Charities are preparing for significant SORP updates in 2026 alongside the revised FRS 102 standard from 1 January 2026. The changes will shape how you recognise income, report reserves, disclose fundraising costs and explain impact. Why does this matter now? Trustees approve strategy and budgets well before year-end, and finance teams need time to adjust systems, chart-of-accounts and controls. Cost pressures also persist – CPI inflation was 3.8% in August 2025 (ONS, 2025) – so getting reserve levels and cashflow planning right is essential for resilience. Formal volunteering also remains below pre-pandemic norms, with 16% of adults volunteering monthly in 2023/24, around 7.5 million people in England. That context affects income mix, staffing and service delivery.
The SORP-making body’s consultation on the SORP updates closed in June 2025, with publication expected in autumn 2025 to apply for periods starting on or after 1 January 2026. The revisions align with the Financial Reporting Council’s 2024 periodic review of FRS 102, which has the same effective date and permits early adoption (FRC, 2025). In short, 2026 will be the year to embed better policies, clearer disclosures and stronger governance around your narrative report.
SORP updates in 2026: What’s changing and when
The revised SORP is designed to sit alongside the updated FRS 102. Most charities will first apply it for financial years beginning on or after 1 January 2026. The FRC’s amendments cover revenue recognition and leases among other areas, so expect the SORP to clarify sector-specific points, materiality and tiered reporting expectations. Timelines are tight – plan now for staff training, policy sign-off and trustee briefings.
Recognition, measurement and the impact on income streams
Expect clearer guidance on conditional grants, performance-related grants and restricted funds, reflecting the revised revenue principles in FRS 102. This will matter for service contracts, lottery funds and philanthropic grants with milestones. Two practical examples:
- Grant with milestones: Recognise income as performance obligations are met – or defer where conditions remain outstanding.
- Public appeal with restrictions: Recognise income when entitlement is established and measure net of refund liabilities where appeals include money-back promises.
Gift Aid remains a material post-balance sheet consideration where claims are made after year-end. HMRC continues to emphasise proper records to support claims, including for the small donations scheme and contactless collections (HMRC, 2025). Build controls to evidence donor declarations, eligibility and timings.
Narrative reporting, reserves and going concern
The new narrative reporting emphasis will be on purpose, activities, outcomes and the link to financial sustainability. With inflation still elevated and wages growing by around 5% year-on-year in spring–summer 2025 (ONS, 2025), reserves disclosures should explain target levels, rationale and movements during the year. Useful practices include:
- Reserves policy: Define target range using risk-based drivers such as income volatility, fixed cost base and time to re-plan.
- Designated funds: Distinguish designated from restricted – explain purpose, review frequency and triggers to release.
- Going concern: Document stress tests and mitigating actions. If cashflow forecasts rely on grant renewals, say so and state contingencies.
Grants, fundraising and cost transparency
We anticipate additional clarity on:
- Grant making: Policies for due diligence, approval, monitoring and clawback. Disclose material grants to institutions where relevant to understanding activities.
- Fundraising: Disclose material costs, third-party arrangements, complaints received and how you protect supporters.
- Service delivery contracts: Separate trading from charitable activities, and explain margins where this affects readers’ understanding.
Good records also keep Gift Aid compliant. HMRC guidance stresses accurate logs for collections and contactless donations, dates and amounts, and bankings to support claims (HMRC, 2025). A simple monthly reconciliation routine reduces errors and protects income.
Digital activity, non-cash support and volunteers
Digital fundraising, online raffles and platform fees should be captured accurately in your income and cost categories. Non-cash support – pro bono professional time, donated goods and concessional licences – needs consistent policies for recognition and valuation. Volunteer contributions are often not recognised as income but warrant narrative explanation where material to outcomes and delivery model. With formal volunteering participation at 16% monthly, charities relying on volunteers should explain recruitment, retention and training plans.
Trustees’ responsibilities and preparation steps for 2026
Trustees remain responsible for approving the annual report and ensuring that financial reporting is fair and balanced. To get ready for the SORP updates, we recommend:
- Gap analysis: Compare current policies to draft SORP and revised FRS 102. Prioritise revenue, leases, reserves and narrative disclosures.
- Chart-of-accounts updates: Create codes for restricted vs unrestricted income, grant types, platform fees and fundraising costs to improve disclosure.
- Systems and controls: Embed documentation for Gift Aid and grant conditions. Align procurement and contract registers to lease and revenue requirements.
- Training: Provide tailored sessions for finance, income and programme teams. Brief trustees on policy choices and disclosure tone.
- Timetable: Map data cut-offs, draft dates and trustee review points so nothing slips close to year-end.
Regulatory horizon: Identity verification and filing discipline
Many charities operate as charitable companies or CIOs; where a company structure is used, changes under the Economic Crime and Corporate Transparency Act continue to phase in at Companies House. Expect stronger identity verification and tougher checks on filings and registered office addresses, reinforcing data accuracy and accountability (Companies House, 2025). Build these risk-based checks into governance calendars and secretary workflows.
Common pitfalls we see
- Mixing restricted and unrestricted funds: Leads to unclear reserves and risk of misstatement.
- Weak grant documentation: Missing evidence for conditions and milestones.
- Over-optimistic going concern narratives: Narrative not aligned to stress-tested cashflow.
- Under-explained fundraising costs: Insufficient detail on third-party fundraisers and supporter protection.
- Volunteer contribution left unexplained: No narrative on scale, recruitment and risk management.
Your 2026 compliance checklist
- Accounting policies: Updated for SORP updates and revised FRS 102; approved by trustees.
- Revenue files: Evidence for entitlement, measurement and restrictions.
- Gift Aid records: Donor declarations, collection logs and bankings reconciled monthly.
- Reserves paper: Target range, rationale and movement explained; designation approvals documented.
- Narrative report: Purpose, activities, risks and outcomes connected to the numbers.
- Governance: Trustee training completed; Companies House identity checks planned where applicable.
- Timetable: Year-end plan with responsibilities, deliverables and review dates.
The SORP updates arriving for 2026 will push charities toward clearer, more decision-useful reporting. Boards should confirm policies now, adjust systems and set realistic timetables. Use inflation and pay data to test reserves and going concern, and make sure Gift Aid processes are watertight.
If you would like a short, practical review of your accounting policies, reserves paper and draft disclosures, we can help. See how we support not-for-profit finance teams and get in touch via our homepage or start a conversation with our charity specialists. For tailored advice on SORP updates, contact us – charity accounting advice.
