Expert Opinion: Charities face new accounting rules in 2026

With charities facing new rules for reporting their finances, accountancy firm, Xeinadin, explains the changes that will take effect from January 2026.

The government has announced new rules and guidelines for how charities prepare and report annual accounts in 2026.

The changes come in two parts. From January 2026, a new Statement of Recommended Practice (SORP) for the charity sector will come into effect, with revised reporting guidelines for different sizes of organisation.

Then from the end of September, the thresholds for external examination and auditing of accounts will be raised with a view to reducing costs and administrative burdens for smaller charities.

Changes to the Charities SORP

SORPs provide guidance on how to apply general accounting standards to specific sectors. The aim is to help businesses and organisations produce accounts that meet the legal criteria for being ‘true and fair’.

The first mandatory SORP for the charity sector was introduced in 2005 and the last full revision was published in 2015. The latest edition covers the preparation of trustees’ financial reports, fund accounting, statements of financial activities, recognition of income and expenses, remuneration, balance sheet and lease accounting, as well as application of accounting standards, policies, concepts and principles to the specific circumstances of charity accounting. The new version will apply to reporting periods starting on or after 1 January 2026.

Some of the main changes include:

• The introduction of three new reporting tiers with different requirements and guidelines designed to be proportionate to the organisation’s size. Tier 1 covers charities with total annual income up to £500,000; Tier 2 covers income between £500,000 and £15 million; and Tier 3 is for charities with incomes above £15 million.
• New guidance on how to report financial reserves and future plans in Trustees’ Annual Reports, plus the introduction of new sections on areas of public and donor interest, such as impact reporting, environmental, social and governance issues. 
• Revised rules on income and lease arrangements, with published practical examples.
• Simplified requirements for reporting social investments, provisions and contingencies.

New Accounts and Examinations Thresholds

Following a consultation carried out with the charity sector by the Department of Culture, Media and Sport, income thresholds for examination and auditing will change as follows from 30 September 2026:

• The threshold for independent examination will increase from £25,000 to £40,000.
• The requirement for examinations to be carried out by a professionally qualified Independent Examiner will apply to organisations with incomes in excess of £500,000, up from £250,000.
• The same threshold will also apply before production of receipts and payment accounts becomes mandatory for non-company charities.
• Charities will not be required to have their accounts audited until their incomes pass £1.5m and their assets £5m, up from £1m and £3.26m respectively.
• The threshold for mandatory preparation and auditing of group accounts will rise from £1m to £1.5m.

Next Steps

Although the changes are ultimately aimed at reducing the accounting burden on smaller charities and providing greater clarity for all, getting to grips with the requirements of the new SORP will take some time initially.

Given the diversity of the charity sector, the details of how the SORP is applied will be unique to every organisation. We strongly recommend speaking to a trusted accounting partner to find out precisely what the changes mean to you.