Proposed Changes to the Charity SORP 2025: What You Need to Know

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The Charity Statement of Recommended Practice (SORP) 2025 is undergoing significant revisions, reflecting the evolving landscape of financial reporting and the unique needs of the charity sector. As a trustee, CEO or finance professional it is crucial to understand these changes to effectively guide your Charity through this transition.

Key Changes and Their Implications

Introduction of Three Tiers Based on Income Levels

The updated SORP proposes a tiered approach to reporting, segmented by income levels. This aims to ensure proportionate reporting requirements, making it easier for smaller charities to comply while still providing comprehensive information for larger organisations.

The proposed thresholds will be as follows:

Tier 1 – Smallest Charities (income below £500k)

Tier 2 – Mid-sized Charities (income between £500k and £15m)

Tier 3 – Largest Charities (income over £15m)

Changes to Income and Lease Recognition

The revisions incorporate changes introduced by the Financial Reporting Council (FRC) to FRS 102. Charities will need to adapt to new methods of recognising certain types of income and leases in their accounts.

Revenue recognition will now be done on a five-step model to determine how and when income is recognised. This will mean that charities will need to recognise income from exchange contracts differently.

Under the new SORP, charities must account for most operating leases on the balance sheet, resulting in an increase in assets and liabilities. Additionally, expenses related to leases will be presented differently in the statement of financial activities.

Enhanced Reporting on Impact, Reserves, and Sustainability

The SORP emphasises the importance of reporting on the impact of charitable activities, the management of reserves, and sustainability. These areas are critical for demonstrating accountability and transparency to donors, beneficiaries, and the public. It also recognises the growing importance of ESG factors.

Preparing for the Changes

The consultation period for the draft SORP runs until June 20, 2025, with the final version expected to be published in autumn 2025 and effective from January 2026.

It is essential for charities to engage with the consultation process and prepare for the upcoming changes. This includes:

Reviewing Current Practices: Conduct a thorough review of existing accounting and reporting practices to identify areas that will be impacted by the new SORP.
Training and Development: Ensure that staff and trustees are informed about the changes and receive appropriate training to implement the new requirements.
Stakeholder Engagement: Communicate with donors, beneficiaries, and other stakeholders about the changes and how they will enhance transparency and accountability.

The proposed changes to the Charity SORP 2025 represent a significant step forward in improving the clarity and usefulness of charity accounts. By understanding and preparing for these changes, accountancy firms can play a vital role in supporting charities to navigate the new landscape and continue their valuable work with confidence.

For more detailed information and to participate in the consultation, visit the official https://www.charitysorp.org/