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Charity SORP 2025
13th November 2025
The new Charity SORP 2025 marks one of the most significant updates to charity financial reporting in recent years. Developed following an extensive consultation process, the revised SORP introduces a new tiered reporting framework and enhanced disclosure requirements designed to improve transparency, accountability, and proportionality across the sector. For trustees and finance teams, understanding these changes will be key to ensuring continued compliance and effective financial governance as the sector adapts to the updated standards. In this article, we share more about the Charity SORP 2025 and what the recommendations are.
The Charity SORP Committee released the 2025 Statement of Recommended Practice (SORP) in October 2025, following a public consultation on draft proposals featuring a number of significant changes to charity financial reporting.
What are the Charity SORP 2025 changes?
One of the most notable changes is the introduction of a three-tier reporting framework based on charity size, which aims to reduce the burden on smaller charities while maintaining transparency and accountability. The tier system drew a substantial amount of focus in the original consultation, with respondents both keen to ensure that the bands were set at the right levels and generating considerable dialogue around whether the tiers should be named in ascending or descending order, to ensure that the system is clearly understood.
In the end, the following outcome was agreed upon; tier 1 entities (charities with less than £500k in income) will be permitted to apply simplified accruals accounting and reduced disclosures. Tier 2 (comprising bodies with income between £500k and £15m) will be expected to comply with all tier 1 requirements, as well as some additional disclosures.
The remainder will fall into a third tier, which will require compliance with tiers 1 and 2, as well as enhanced narrative reporting on sustainability, governance and social impact.
The SORP also introduces further significant updates beyond tiered reporting and FRS 102 alignment.
A major focus is on fund accounting clarity: charities must now provide enhanced disclosures on the nature and purpose of funds, including clearer explanations of restrictions and transfers between funds. Guidance strengthens transparency around designated funds and endowments, with improved requirements for reporting total return investments. The SORP also updates grant-making disclosures, heritage asset accounting, and related party transactions.
Going concern reporting is reinforced, requiring trustees to provide a more explicit assessment of financial sustainability and any material uncertainties.
Impact reporting becomes mandatory in Trustees’ Annual Reports, covering environmental, social, and governance matters.
Overall, these changes aim to improve accountability and comparability across charity financial statements.
The revised SORP also includes several changes to the accounting treatment of key items such as leases and contracts with customers, in order to align the document with the underlying reporting framework, FRS 102.
Financial and other reporting requirements
FRS 102 revisions
The Financial Reporting Council (FRC) has published revisions to FRS 102, the financial reporting standard that underpins charity accounting. Effective from 1 January 2026, the changes include new rules for revenue recognition and lease accounting. Under the revised standard:
- Charities will need to adopt a new ‘five step’ revenue recognition model for contracts with customers. This will entail identifying contracts, identifying ‘performance obligations’, determining and allocating a transaction price to performance obligations and finally recognising revenue as and when performance obligations are satisfied. There will also potentially be a requirement to recognise a contract asset based on stage of completion for individual projects or contracts. This will involve forecasting and estimating balances and, as such, can be a highly subjective area of accounting.
- Operating leases will now need to be recognised on the balance sheet via recognising a liability for future lease payments and a corresponding ‘right of use’ asset. For longer term leases there will also be a requirement to discount future cash flows to present value in order to account for the time value of money. These are potentially complex calculations which could significantly alter the presentation of financial statements, including balance sheet composition, for charities with substantial lease commitments.
- However, the updated rules on leases will still retain some options for exemptions. Short-term leases (those with terms of less than 12 months and without a purchase option), low value leases (note: the definition of ‘low value’ is a question of judgment for reporting entities) and service contracts with no identifiable asset or where the customer does not control or substantially obtain all economic benefits from the asset’s use will continue to be exempt from capitalisation.
These updates aim to improve transparency and comparability across sectors. Charities will need to assess the impact of these changes on their financial position and consider updating their accounting policies and systems accordingly. It is also recommended that they engage early with auditors or other advisers as appropriate in order to assess the scale of change, identify any problems and avoid delays to publication of the financial statements.
Annual Return 2025 updates
The Charity Commission has updated the Annual Return for 2025, introducing new questions designed to enhance transparency and improve risk assessment. The revised return includes tailored questions based on charity size and complexity, with larger charities required to provide more detailed information. These updates reflect the Commission’s commitment to smarter regulation and data-driven oversight. Charities must complete the Annual Return within ten months of their financial yearend, and the new format is accessible via the My Charity Commission Account portal. Trustees should familiarise themselves with the changes and ensure accurate and timely submission to avoid compliance issues. The updated return also supports sectorwide analysis, helping regulators and stakeholders better understand emerging trends and risks. The Charities Commission has also prepared a question guide to provide further context and guidance to bodies completing the annual return. The new requirements are effective for reporting periods ending on or after 1 January 2025.
Financial reporting thresholds to change in England and Wales
A further consultation in relation to financial reporting thresholds in England and Wales has also concluded, including those that determine whether a charity requires an audit. Audit thresholds for private sector bodies have increased substantially. However, despite a period of sustained inflation, reporting thresholds for charities have remained unchanged since the introduction of the Charities Act (2011). In response to the consultation, audit thresholds will rise,reducing the regulatory burden for smaller charities. The changes require legislation but are expected to come into force from 30 September 2026 onwards, taking effect for periods beginning on or after that date. The previous £1m threshold will now rise to £1.5m.
While the changes may offer relief to smaller organisations, they also raise questions about maintaining assurance and accountability. Whilst doubtlessly any option to reduce costs both directly (audit fees) and indirectly (resources deployed to support the audit process) will be welcomed by the sector, stakeholders and potential donors may take a different view. Given the level of sensitivity around the use of donated funds, particularly those being provided to smaller charities with weaker control systems or those operating in riskier geographic jurisdictions, both existing stakeholders and prospective donors alike may wish to see audited accounts before continuing to commit funds and to gain assurance over the use of previous donations.
Audits can also add significant value to charities, particularly those without access to skilled professionals internally – commissioning a full external audit may well highlight internal control issues or other insights that may be missed by an Independent Examination (the alternative to an external audit for charities falling below the threshold). Therefore, charities should monitor developments closely and consider how changes might affect both their reporting obligations and strategic goals. For those on the cusp of the current thresholds, strategic planning may be needed to adapt to new requirements and ensure continued transparency. In addition to changes to audit thresholds, proposals are also in place to review other key financial and regulatory limits. Registration thresholds are recommended to remain unchanged: charities with income under £5,000 are not required to register, and excepted charities must register if their income exceeds £100,000. Raising these thresholds was ruled out due to the benefits of registration and the administrative burden of system changes.
For annual return filing, the consultation aligns thresholds with inflation. Currently, charities must file increasingly detailed returns as income rises: over £25,000 (basic financial data), over £100,000 (governance and financial details), and over £500,000 (additional disclosures). These thresholds may be adjusted to reduce burdens on smaller charities while maintaining transparency.
Regarding independent examination, the current threshold requiring an audit is £1 million income or £250,000 income with £3.26 million in assets. The consultation considers raising these limits to reflect inflation, potentially reducing the number of charities needing full audits. This aims to ease compliance costs for smaller charities while ensuring sufficient oversight. Overall, the proposals seek to balance regulatory efficiency with public trust, ensuring that financial scrutiny remains appropriate to charity size and resources.
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