New accounting rules for charities
Charities will face a change to the way they prepare and report annual accounts in 2026. In a two-part shift, the first of which begins in January 2026, charities will need to comply with revised guidelines for reporting depending on their size. There will also be a rise in the thresholds for external examination and accounts auditing.
Changes to the Statement of Recommended Practice
A Statement of Recommended Practice (SORP) provides guidance on how a specific sector should apply general accounting standards. The aim is to help organisations produce accounts that meet the legal criteria for being ‘true and fair’.
The first mandatory SORP for the charity sector was introduced in 2005, with the most recent full revision being published in 2015. The new edition, which applies to reporting periods starting from 1 January 2026, covers:
- The preparation of trustees’ financial reports
- Fund accounting
- Statements of financial activities
- Recognition of income and expenses
- Remuneration
- Balance sheet and lease accounting
- The application of accounting standards, policies, concepts and principles to charity accounting
One of the main changes is the introduction of three new reporting tiers, with different requirements and guidelines applying according to the organisation’s size. Tier 1 covers charities with total annual income up to £500,000; Tier 2 covers those with an income of £500,000 – £15 million; and Tier 3 applies to charities with an income above £15 million per year.
There will also be new guidance on how charities should report financial reserves and future plans in Trustees’ Annual Reports, as well as revised rules on income and lease arrangements. Another new section will cover areas of public and donor interest, such as impact reporting, environmental, social and governance issues.
New Accounts and Examinations Thresholds
The second phase of the changes concerns the thresholds for independent examination. From 30 September 2026, independent examination will not be required for charities with an income below £40,000. Examinations carried out by professionally qualified Independent Examiners will only apply to organisations with incomes of over £500,000 – up from £250,000. The same threshold applies before non-company charities must produce receipts and payment accounts.
Further, charities will not be required to have their accounts audited until their incomes exceed £1.5m (previously £1m) and their assets exceed £5m (previously £3.26m). The £1.5m threshold also applies to
mandatory preparation and auditing of group accounts.
What does this mean for charities?
The changes being introduced are designed to reduce the accounting burden on smaller charities, and to provide greater clarity for all. However, the diversity of the charity sector means the SORP will have unique applications for each organisation, and navigating it will take time and require assistance from a trusted accountant.
To ensure your charity is compliant with the updated accounting rules, get in touch with a reputable firm today. A specialist can advise on how to apply the SORP to your organisation, as well as helping with financial reporting and auditing.
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