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The Charities SORP (Statement of Recommended Practice) has now been revised, with the updated version taking effect for accounting periods starting on or after 1 January 2026.
It’s important that those working within charities or as part of finance teams understand what’s changing and how it affects reporting, governance, and day-to-day decision-making.
We covered the changes and the details that charity trustees and finance teams need to know about the 2026 SORP revisions here.
In this article, Lauren England looks in more detail at the changes related to Income Recognition Rules.
Charity SOFA presentation rules
All charities must prepare a statement of financial activities (SOFA) for each reporting period. It includes all income, expenses, gains and losses recognised within the period.
- Tier 1 charities – may choose to follow a natural classification basis of reporting (example given in table 3 of module 4) or to follow the activity basis of reporting.
- Tier 2 and 3 charities – the activity basis of reporting is utilised (example given in table 4 of module 4).
The natural classification basis means costs are reported based on their nature, so for example staff costs, premises costs or interest costs as opposed to the activity basis which would show costs grouped as charitable activities, raising funds or other.
Income recognition, including legacies, grants and contract income
The rules within module 5 of the SORP apply to all tiers.
The most important thing to understand is that the historic recognition criteria of entitlement, probability and measurement no longer exist.
Instead, each income stream must now be considered in its own merit and accounted and disclosed in accordance with its substance not simply its legal form.
This means the conditions attached to income streams may need considering in more detail than previously to ensure the correct recognition basis.
The SORP now splits incoming resources into two types of transactions.
- Non-exchange transactions
- Exchange transactions
Non-exchange transactions
Non-exchange transactions cover income streams that are of a voluntary nature (donations, legacies and grants) either from individuals or an entity. With the key assumption here that no directly equal value is given in exchange.
A charity must recognise income from non-exchange transactions as follows:
- Transactions that do not impose specified future performance related conditions on the recipient are recognised in income when the resources are received or receivable.
- Transactions that do impose specified future performance related conditions on the recipient are recognised in income only when the performance related conditions are satisfied
- When resources are received or receivable before the performance related conditions are satisfied, a liability is recognised
Legacy recognition
Unfortunately, the much wished for clarification on the recognition of legacy income hasn’t come to fruition.
Guidance around legacies in the latest FRS102 has been removed and enhanced in the SORP instead.
However, there is little change from previous guidance overall here.
Clear statements on recognition are included ‘Income from legacies must be recognised when it is probable that the legacy will be received, and its value can be measured reliably’
But there has been no change to the definition of ‘probable’ from the previous version of the SORP, and so previous concerns regarding the consistency of recognition across the sector still exist.
Clear accounting policies on legacy recognition will be key here to clarify the position taken by Trustees.
Exchange transactions
Exchange transactions include income a charity receives for goods or services supplied under contract with third parties.
The income the charity receives for the transfer of promised goods and services, is an amount that reflects the consideration to which the charity expects to be entitled in exchange for those goods or services.
So, examples of transactions to which this model applies include the provision of educational services by a charity in return for course fees; the sale of educational goods by an art gallery or museum charity; or the provision of serviced residential accommodation by a residential care home in return for payment.
Criteria for the recognition of income
Section 23 of FRS 102 – Revenue from Contracts with Customers – establishes a revenue recognition model for accounting of revenue from contracts with customers, which this SORP refers to as ‘third parties’.
The objective of the model is for a charity to recognise income in a way that reflects when goods or services are delivered to others, and the amount the charity expects to receive in return.
The five-step model set out is as follows:
- 1. Identify the presence of a contract.
- 2. Identify the performance obligations in the contract.
- 3. Determine the transaction price.
- 4. Allocate the transaction price to the performance obligations.
- 5. Recognise income as or when the charity satisfies a performance obligation.
Charities also need to consider whether performance obligations are satisfied over a period of time or by a point in time.
The example given in paragraph 5.44 of the SORP of income recognised over time, would be a charity running an employment course where attendees pay for the course.
The course involves attendance at 10 sessions, so the third party receives the benefits of the course as the charity provides (or performs) the sessions. In this case, the charity would allocate the fee for the course attendance as the course is delivered.
Where a performance obligation is satisfied over time, the charity must select a single method to measure progress that reflects the transfer of control of the promised goods or services to the third party. That method should be applied consistently to similar performance obligations in similar circumstances.
At the end of each reporting period, the charity must reassess its progress towards fully satisfying the performance obligation and update its measure of progress. Any resulting adjustment is treated as a change in accounting estimate.
Where a charity is unable to reasonably measure progress towards complete satisfaction of a performance obligation – for example, in the early stages of a contract – but expects to recover the costs incurred, income should be recognised only to the extent of those costs.
Section 5.10 of the SORP refers to the measurement methods set out in Section 23 of FRS 102. Guidance on how charities should apply these changes for the first time is included in Section 1 of FRS 102, with specific transitional provisions for revenue from contracts with customers set out in paragraphs 1.61 to 1.67.
We’re here to help
We’re already working with clients to prepare for the new SORP. Whether it’s reviewing current reporting processes, or advising on reserves policies, we’re here to help you turn compliance into confidence.
To discuss what the new SORP means for your charity, get in touch with Lauren or one of the team by calling 0330 058 6559 or by emailing hello@scruttonbland.co.uk
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