Key Changes to Charity Reporting: Understanding SORP 2026 and Its Impact on Transparency

The Charities Statement of Recommended Practice (SORP) 2026: Key Changes and Reporting Requirements

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The Charities Statement of Recommended Practice (SORP) 2026, effective for accounting periods starting on or after January 1, 2026, introduces a new three-tier reporting structure and enhanced requirements for the Trustees' Annual Report. This update emphasizes proportionality and transparency, ensuring that charities of all sizes provide meaningful insights into their operations, impact, and future plans.

Key Changes to the Trustees' Annual Report under SORP 2026

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The updated SORP places greater emphasis on the narrative aspects of the report. Here are the key changes:

• Mandatory Impact Reporting: All charities, regardless of tier, must include a section in their report detailing the main achievements of the charity and the difference their activities made to beneficiaries and communities.

• Volunteers: Charities must explain the contribution of volunteers. Tier 2 and Tier 3 charities are encouraged to provide detailed information, such as the number of volunteers or equivalent staff hours.

  
  

• Reserves and Future Plans: All tiers must explain their reserves policy, compare actual reserves to the policy, and outline actions being taken to align them. A summary of future plans is now mandatory for all charities.

  
  

• Environmental, Social, and Governance (ESG) Issues: Reporting on ESG matters becomes mandatory for Tier 3 charities, while Tiers 1 and 2 are encouraged to include proportionate statements.

  
  

• Risk Management: For Tier 2 and 3 charities, the description of principal risks must be expanded to include those arising from environmental and cyber issues.

  
  

• Legacy Income: Charities with material legacy accruals must provide a narrative explanation to help readers understand the timing of income recognition versus cash receipts.

  
  

The New Tiered Reporting Structure

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The most significant structural change is the introduction of a three-tier framework. This replaces the previous "one-size-fits-all" approach, making reporting requirements proportionate to a charity's size.

| Tier | Gross Annual Income | Main Reporting Requirements |

|--------|------------------------------|------------------------------------------------------------------------------------------------------------------|

| Tier 1 | Up to £500,000 | Simplified accruals reporting; no cash flow statement required under SORP rules; essential narrative disclosures on impact, reserves, and governance. |

| Tier 2 | £500,000 to £15 million | Tier 1 requirements plus additional, more detailed narrative disclosures (e.g., expanded risk reporting to include environmental and cyber issues); generally exempt from preparing a SORP cash flow statement. |

| Tier 3 | Over £15 million | Most comprehensive requirements, including a full cash flow statement and detailed, mandatory ESG disclosures, reflecting their wider public accountability. |

These changes aim to enhance transparency and provide a clearer, more consistent reporting framework across the sector.

Tier 1 Reporting Requirements Checklist (Income up to £500,000)

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Your 2026 report will need to include the following mandatory elements:

Narrative Reporting (Trustees' Annual Report):

• ✅ Main Achievements and Impact: A description of your charity's main activities and an explanation of the difference those activities made to your beneficiaries and the community. This is a crucial new focus area.

  
  

• ✅ Volunteers: A description of how volunteers contributed to the charity's activities.

  
  

• ✅ Reserves Policy & Status: An explanation of your policy on reserves, how your current reserves compare to that policy, and any actions being taken to align them.

  
  

• ✅ Future Plans: A summary of your charity's plans for the future.

  
  

• ✅ Risk Management: A description of the principal risks facing the charity and a summary of the plans or strategies put in place to manage those risks.

  
  

• ✅ Governance: Details of the trustees, governing document, and recruitment/induction processes.

  
  

Financial Statements:

• ✅ Simplified Accruals: You will continue to use accruals accounting but under the simplified rules for smaller charities.

  
  

• ✅ No Cash Flow Statement Required: Tier 1 charities are explicitly exempt from the requirement to prepare a separate cash flow statement under SORP rules, saving significant time and effort.

  
  

Key Dates for Your Charity

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The new SORP 2026 is effective for accounting periods starting on or after January 1, 2026.

• If your financial year starts January 1, 2026: Your first report under the new SORP will be for the year ending December 31, 2026.

  
  

• If your financial year starts on another date in 2026 (e.g., April 1, 2026): Your first report under the new SORP will be for the year ending March 31, 2027.

  
  

This new framework is designed to make compliance more straightforward for your charity while enhancing the quality of information provided to the public.

Tier 2 Reporting Requirements Checklist (Income £500,000 to £15 million)

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For your Trustees' Annual Report for accounting periods starting on or after January 1, 2026, you will need to meet all the Tier 1 requirements plus several additional obligations.

