Charity Accounting is Changing in 2026: What Every Trustee Needs to Know

New reporting rules are coming for charities across the UK. Here's what they mean for you—and why most of the changes are actually good news.

If you're a charity trustee, you've probably heard murmurs about "SORP 2026" and changes to charity accounting. Perhaps your accountant mentioned it, or you spotted a headline in a sector newsletter. But what does it actually mean for your charity?

The short answer: from January 2026, there are new rules for how charities prepare their annual reports and accounts. The good news? For most charities, these changes will make life easier—with simpler accounting options for smaller organisations and clearer guidance on what needs to go in your annual report.

Let's break it down.

The Big Picture: Three Tiers of Reporting

The most significant change is the introduction of a tiered reporting system. Instead of one-size-fits-all requirements, charities will now fall into three tiers based on their annual income:

The principle is straightforward: the bigger the charity, the more detail expected in your reporting. Smaller charities get more breathing room.

What's Changing for Small Charities (Income Under £500k)

If your charity's income is under £500,000, you're likely to benefit most from these changes.

Simpler accounts are now an option for more charities. The threshold for using receipts and payments accounts (the simpler, cash-based format) is doubling from £250,000 to £500,000. If your charity isn't a company, you may now be able to switch from full accrual accounts to this more straightforward format. It's worth discussing with your accountant whether this makes sense for your situation.

Less scrutiny required. The income threshold for needing an independent examination rises from £25,000 to £40,000. If your charity's income falls below this new threshold, you won't legally need any external review of your accounts at all—though you may choose to have one for peace of mind.

Your examiner doesn't need formal qualifications. For charities under £500,000, your independent examiner no longer needs to be a chartered accountant. A knowledgeable volunteer with relevant experience can do the job, potentially saving costs.

Some new content in your annual report. Even small charities will need to include a few new sections in their Trustees' Annual Report—but they're not onerous. You'll need to cover:

• Your charity's impact (what difference did your work make?)
• Volunteers (who helps and what do they do?)
• Reserves (how much do you have and how does that compare to your policy?)
• Future plans (what's next?)

A few paragraphs on each will suffice. Think of it as an opportunity to tell your charity's story more clearly.

What's Changing for Medium Charities (Income £500k–£15m)

Medium-sized charities will see a mix of reduced burden and enhanced reporting.

Audit threshold rising. The big news: the income threshold for mandatory audit is increasing from £1 million to £1.5 million. If your charity's income falls between £1m and £1.5m, you can now choose to have an independent examination instead of a full audit—saving both time and money.

However, this is a decision for trustees to make carefully. Some funders may still expect audited accounts. You might also want the additional assurance an audit provides. The key is that the choice is now yours.

No cash flow statement required. Unless you're legally required to produce one (some charitable companies are), medium charities won't need to include a cash flow statement in their accounts. One less thing to prepare.

More detail in your annual report. Tier 2 charities need to provide more narrative information than Tier 1. You'll need to:

• Explain short-term and long-term aims and how your activities connect to them
• Describe the longer-term effect of your work, not just immediate outcomes
• Provide numbers on volunteer involvement (how many, how many hours)
• Include a reconciliation showing how you calculated your free reserves
• Explain any legacy income that's been recognised but not yet received
• Cover principal risks, including environmental and cyber security risks

ESG reporting encouraged (but not required). You're encouraged to say something about how your charity approaches environmental, social, and governance issues—but it's not mandatory at this tier. If you can include a brief statement, it demonstrates good practice.

What's Changing for Large Charities (Income Over £15m)

For the largest charities, audits continue as before—you're well above any threshold. The focus instead is on enhanced transparency.

Mandatory ESG reporting. Tier 3 charities must include a dedicated "Sustainability" section covering:

• Environmental: How are you managing your environmental impact?
• Social: How do you support staff, volunteers, and the wider community?
• Governance: What oversight mechanisms ensure good practice?

You may want to include relevant metrics or KPIs. Many large charities already report on these areas, so this formalises existing good practice.

Expanded narrative requirements. Everything required of smaller tiers, plus:

• Explanation of designated funds and when you expect to spend them
• Clear linking of future plans to lessons learned from past experience
• Detailed risk disclosures, explicitly including climate and cyber risks

Cash flow statements required. Only Tier 3 charities (and some companies) must now produce a cash flow statement.

