Charity Accounting – forthcoming changes

The charity sector is entering a period of significant regulatory change. From the updated accounting standard to a refreshed governance code and a modernised fundraising framework, these changes aim to strengthen transparency, accountability, and public trust. For trustees, finance teams, and senior leaders, understanding these developments is not optional, it’s essential for compliance and credibility.

Charity Accounting: The New SORP 2026

The new FRS 102 SORP is effective for reporting periods starting 1 January 2026 and has long been awaited following the announcement of the periodic review of FRS 102, back on 27 March 2025.

Key highlights include:

• Three-Tier Reporting Framework
  • Tier 1: Income up to £500,000
  • Tier 2: £500,000–£15 million
  • Tier 3: Over £15 million

This tiered system tries to ensure smaller charities face less administrative burden, while larger organisations maintain robust transparency with the key differences between the tiers being in the requirements of the trustees’ report.

• New Accounting Rules

As expected, the charity SORP follows the key changes implemented in the periodic review of FRS 102, being:

• Lease accounting: recognition of operating leases on the balance sheet.
  • Income recognition: adoption of a five-step revenue recognition model for exchange transactions.

Both of these key changes allow for a modified retrospective approach, which does save the need for changes in the comparatives, if this approach is chosen.

• Trustees’ Annual Report Enhancements
  Expanded guidance on reserves, future plans, and impact reporting, alongside dedicated sections for ESG (Environmental, Social, Governance) disclosures.

The key areas all charities should seek to pro-actively prepare for, are the operating lease changes and ensuring their income recognition is in accordance with the five-step method.

Fundraising Regulation: The 2025 Code

The new Code of Fundraising Practice, effective 1 November 2025, represents the most significant overhaul since 2019. It moves from prescriptive rules to a principles-based framework, prioritising ethics, transparency, and adaptability.

Key Changes:

• Principles Over Rules

Encourages judgment and flexibility, particularly for emerging fundraising methods like digital campaigns and gaming.

• Protections for Fundraisers

Charities must safeguard staff and volunteers from harm and harassment, with clear reporting channels.

• Stronger Oversight of Third Parties

Mandatory due diligence and monitoring of fundraising partners.

• Digital Giving Standards

Clearer requirements for online platforms and unstaffed collections, reflecting modern donor behaviour.

• Transparency and Accountability

Trustees are explicitly accountable for ethical fundraising culture and decision-making.

Fundraising remains a very significant income source for a large number of charities, the method of this fundraising most be proactively monitored and governed by Trustees.

Governance: A Refreshed Charity Governance Code

Published in November 2025, the updated is voluntary but widely regarded as best practice. It introduces eight core principles, including a new Foundation Principle emphasising trustees’ legal duties and continuous learning.

• Foundation Principle

Trustees must invest time in understanding their role, governing documents, and conflict management.

• Ethics and Culture

Integrity and openness merge into a values-driven principle, reinforcing ethical leadership.

• Equity, Diversity & Inclusion (EDI)

Broader focus on inclusion and board behaviours.

• Managing Resources and Risks

A dedicated principle for financial stewardship and risk oversight.

Trustee boards should conduct a governance review against the new code, to ensure their governance is following the best practice.

Strategic Implications for Charities

These changes are sector-wide, pushing for proportionate regulation, ethical fundraising, and stronger governance. Together, they aim to:

• Enhance public trust through transparency and accountability.
• Reduce administrative burden for smaller charities.
• Support innovation in fundraising and governance practices.

Some practical steps to consider:

1. Map current practices against new requirements in accounting, fundraising, and governance.
2. Equip trustees and staff with knowledge of the new frameworks.
3. Refresh financial policies, fundraising agreements, and governance statements.
4. Share changes with donors and beneficiaries to reinforce trust.

Key Changes to Charity Thresholds

Changes to the thresholds were announced on 31 October 2025, by the Department for Culture, Media and Sports (DCMS) following a public consultation earlier in the year.

The changes will apply to accounting periods ending on or after 30 September 2026.

• Audit Threshold (Income):
  Increased from £1 million to £1.5 million. Charities with annual income above £1.5m will require a statutory audit, those below, subject to the next point, will not require a statutory audit, but charities should be mindful of any conditions with funders that stipulate an audit is required.

• Audit Threshold (Assets + Income):
  An audit is required where assets exceed £3.26 million and income is over £250,000. This rises to £5 million in assets and £500,000 income. 

• Independent Examination Threshold:
  The starting point has increased from £25,000 to £40,000 annual income. Charities below the audit thresholds, as above, but above £40k of income will need an independent examination.

• Receipts & Payments Accounts Option:
  For non-company charities, the threshold for using receipts and payments accounts rises from £250,000 to £500,000 income.

• Group Accounts Preparation:
  Threshold increased from £1 million to £1.5 million income, inline with the changes in the audit threshold.

The increase in the thresholds is designed to help reduce regulatory burden on smaller charities and align thresholds with inflation since the last review in 2015. This change is expected to save the sector £47m annually in compliance costs.

Conclusion

The next year will be pivotal for the charity sector. Trustees and their staff should embrace these changes proactively, by not only ensuring compliance but also strengthening their resilience and reputation. These updates are more than regulatory, they are an opportunity to demonstrate leadership, transparency, and impact.

Please do reach out to your regular Ensors contact if you have any queries or require further support on any element of these.