Charities SORP: Navigating the changes

The SORP applies to all registered charities in the UK, regardless of which regulator(s) the charity is responsible to. Accounting thresholds, on the other hand, differ between regulators, and this year’s threshold changes vary significantly between them. 

It is essential that charity advisers - including auditors, examiners, accountants and other professional advisers - fully understand the changes that are taking place. Charity leaders are well advised to work with partners who know the charity sector well and can explain the implications of the changes. 

Charity accounts can be complex. Producing accurate annual reports that are proportionate to the size and complexity of your organisation is vital, especially in an increasingly competitive funding and fundraising landscape.

The new SORP introduces several, well-trailed changes within its more than 300 pages. These include areas such as leases, income recognition and narrative reporting. Not all charities will be affected significantly by these changes, as explained below.

Tiers in the SORP

Three categories of charity determine the level of reporting required, based on gross income:

• Tier 1: not exceeding £500k
• Tier 2: up to £15m
• Tier 3: all others.

Higher tiers require more detailed reporting, especially within the Trustees’ Annual Report.

Accruals v cash accounting 

The SORP applies to all accounts prepared on the accruals basis. This includes charitable companies and any organisations whose income level means that they do not qualify for receipts and payments accounting.  Conversely, if a charity is eligible for and chooses the cash accounting option, and is not a limited company, then the SORP does not apply. In that situation, the charity does not need to prepare a Statement of Financial Activities, nor a Balance Sheet.  

Although the Trustees’ Annual Report (TAR) requirements of the SORP do not technically apply in that scenario, I still prefer to use the SORP’s headings and overall structure when preparing a small charity’s report. This helps to ensure clarity, consistency and good practice.

Cash accounting eligibility and more complex charities

From 2026, the limit at which a non-company charity, registered with the Charity Commission for England and Wales, can prepare receipts and payments accounts will increase from £250k to £500k. For those charities registered in Scotland, the limit remains at £250k.

Charities that move into the new, higher bracket must prepare full accruals accounts and comply fully with the SORP. This level of reporting provides a clearer and more comprehensive picture of the organisation’s financial position.

Going concern and reserves

For all charities, an important section of the TAR is on Going Concern and Reserves. The SORP defines going concern as:

“the ability of an organisation to operate for the foreseeable future and its ability to pay its debts as they fall due”.

And reserves as:

“that part of a charity’s unrestricted funds that is freely available to spend on its charitable purposes” .

We are hearing regularly of charities and other non-profit organisations closing down, reducing headcount or cutting back on activities. This part of your reporting is so important and should be considered together. 

Trustees should therefore:

• Determine what free reserves you have – and ask what you should aim to have? Think of it as how much you should have in the bank as a cushion for the unexpected.
• Look at what you need to have in place in case of restructuring/closedown – including employee liabilities (redundancy) and lease commitments – what would these be? Do we need to set aside some of our reserves for this?

Please avoid treating a Going Concern review as a once-a-year task. Instead, consider each month end as part of your management accounting processes by looking ahead, a twelve months’ timeframe is usual. Using the right financial information, this should be straightforward. It will help flag up any potential shortfalls to you, so that timely action can be taken. 

Looking ahead

There is much more within the SORP and the related regulatory changes than can be covered here in this brief overview.

Read the SORP (www.charitysorp.org) and take professional advice where needed. Over the coming year, ACIE will be delivering a series of webinars (www.acie.org.uk/events) on this and other topics.