The goal is clear: large charities, with their greater public profile and resources, should provide the most comprehensive picture of their activities and governance.

What Every Charity Needs to Know About the Annual Report

Regardless of size, all charities preparing accrual accounts will follow the new SORP 2026. The Trustees' Annual Report is getting a refresh with several new mandatory elements:

Impact Reporting (All Tiers)

You must now explain what difference your charity's work made during the year. This isn't about listing activities—it's about outcomes. What changed for your beneficiaries? How did your work improve their circumstances?

For smaller charities, a few paragraphs with a story or two will do. Larger charities should go further, describing longer-term effects and potentially including data or case studies.

Volunteer Contributions (All Tiers)

If your charity relies on volunteers (and most do), you need to describe their role. What do they do? How many are there? Larger charities should provide numbers and may want to estimate total volunteer hours.

This is your chance to recognise the contribution volunteers make—and to show funders and the public just how much they help you achieve.

Reserves (All Tiers)

You must now:

• State your actual reserves level
• Compare this to your reserves policy target
• Explain any steps you're taking to address a shortfall (or plans for a surplus)

If it's not obvious from your accounts, include a reconciliation showing how you calculated your "free reserves." No more ambiguity about what that number actually means.

Future Plans (All Tiers)

Previously only required for larger charities, now everyone must include a brief overview of what's next. For a small charity, this might be two or three sentences. For larger organisations, link your plans to your strategy and explain how past experience has shaped your direction.

Technical Changes to Watch For

Your accountant will handle the details, but trustees should be aware of two significant accounting changes:

Lease accounting. Most leases (offices, vehicles, equipment) will now appear on the balance sheet as assets and liabilities. If your charity rents property, expect your balance sheet to look different—with higher asset and liability totals. This is a presentational change, not a sign of financial trouble, but it may affect certain ratios or covenants.

Revenue recognition. There's a new model for recognising income from contracts and service agreements. If your charity earns income from service delivery, the timing of when that income appears in your accounts might shift. Ask your accountant if this affects you.

Scotland and Wales: What's Different?

Wales: These changes apply fully. Welsh charities registered with the Charity Commission follow the same rules as English charities.

Scotland: Scottish charities follow the same SORP 2026 for content and presentation. However, audit thresholds differ slightly—the Scottish audit threshold is rising to £1 million (not £1.5 million as in England and Wales). Cross-border charities registered in both jurisdictions must meet the stricter of the two standards.

A Timeline for Trustees

The new rules apply to financial years beginning on or after 1 January 2026. So if your charity has a March year-end, your first accounts under the new rules will be for the year ending March 2027.

The raised audit thresholds apply to accounting periods ending on or after 30 September 2026.

What Should You Do Now?

1. Understand which tier your charity falls into. This determines what's required.

2. Discuss accounting options with your accountant. If you're under £500k and currently preparing accrual accounts, would switching to receipts and payments make sense? If you're between £1m and £1.5m, will you continue with an audit or switch to independent examination?

3. Start gathering information for your annual report. Think about how you'll describe your impact. Keep track of volunteer numbers. Review your reserves policy.

4. Brief your board. Ensure all trustees understand the changes—particularly those contributing to narrative sections of the annual report.

5. Allow extra time for your first year. The transition may take longer than usual. Build in buffer time for drafting the new-style report.

The Bottom Line

These changes are designed to help charities. Smaller organisations get simpler requirements. Larger organisations get clearer guidance on what good reporting looks like. And everyone gets a framework for telling their story more effectively.

Yes, there's some adjustment required. But the regulators are providing guidance, your accountants should be up to speed, and the sector bodies are running briefings. With a bit of preparation, your charity's 2026 accounts should not only tick all the compliance boxes but also better demonstrate your impact to everyone who cares about your work.

That's surely something every trustee can get behind.

This article summarises changes announced by the Charity Commission for England and Wales, OSCR, and the Charity SORP-making body. For official guidance, visit gov.uk/guidance/changes-to-charity-accounting-and-reporting or your relevant regulator's website.