For CPA firms, offshoring core accounting services allow them to scale the scope of their services in a cost-effective manner. Additionally, choosing the correct service provider with a market that aligns with the firm’s culture helps create more room for expansion of their advisory services.
In the world of accounting, SORP reads like a problem for the next financial year. Unsurprisingly, for most accountants it is clearly not. Everything that decides whether the accounts go out cleanly must happen during the current year. Whether it’s in the bookkeeping, in the lease files, and in the conversations trustees have about reserves. The reality is that a charity that discovers its property leases need capitalising in March 2027 has already lost the year in which it could have modelled the effect.
These changes matter to any practice with charity clients on its books, whether that is a single village hall trust or a portfolio of grant-funded operating charities. This blog goes over the details to help accounting firms prepare well in advance and how outsourcing accounting services play a crucial role in this preparation.
What is Charities SORP 2026, and who has to apply it?
SORP 2026 replaces the 2019 edition of the Charities SORP (FRS 102). It carries across the sector-specific guidance accountants already know, the SoFA, funds accounting, the trustees’ annual report, and rewrites the parts that the Financial Reporting Council’s periodic review of FRS 102 changed.
Which charities are inside the scope
Every UK charity preparing accruals accounts follows the SORP, whether registered in England and Wales, Scotland or Northern Ireland. Charities preparing receipts and payments accounts do not apply it at all. Under existing regulations, charities that are not registered as companies and have gross income exceeding £250,000 are required to produce accrual accounts, while those with lower income levels have the option to do so. Charitable companies prepare accruals accounts regardless of size, because company law says so.
That distinction is crucially important, for reasons covered further down.
The dates around SORP that matter
Periods beginning on or after 1 January 2026 fall under the new SORP. Early adoption is permitted, provided the FRS 102 periodic review amendments are applied at the same time.
Working through the common year-ends:
| Year-end | First accounts under SORP 2026 |
|---|---|
| 31 December | 31 December 2026 |
| 31 March | 31 March 2027 |
| 30 June | 30 June 2027 |
| 31 August | 31 August 2027 |
A 31 March charity has until spring 2027 before the accounts land. It has until 31 March 2026 before the transition date arrives, which is a different deadline entirely.
Why will SORP 2026 change the shape of a charity balance sheet?
Two changes account for most of the work. Both come from the revised FRS 102 rather than from charity-specific policy, which is why they cannot be argued away.
Leases move onto the balance sheet
The old operating lease and finance lease split is gone for lessees. Under the revised Section 20, a charity recognises a right-of-use asset and a corresponding lease liability for most leases. Balance sheets get bigger on both sides. The expenditure profile in the SoFA shifts from a flat rental charge to depreciation plus a finance cost, which front-loads expenditure in the early years of a lease.
It’s important to note that trustees will invariably notice. That applies to anyone holding a covenant tied to net assets, or unrestricted reserves will notice sooner.
Peppercorn and below-market leases
Charities occupy a lot of property at nominal rent, and the treatment here needs care. Where a charity holds a lease at £1 a year or something close to it, the difference between the payments and the value received is donated. The entry recognises the asset with a credit to donation income, timed in line with the treatment applied to performance-related grants, depending on what the underlying agreement actually says.
Read the agreement before deciding. Community asset transfers and church trust arrangements rarely say what the file note claims they say.
The transition adjustment
Comparatives are not restated for the lease change. Instead the cumulative effect of first applying the amendments is taken to the opening balance of reserves at the date of initial application, following FRS 102 paragraph 1.47. FRS 102 offers practical options for transition; however, the full retrospective method described in paragraph 1.48 may only be appropriate for a small subset of charities.
Two consequences follow for the file. Opening reserves will move without any change in the charity’s underlying position, so the trustees’ annual report needs to explain that plainly to donors and funders. And the discount rate chosen for each lease liability needs a documented basis, because that judgement will be the first thing an examiner or auditor asks about.
Income and the five-step model
FRS 102 now carries a five-step revenue recognition model modelled on IFRS 15, and it applies to exchange transactions. Donations and legacies are non-exchange transactions, so they are largely untouched and continue to be recognised when entitlement, probability and reliable measurement are met.
The grants problem
Grants are where the time goes. Deciding whether a particular grant is an exchange transaction or a non-exchange transaction determines whether the five-step model applies at all, and the answer sits in the funding agreement rather than in the nominal ledger code. Service-level agreements with local authorities, contracts for delivery of commissioned services, and restricted grants with performance conditions all need reading individually.
A practice with thirty charity clients should expect to reread a lot of funding agreements during 2026.
How do the three reporting tiers work?
SORP 2026 replaces the previous two-tier structure with three tiers, set by gross income:
| Tier | Gross income |
|---|---|
| Tier 1 | Up to £500,000 |
| Tier 2 | £500,000 to £15 million |
| Tier 3 | Over £15 million |
The point of tiering is proportionality. Requirements that were previously applied across the board are now mandatory for larger charities and optional, or absent, for smaller ones.
What tiering changes in practice
Tier 1 charities face the lightest set of trustees’ annual report requirements. Tier 2 adds disclosure. Tier 3 carries the fullest expectations, covering strategy, principal financial risks, sustainability information and segmental detail.
Most Tier 1 charities, and a good number of Tier 2 charities, will also meet the FRS 102 small entity criteria, which brings reduced disclosure and exemption from preparing a statement of cash flows. Charities in Tier 3, and any charity outside the small entity thresholds, prepare the full statement.
