With the publication of the final Charities Statement of Recommended Practice (SORP), CFG’s Head of Policy, Richard Sagar, highlights what charities across the sector will need to be aware of before the SORP comes into effect in 2026.
There are many changes to the new SORP that charities should be aware of, so please do take advantage of CFG’s multiple free trainings on these relevant topics so you can fully understand what the new SORP means for your charity.
This overview sets out the most significant changes that have been made between the previous exposure draft and the new SORP being published, and to what extent the SORP Making Body (SMB) has taken account of the CFG’s member feedback.
Concerns with the process
While we appreciate the difficulties the SMB will have had meeting tight timescales with changes to FRS 102, there is relatively little time for charities to make the necessary preparations and adapt to the new SORP.
A better option could have been to provide an update to the relevant sections of FRS102, and then allowing more time to consider more thorny and contentious issues raised by people across the sector before issuing the new SORP.
It's also worth noting that the SMB considered all responses as equal. For instance, responses from CFG, the ICAEW, and NCVO, representing many thousands in the sector, were weighted the same as three members of the public with no demonstrable background in charity finance.
Tiering
Like much of the sector, CFG and our members were keen on the principle of tiering, i.e. having different requirements in the SORP corresponding to different income levels.
However, CFG raised concerns about the proposed levels at which tiers were set in the exposure draft, particularly the £500,000 level for entry to Tier 2 being too low. We felt that a higher level, perhaps commensurate with the audit threshold, would better serve the needs of those smaller charities. We argued that this would reduce unnecessary and burdensome reporting requirements for these smaller organisations.
Unfortunately, the SMB has retained the original tier levels. As we have previously stated, it is not clear that this approach puts ‘small charities first’.
The SMB has proposed reviewing these thresholds and consulting again with the sector. Specifically, in section B.23 of the Charities SORP 2026, the SMB says:
“The SORP-making body is committed to conducting focused consultation work in this area following publication of this SORP. This will allow greater exploration of the issues and needs which should be taken into account in making any further choices about the tiering model set out in the SORP. The valuable feedback received from the consultation on this SORP will help shape the future planned work.”
We look forward to receiving more detail on this consultation, as we will be keen to feed in our members views.
We are also disappointed that the SMB did not include a rule that the qualifying threshold must apply for two consecutive years before being applied.
With the rule, charities which fall over the £500,000 or £15m limit and move into a higher tier due to a short-term change in their financial position in one year – such as a one-off asset sale or large legacy – would have been protected from significant administrative burden, financial and time costs in preparing accounts due to one-off or rare income events.
Trustees’ Annual Report
Aside from the changes resulting from FRS 102 (Leases and Income Recognition), the section which has changed most is the Trustees’ Annual Report (TAR), with additional requirements for all Tiers.
There is a new reference to cyber risks that a charity may face in considering significant events that have affected the financial performance and financial position of the charity during the reporting period in paragraph 1.43.
Impact reporting
The SMB has listened to feedback from CFG and our members that the prompt questions to be included in the TAR are there to help trustees on what they might want to report on, not limiting them and becoming a tick box exercise.
The SMB has understood that some charities may want to go beyond the prompts included in the SORP to tell their own story of their impact. There is a helpful definition of impact included in the glossary which should support charities to meet this new requirement.
Sustainability reporting
The SMB has moved away from using the term ‘encouraged’ for Tier 1 and 2 charities, which we and our members deemed confusing as it was not in keeping with the ‘must’, ‘should’, ‘may’ criteria previously associated with the SORP, instead moving to the more familiar ‘may’.
A definition of ‘sustainability reporting’ has been added to the glossary to provide additional clarity. It is worth noting the new requirements for Tier 3 charities; for the most part, larger organisations will already be meeting the relevant requirements, so this change should not be too onerous. Alongside our members we were broadly happy with the new requirements for sustainability reporting.
Volunteers
Disclosures on volunteers, which previously appeared in the notes of Module 6, now should appear in the Trustees’ Annual Report. This requirement “extends the application of the existing requirement for larger charities to provide a narrative explanation of the scale and nature of activities undertaken by different volunteer roles to charities in all tiers.”
There is an additional requirement for Tier 2 and 3 charities to provide information on the number of volunteers and the contribution of volunteers in terms of full-time equivalent hours.
In our response to the exposure draft, CFG argued that the requirements set out were overly burdensome for smaller Tier 2 charities, as most charities we spoke to at this income level were not already collecting this information. It is disappointing that the new SORP does not reflect this reality.
Lease accounting
The SMB has listened to member feedback that the section on Lease Accounting was confusing and unclear in places, and required more guidance. As a result, 'a flow chart has been introduced into the new module to further assist users of this SORP in understanding when and how the new module applies'.
In addition, rather than adding too many examples to the SORP itself, two new helpsheets have been developed by the SMB to help charities understand these new requirements and how they apply in practice.
This module of the SORP has had some of the most significant changes, partly as a result of changes to FRS 102, and is arguably now one of the most complicated. To help charities with this topic, CFG will be holding several free webinars focused solely on the changes to lease accounting in the SORP.
Please sign up here
Income recognition (including contract income and income from legacies and grants)
The SMB has updated Module 5 of the SORP to include the new accounting requirements for revenue recognition based on the five-step model in FRS 102. The first section deals with exchange transactions (where the new five-step model applies) and section two deals with non-exchange transactions.
The SMB has listened to feedback in the consultation process and has provided more clarity on determining whether a grant is considered as an exchange or non-exchange transaction, through several examples. It will be interesting to hear from members how helpful this guidance is, in dealing with this issue.
For a detailed analysis of the new requirements for income recognition and to understand how this might affect your charity, please sign up to our free training sessions with CFG Special Advisor Pesh Framjee on this topic here.
Accounting for social investments
To align with the Charity Commission’s updated guidance on investments (CC14) the SORP has retired the terms mixed motive and programme related investments, instead replacing them with the term ‘social investment’ to cover both.
In our consultation response, CFG highlighted concerns that the way the exposure draft had been worded did not clearly provide guidance on how to account for investments that were previously classified as ‘programme related’ (and now classified as social investments under the exposure draft) and may not provide financial return. Without clarification, it would have been possible that these investments would need to be written off.
In response to the consultation response from CFG (amongst others), the wording in the exposure draft has changed to clarify that those investments currently classified as ‘programme related investments’ can continue to be carried forward as investments on a charity balance sheet.
Don’t panic, prepare!
There are plenty of other changes to be aware of, including to fund accounting, Statement of Financial Activities, donated goods, facilities and services, recognition of expenses, disclosure of trustee and staff remuneration, balance sheet, statement of cashflows, and others.
We know that there's not long to prepare, however CFG wants to reassure charities across the sector that we will be supporting organisations, large and small, by offering training and resources over the coming months. CFG is here to help you and your teams understand and implement the new SORP requirements.
We strongly urge all affected charities across the sector to engage with our free webinars in the coming weeks, and look out for future training and resources to help charities in understanding and implementing these new requirements.
Please see our full programme of SORP webinars on our Events page
Download the Charities SORP 2026