Charities SORP 2026: What's Changing for Charity Finance Teams

Charity finance teams have a new SORP to work through, and this one carries more substance than a routine update. The Charities SORP 2026 edition rewrites how charities account for donated leases, splits grant and donation income into two distinct accounting treatments, and restructures the reporting tiers charities sit within — all flowing from the wider FRS 102 periodic review.

Why the SORP changed

The Charities SORP sets out how UK and Irish charities apply FRS 102 in their own accounts, translating a general-purpose accounting standard into charity-specific guidance. When FRS 102 itself goes through a periodic review — as it did in the run-up to 2026 — the SORP has to be updated in step, since much of its content interprets or extends FRS 102 provisions for the sector. The Charities SORP 2026 edition is that update, and it applies for periods commencing on or after 1 January 2026.

What's actually changing

Peppercorn and below-market leases

Charities frequently receive property on a peppercorn (nominal) rent, or at below-market rates, as an effective form of donation. Under the new SORP, these arrangements get more precise treatment: a peppercorn lease is classified as a non-exchange transaction, requiring the charity to recognise the fair value of the donated right to use the asset. A below-market-value lease is treated similarly for its non-exchange component, which is recognised as part of the cost of the right-of-use asset. This closes a gap where charities previously had inconsistent approaches to valuing donated occupancy.

Exchange vs non-exchange income

The new SORP draws a sharper line between exchange transactions — where a charity provides goods or services in return for payment, such as fee income or contract income — and non-exchange transactions, such as donations and grants without performance conditions attached. Exchange transactions now follow a five-step revenue recognition model, broadly consistent with the approach used elsewhere in FRS 102. Most straightforward donation income is largely unaffected by this change, but charities with more complex funding arrangements — grants with performance conditions, service-level agreements, mixed-purpose funding — will need to work through which category each income stream falls into.

New reporting tiers

The SORP moves from a two-tier reporting structure to three tiers, based on income thresholds of £500,000 and £15 million, affecting the level of disclosure required at each size band. Charities that previously sat just inside or outside the old two-tier boundary should check which of the new three tiers they now fall into, since disclosure expectations shift at each threshold.

What charity finance teams should do now

• Review property arrangements for peppercorn or below-market rent leases and assess the fair value recognition now required
• Map income streams against the exchange/non-exchange distinction, paying particular attention to grants with performance conditions and contract income
• Confirm which of the new three reporting tiers the charity falls into under the £500,000 and £15 million thresholds, and update disclosure checklists accordingly
• Update trustees' annual reports to reflect the SORP's requirements around impact, volunteer, sustainability, reserves and legacy disclosures
• Note the updated independent examination thresholds, which take effect separately from 1 October 2026, and confirm which audit or examination regime the charity now falls under

Much of this mirrors the broader shift already underway in mainstream UK GAAP reporting — see our guide to the wider FRS 102 periodic review changes for the non-charity-specific context these SORP changes are built on.

FAQ

When does the Charities SORP 2026 edition apply from?
For accounting periods commencing on or after 1 January 2026. Charities with earlier year-ends should confirm exactly which reporting period their first application falls in.

Does this affect all charities equally?
No — smaller charities with simpler funding structures and no donated property arrangements will see less practical impact than larger charities with complex grant funding or peppercorn leases.

Is this SORP update linked to FRS 102 generally, or charity-specific?
Both — the SORP changes flow from the general FRS 102 periodic review, but several of the specific provisions (peppercorn lease treatment, the three-tier reporting structure) are charity-sector specific extensions.

Charity accounting sits at the intersection of general financial reporting standards and sector-specific guidance, which makes it an area worth dedicated CPD attention whenever a periodic review lands. Explore Learnsignal's CPD courses for the financial reporting updates finance professionals across all sectors need to stay current on.

A practical example: the community centre lease

Consider a charity operating from a building leased from a local council at £1 a year, well below market rent. Under the previous SORP, treatment of this kind of arrangement varied in practice between charities and their auditors, with some recognising nothing beyond the token rent paid and others attempting ad hoc fair value adjustments without consistent guidance. Under the 2026 SORP, the charity must now recognise the fair value of the right to use the property as a non-exchange transaction — effectively treating the below-market rent as a form of donated income, recorded consistently rather than left to individual judgement. This single change alone will materially increase both the income and expenditure recognised by charities that rely heavily on donated or subsidised premises, even though no cash actually changes hands differently than before.