Size for tier purposes is gross income. Size for small entity purposes is the FRS 102 test. The two do not align neatly, and assuming they do is an easy way to produce accounts with the wrong disclosure set.
The trustees’ annual report has been rewritten
The SORP-making body refreshed the trustees’ annual report requirements with more guidance on reserves policy and future plans, plus dedicated sections on the areas donors and the public ask about most. Impact reporting is in. So is environmental, social and governance information for the larger tiers.
Practices that reuse a trustees’ report template year on year should assume that template is now out of date. Rewriting it once, properly, is cheaper than editing it thirty times under deadline pressure.
What is happening to the audit and examination thresholds?
Separately from the SORP, the Department for Culture, Media and Sport confirmed changes to the financial thresholds in charity law for England and Wales following consultation. The Charity Commission expects these to take effect on 30 September 2026 and to apply to accounting years ending on or after that date.
| Requirement | Current threshold | From 30 September 2026 |
|---|---|---|
| Accounts must be independently examined | Income over £25,000 | Income over £40,000 |
| Examiner must be professionally qualified | Income over £250,000 | Income over £500,000 |
| Non-company charities may use receipts and payments | Income below £250,000 | Income below £500,000 |
| Accounts must be audited | Income over £1,000,000, or assets over £3,260,000 | Income over £1,500,000, or assets over £5,000,000 |
| Group accounts prepared and audited | Aggregate group income £1,000,000 | Aggregate group income £1,500,000 |
Charity law is devolved, so these figures apply in England and Wales. Scottish and Northern Irish charities work to their own audit and examination rules, although the SORP itself applies across all three jurisdictions.
What the threshold reform does to your fee base
Look at the third row again. Raising the receipts and payments ceiling from £250,000 to £500,000 gives a large population of unincorporated charities a legal route out of accruals accounting, and therefore out of the SORP entirely. Some of them will take it, particularly if the alternative is a first year of lease capitalisation and revenue reassessment.
Two responses are available. A firm can wait and find out which clients leave. Or it can open the conversation first, set out what each option costs and what each option gives up in terms of funder confidence and comparability, and let the trustees decide with the numbers in front of them. The second approach keeps the relationship even where it loses the compliance fee.
What should a practice do before the first SORP 2026 file arrives?
The work divides into things that must happen inside the client’s records and things that happen in the firm.
Build the lease register now
Every lease needs identifying, not just the property ones. Photocopiers, vehicles, IT equipment and storage all count. For each one you need the term, break clauses, payment profile and any option to extend. Charities rarely hold this centrally, and finance teams often do not know what individual sites have signed.
Fix income classification at source
Reviewing funding agreements is unavoidable, but doing it once and coding the conclusion into the accounting system stops the analysis being repeated every quarter. Restricted funds, performance conditions and exchange classification should be visible in the ledger rather than reconstructed at the year-end.
Model the transition before it happens
Running the opening adjustment on 2025 figures gives trustees a preview of what their reserves position will look like, well before the accounts are signed. Anyone with banking covenants, funder covenants or a reserves policy expressed as a number needs that preview.
Train the people who will be asked
Trustees will ask why the balance sheet grew. Fundraisers will ask why the reserves figure moved. Finance staff will ask which grants changed treatment. Those questions arrive in a specific order, and a firm that has prepared a one-page answer to each will spend far less time on unbilled calls.
Where does outsourcing fit into charity compliance work?
Capacity is the practical constraint. SORP 2026 adds preparation work to files that were already thin on margin, and it lands in the same period as the threshold reform, so charity teams are absorbing two changes at once. This is the reason charity accounts outsourcing UK firms have started to look harder at their delivery model rather than their pricing.
What sensibly moves, and what does not
The parts that transfer well are the ones that follow a defined process. Lease data capture and register build. Bookkeeping and fund accounting maintenance. Preparation of the SoFA, balance sheet and notes from a set year-end pack. Reconciliation work and supporting schedules. Firms that outsource charity accounting UK work usually start with the preparation layer and keep everything else in house.
The parts that stay are the judgements. Whether a grant is an exchange transaction. Which discount rate applies to a lease liability. What the trustees’ report says about reserves, risk and impact. Whether an independent examination is appropriate at all. Those decisions carry professional responsibility and sit with the person signing.
Handled this way, charity compliance accounts UK practices deliver stay under partner control while the routine preparation runs on a defined turnaround. AcoBloom International supports UK firms on exactly that split, working to the practice’s own file structure and templates rather than imposing a separate one.
Frequently Asked Questions
It applies to reporting periods beginning on or after 1 January 2026. Early adoption is permitted, provided the FRS 102 periodic review amendments are adopted at the same time.
Yes. Every UK charity preparing accruals accounts applies the SORP. Audit and independent examination thresholds differ by jurisdiction, because charity law is devolved.
No. Comparative information is not restated for the lease amendments. The cumulative effect of first application is recognised as an adjustment to opening reserves at the date of initial application.
Not materially. Donations and legacies are non-exchange transactions and fall outside the five-step model. Income continues to be recognised when entitlement is established, receipt is probable and the amount can be measured reliably. Grants require case-by-case assessment.
Tiers follow gross income. Up to £500,000 is Tier 1, £500,000 to £15 million is Tier 2, and above £15 million is Tier 3. The tier drives which trustees’ annual report disclosures are mandatory rather than optional.
Possibly. Non-company charities below the receipts and payments threshold may prepare receipts and payments accounts, which fall outside the SORP. Once the new threshold takes effect in England and Wales on 30 September 2026, that option extends to unincorporated charities with income below £500,000. Funder expectations should be checked before making the switch.
