Most trustees and charity managers will be aware that a new SORP (Statement of Recommended Practice) has been published, applying to accounting periods starting on or after 1st January 2026. The document is designed to bring charity accounting up to date with changes in wider accounting standards, as well as making reporting clearer and more useful.
One of the biggest changes is a new three tier system, which aims to make reporting simpler for smaller charities, at the same time introducing new responsibilities for charities with larger incomes to ensure that their finances are reported in an accurate and transparent manner.
The three tiers are based on a charity’s annual income, with separate stipulations for charities holding large amounts of assets.
Essentially the new three tier system looks like this:
Tier One: Annual gross income of up to £500,000
For these charities, reporting has been simplified, in particular allowing them to present income and expenditure by natural classification rather than by activity. Those with an income of more than £40,000 per year must have their accounts independently examined, but for Tier One charities, this does not have to be undertaken by a Qualified Independent Examiner.
Tier Two: Annual gross income between £500,000 and £15 million
Many charities will fall into this category, and for most there will be little change; they must prepare activity-based accounts and provide more detailed disclosures than Tier One Charities. If the charity meets the small entity criteria, they will be exempt from providing a cashflow statement.
In addition, the threshold for a statutory audit rises to £1.5 million annual income and/or assets of more than £5 million, a 50% increase over what came before. This may remove a costly burden from small to medium sized charities who currently have to undertake a statutory audit.
Tier Three: Annual gross income above £15 million
Charities in this category – essentially the very largest in the UK – will face the most extensive reporting requirements, including a mandatory statement of cashflows and enhanced disclosures around impact, sustainability and volunteer contributions. The aim is to provide greater public transparency about large charities’ activities, impact and governance.
Given the differing levels of reporting required for each tier, it is important for charities – especially those which may be close to a tier boundary – to monitor and assess gross income carefully. The new system applies to all accounting periods starting on or after 1st January 2026, so for some charities that means the current financial year.
Although at first sight the new SORP may look like it is introducing another layer of regulation, in actual fact it is about making charity reporting clearer, more consistent and fairer – and if that helps to raise the public confidence in the charity sector, it should be viewed as a positive.