Narrative Reporting (Trustees' Annual Report):

• ✅ Main Achievements and Impact: A summary of the main achievements of the charity, including what difference your activities made to beneficiaries.

  
  

• ✅ Detailed Objectives and Activities: An expanded description of your short- and long-term aims, explaining how your current achievements contribute to the longer-term goals.

  
  

• ✅ Volunteers: A description of volunteer contributions to the charity's activities. Tier 2 charities are encouraged to provide more detail, such as the number of volunteers or equivalent staff hours, where practical.

  
  

• ✅ Reserves and Future Plans: A clear explanation of your reserves policy, a comparison of actual reserves to the policy, and an outline of actions being taken to align them. You must also provide a summary of future plans.

  
  

• ✅ Legacy Income: A narrative explanation for material legacy accruals at the year-end. This helps readers understand the timing difference between income recognition and cash receipts.

  
  

• ✅ Expanded Risk Management: The description of principal risks must now include those arising from environmental and cyber issues.

  
  

• ✅ ESG (Environmental, Social, and Governance): While mandatory for Tier 3, reporting on ESG issues is encouraged for Tier 2 charities. You may include proportionate statements on, for example, how volunteers are supported or how environmental impact is reduced.

  
  

Financial Statements:

• ✅ No Cash Flow Statement: Like Tier 1, Tier 2 charities are generally exempt from preparing a SORP cash flow statement, reducing the financial reporting burden.

  
  

Key Dates for Your Charity

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The updated SORP 2026 applies to accounting periods starting on or after January 1, 2026. This means that if your charity's financial year ends on December 31, your first report under the new rules would be for the 2026 financial year.

Tier 3 Reporting Requirements Checklist (Income over £15 million)

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For accounting periods starting on or after January 1, 2026, Tier 3 charities must adhere to the following mandatory obligations:

Narrative Reporting (Trustees' Annual Report):

• ✅ Main Achievements and Impact: A comprehensive summary of achievements and the measurable difference the activities made to beneficiaries and the community. This should go beyond simple descriptions to a detailed impact narrative.

  
  

• ✅ Detailed Objectives and Activities: An expanded description of short- and long-term aims, explaining how current achievements contribute to the longer-term goals.

  
  

• ✅ Volunteers: A detailed description and, where feasible, quantification of volunteer contributions (e.g., number of volunteers, equivalent staff hours).

  
  

• ✅ Reserves and Future Plans: A clear explanation of the reserves policy, how current reserves compare, and specific actions being taken to align them. A summary of detailed future plans is also mandatory.

  
  

• ✅ Legacy Income: A narrative explanation for any material legacy accruals at the year-end to help users understand the timing of income recognition versus cash receipts.

  
  

• ✅ Expanded Risk Management: A description of the principal risks facing the charity and plans to manage them, explicitly including those arising from environmental and cyber issues.

  
  

• ✅ Mandatory ESG (Environmental, Social, and Governance) Reporting: Tier 3 charities are required to report on how they are responding to and managing environmental, governance, and social matters. This may include key performance indicators related to climate-related risks, board diversity, business ethics, and social opportunity.

  
  

• ✅ Governance: Full details of the trustees, governing document, and robust recruitment/induction processes.

  
  

Financial Statements:

• ✅ Full Accruals Accounting: Preparation of full accruals accounts in compliance with FRS 102 as updated.

  
  

• ✅ Mandatory Statement of Cash Flows: Tier 3 charities are the only ones for whom a cash flow statement is a mandatory requirement under SORP rules (unless a Tier 1 or 2 charity also breaches specific FRS 102 small entity thresholds).

  
  

• ✅ Lease Accounting: Implementation of new lease accounting rules, requiring most leases to be recognised on the balance sheet as both a 'right-of-use' asset and a corresponding liability.

  
  

• ✅ Income Recognition: Application of the new five-step model for recognising income from contracts and performance-related grants.

  
  

• ✅ Pension Liabilities: Disclosure of the impact of any material defined-benefit pension scheme liabilities on the charity's financial position.

  
  

Tier 3 charities should begin reviewing their systems, processes, and data collection methods now to ensure compliance by the implementation date.

In conclusion, the SORP 2026 introduces significant changes that will affect how charities report their activities and financials. By understanding these requirements, charities can enhance their transparency and accountability, ultimately benefiting their stakeholders and the communities they serve.