Charity regulation is going through a major refresh. With updates to the Charities Act and a completely revised Statement of Recommended Practice (SORP) now confirmed, charity leaders and finance teams are looking at the biggest shift in governance and reporting requirements we’ve seen in more than a decade.

These changes apply to accounting periods starting on or after 1 January 2026, and they’ll influence everything from how income is recognised to when an audit is required. They’re designed to modernise the sector - but they also mean organisations will need a bit of time and planning to get ready.

To help you navigate what’s ahead, we’ve pulled together a clear breakdown of the key updates and what they might mean for your organisation.

A refreshed framework for charity law

Recent updates to the Charities Act introduce a range of new measures affecting compliance and transparency. These include strengthened rules on tainted donations, updated guidance on charitable investments, and changes to how trustee and director information is handled and published.

All of these reforms aim to modernise governance, improve consistency, and ensure the sector continues to meet evolving anti-fraud and accountability expectations.

Key updates to Charities SORP 2026

The revised SORP introduces several notable developments that will impact how charities prepare their accounts:

1. A New Three-Tier Reporting Structure

Reporting expectations will now scale with income and organisational complexity.

• Only charities with income above £15 million will need to prepare a full cash flow statement.
• Charities between £500,000 and £15 million will see reduced disclosure requirements.
• Smaller charities will benefit from simpler reporting obligations overall.

2. Clearer guidance on income recognition

SORP 2026 places greater emphasis on distinguishing between exchange and non-exchange transactions.
A new five-step model determines when and how income should be recognised, particularly important for charities with diverse or innovative fundraising activities.

3. Recognition of ‘Right of Use Assets’

All non-exempt leases must now be recognised as Right of Use assets, aligning charity reporting more closely with wider accounting standards.

4. Greater alignment with revised FRS 102

The updated SORP brings charity reporting in line with the latest version of FRS 102, with added focus on:

• Modern income streams
• Performance obligations
• Donated goods and services

5. Expanded Trustees’ Annual Report requirements

Trustees will need to provide more robust narrative reporting, with clearer explanations of achievements, activities, and organisational risks.

What this means for Charity Accounting

The operational impact will vary depending on your charity’s size and structure:

• Smaller charities will see a lighter administrative load thanks to proportionate reporting requirements.
• Medium and large charities should expect additional disclosures, more detailed activity analysis, and greater scrutiny of income categorisation.
• The new five-step income recognition model may require new internal processes, especially for organisations with complex grant, contract, or fundraising arrangements.
• Alignment with revised FRS 102 means finance teams may need updated systems and training.
• Trustees and report preparers will need to strengthen strategic and risk-related narrative reporting in a bid to enhance transparency. 

With the 1st January 2026 implementation date on the horizon, it’s worth getting ahead now. Taking a little time to spot any gaps early will make it much easier to put new systems and training in place before the first affected reporting period arrives.

The Charities Act 2025: updated Financial Thresholds

In addition to the new SORP, the Charities Act 2025 introduces revised financial limits - many of which take effect from October 2026. These changes are closely linked to the tiered SORP model and are intended to simplify compliance.

Updated audit and examination thresholds

• Audit requirements
  • Mandatory audit income threshold increases from £1 million to £1.5 million meaning only charities exceeding this income will require a statutory audit.
  • Asset threshold (for charities with income over £500,000) increases from £3.26 million to £5 million
• Independent examinations
  • Mandatory threshold increases from £25,000 to £40,000 reducing administrative burdens for smaller charities.
  • For more detailed examinations by a professionally qualified examiner, the threshold will double: from £250,000 to £500,000 income.
• Accounts preparation
• Non-company charities may now prepare receipts and payments accounts if income is below £500,000 (previously £250,000).
• Those above this threshold must prepare accrual accounts under SORP.
• Group accounts
• The threshold for consolidated group accounts also rises from £1 million to £1.5 million in aggregate income.

Please always remember to check your charity’s constitution for any additional scrutiny requirements.

Ex-gratia payments

Trustees will have new statutory powers to make small ex-gratia payments without approval from the Charity Commission, based on income bands:

• Up to £1,000 (income ≤ £25,000)
• Up to £2,500 (£25,000–£250,000)
• Up to £10,000 (£250,000–£1 million)
• Up to £20,000 (over £1 million)

What these changes mean in practice

Taken together, these updated thresholds and the revised SORP create a more modern and proportionate regulatory framework for charities. For instance:

• Fewer small charities will require audits or enhanced scrutiny.
• Reporting expectations scale more proportionately with size.
• Larger organisations will still face rigorous audit requirements, supporting transparency and public trust.
• Mid-sized charities (£500,000–£1.5 million) should assess how the new examination rules will affect their annual timetable and resourcing.

Practical next steps for charities

Now’s a good moment to start planning for the transition. A few helpful steps include:

• Reviewing the new SORP and related technical guidance
• Collating details of all leases for Right of Use recognition
• Updating chart of accounts, templates, and internal reporting tools
• Training finance teams and trustees - particularly on income recognition and tiered reporting
• Engaging early with auditors or advisors to assess readiness

Preparing for the road ahead

These reforms mark the biggest shift in charity accounting and regulation we’ve seen in years. They offer welcome simplification for many organisations - especially smaller ones - but they also bring new expectations that will take some getting used to.

We’ve put together a handy guide to the new SORP which breaks it down step-by-step, so you can stay compliant with confidence - take a look here.

If you or your team would like to talk through what the changes mean in practice, or just want a clearer sense of where to begin, please do get in touch. Starting the conversation early will make the transition much easier.