SORP: where are we now?

The 31 October 2025 was a day of major announcements for the charity sector:

• The final version of the Statement of Recommended Practice applicable to charities preparing their accounts in accordance with the Financial Reporting Standard applicable in the UK and Republic of Ireland (Charities SORP 2026) was issued; 
• The Department of Culture, Media and Sport published changes to charity financial thresholds in England and Wales; and 
• The refreshed Charity Governance Code was published.

The SORP

The Charities SORP-making body have issued a summary-of-key-changes which sets out the nature of changes to each SORP module. Like FRS 102, the Charities SORP 2026 is effective for accounting periods beginning on or after 1 January 2026.

The new SORP sets out a new tier system with the disclosure requirements increasing depending on the size of your charity:

• Tier 1 – charities with income up to £500,000 
• Tier 2 – charities with income from £500,000 up to £15,000,000 
• Tier 3 – charities with income from £15,000,000

Tier 1 reporting is applicable to all charities; tier 2 charities have extra disclosures to cover and then for tier 3 charities another layer of requirements is added.

The tiering is particularly relevant for the Trustees’ Annual Report section which introduces new and enhanced disclosures and where these are relevant for all tiers, further details are required by those in higher tiers. Updated requirements include:

• Explanation of the nature and scale of volunteer activity;  
• Linking the review of activities to the analysis of expenditure in the Statement of Financial Activities (SOFA);  
• Explaining the impact of material legacy accrued income;  
• Commentary on the impact of activities on beneficiaries and wider society; 
• A reconciliation of net funds to free reserves; and 
• Consideration of principal risks to include environmental and cyber risks (tier 2 and 3). 

The Charities SORP 2026 was relatively light in relation to sustainability. Those charities in tiers 1 and 2 may choose to include a narrative about how their charity is responding to and managing environmental, governance and social matters. Those in tier 3 must provide a summary of how their charity is responding to and managing these matters. Our ESG advisor, Dan Firmager, has written an article on how we can help here.

Away from the changes to the Trustees annual report, other key points to note are as follows:

• Income recognition – updated to comply with the amended FRS 102, the guidance clearly distinguishes between exchange transactions (which will use the 5-step model) and non-exchange transactions (e.g. legacies and donations which will not) and provides guidance on how to classify different types of grant income between these categories; 
• Lease accounting – guidance on how to apply the FRS 102 revisions including for social donation leases at below market value; 
• Disclosure of trustee and staff remuneration and related party transactions – this includes clarification of requirements which were often incorrectly disclosed; 
• Events after the balance sheet date – includes examples relevant to legacies; 
• Statement of cash flows – in general, only Tier 3 charities are now required to prepare, but Tier 1 and 2 charities may be required where they do not meet the definition of a small charity under FRS 102; and 
• A number of other changes that will apply to some or all tiers.

These amendments represent significant change, and they will need to be considered in advance of their application.

We are planning a series of webinars, live and pre-recorded, to help you through the changes. Please do look out for these in the New Year.

Changes to financial thresholds in England and Wales

The gross annual income threshold for statutory audit will rise from £1 million to £1.5 million, which largely reflects compounded inflation since 2015 when the threshold was last increased. Alongside this, the asset test for audit has also been adjusted to income over £500,000 (currently over £250,000) and assets over £5 million (currently £3.26 million).

This has meant that the independent examination thresholds have also been reviewed; the income level for these will be increased from £25,000 to £40,000. However, the threshold for annual reports and accounts to be submitted to the Charity Commission has not been increased from £25,000.

In addition to these changes, receipts and payments accounting option has been extended to charities with income up to £500,000 (currently £250,000). This links these charities with the tier 1 reporting requirements.

Linked to these changes are the requirements for independent examinations to be carried out by an individual holding certain professional qualifications. Currently for charities with income over £250,000, the independent examination must be carried out by an individual with certain professional qualifications; this income level is also increasing to £500,000.

These changes are intended to come into force on or after 1 October 2026.

Charity Governance Code

The 2025 Code has 8 principles compared to the previous code that had 7:

• Foundation (new)  
• Organisational purpose 
• Leadership 
• Ethics and culture (which replaces Integrity and merges Openness and Accountability) 
• Decision making (used to be Decision-making, Risk & Control) 
• Managing resources and risks (used to be Decision-making, Risk & Control) 
• Equity, diversity and inclusion  
• Board effectiveness

The new Code puts more emphasis on board behaviours and cultures and highlights how ethics, decision-making and inclusion support strong governance. The new Code remains voluntary; but it provides the principles for charities and their boards to meet good governance standards.

Finally, there is also a new Code of Fundraising Practice applicable from 1st November 2025. The changes are explained in our article on this here.

There are a lot of changes on the horizon and whilst the aim of the changes to the financial thresholds are aiming to reduce the burden on smaller charities, there is a lot to navigate. Our team are happy to discuss how these changes affect your reporting.