A new Charities SORP is on its way, what does this mean for small charities?

The Charities SORP must be followed for all charities producing accruals-based accounts with a new version being released in Autumn 2025. Trustees of charities producing accruals accounts are advised to start considering and planning for any changes now. 

Will the changes affect my charity? 

Trustees of charities with annual income over £250,000, or any charity constituted as a company, must prepare accruals-based accounts and will be affected by the new SORP. However, for trustees of small, non-company charities with income under £250,000, there is an option to prepare Receipts and Payments (R&P) accounts – a simpler cash-based alternative form of accounting. The R&P regime is not impacted by the changes to the Charities SORP, and therefore those charity trustees adopting this concession will not be affected. 

What is the Charities SORP and when will the new version be in place? 

The Charities SORP is a common set of instructions on how transactions should be accounted for, to present a true and fair view of the situation of a charity and enable accounts to be comparable between different organisations. It is based on the UK Financial Reporting Standard, FRS 102, which was revised in 2024. Since then, the SORP-making body have been considering the changes to FRS 102, how they will impact and should apply to charities, and drafting the new guidance. A consultation period for the new SORP is expected to open shortly, with a finalised Charities SORP ready for publication in Autumn 2025. It will apply to all accounting periods starting from 1 January 2026. 

What changes can we expect? 

As the SORP clarifies and interprets FRS 102 in how it should apply to charities, we can look to FRS 102 for the expected changes. Two major areas of change concern leases and revenue recognition. Currently assets subject to an operating lease are not recognised on the balance sheet. However, the new changes mean that a charity will need to both include the asset on the balance sheet and the liability for future payments. There are some exemptions for short term leases of low value items. 

The basis of recognising income from contracts with customers will need to follow a five-step model of revenue recognition. This involves identifying the goods or services pledged to the customer and the amount of income the charity receives in return. It may affect those charities receiving contract income, for example annual memberships that include multiple elements or income from performance-related grants. As this will affect when income is recognised, trustees may need to consider whether it will impact crossing the audit threshold. 

How can trustees get ready for the changes? 

Trustees should analyse and understand their current activities, what they spend money on and where the income comes from: Are there any lease agreements in place, if so make a list of all agreements, terms and conditions. Consider the different revenue streams the charity has and analyse any contracts, performance obligations, income associated with different aspects of the contract and whether they cross multiple accounting periods.  

Trustees should stay informed: The SORP microsite  is the place to visit for updates from the SORP-making body. Look out for newsletters, webinars and training events from charity finance specialist organisations. Look here.

Trustees should take advice and consider if any training is needed: Trustees may want to engage with their independent examiner or auditor to discuss and understand how the changes in the new SORP may affect their charity, and what action they may need to take. 

For trustees who are unfamiliar with the type of accounts they need to prepare, The Charity Treasurer’s Handbook is a very useful resource setting out accounting requirements for small charities and explaining the choice between the R&P and accruals/Charities SORP accounting regimes.