing service. 

Financial resilience and managing risk 

Alongside the accounting and reporting changes, the seminar considered the wider challenges facing the sector.

Irwin Mitchell provided an employment law update, while NatWest looked at financial resilience, including income diversification, funding strategies and how charities can make the most of their reserves and access funding opportunities. 

Our charity team also considered some of the broader risks currently facing charities. The Charity Commission’s 2026 sector risk assessment highlights areas including financial resilience, governance, safeguarding, social tensions, overseas operations, technology and cyber risk. The important point for trustees is not that every risk will apply to every organisation, but that boards consider which are relevant, understand them and ensure appropriate controls are in place.

Lucy Hammond, Charity and Not for Profit Partner at Kreston Reeves, comments: “In an already challenging environment for the sector, there is a considerable amount for charities to digest, from changes to SORP and financial reporting through to the wider funding, employment and risk environment.

“The important message for trustees and management teams, particularly with the revised SORP, is to start preparing now. Much of the information required under the new reporting requirements may already exist within the organisation, but charities need to understand what applies to them, identify any gaps and make sure they have the right processes in place.” 

More information on the revised SORP can be found here. If you have any questions please do get in touch with one of our charity specialists.