The Charities SORP is being updated to reflect changes in the revised FRS 102 (2024) and align revenue recognition and lease accounting with IFRSs. The changes also aim to address several broader issues in charity reporting.

Although academy trusts are exempt charities, they must comply with the Charities SORP in addition to the DfE’s Academies Accounts Direction (AAD). The AAD translates the SORP and other applicable guidance into a form relevant to academy trusts. With the SORP coming into effect for accounting periods commencing on or after 1 January 2026, we expect the AAD for the 2026/27 financial year to incorporate the new SORP. That means it’s time to start preparing.

What are the significant changes to Charities SORP 2026 for academy trusts?

A number of key changes in the new SORP will impact the reporting process for academy trusts. These include:

A new three-tier reporting framework

The new three-tier system for charities is based on gross income levels and allows the SORP to layer up reporting requirements based on the size of the charity. The tier thresholds are:

• Tier 1: gross income of no more than £500k.
• Tier 2: gross income of no more than £15m.
• Tier 3: gross income above £15m.

The tier 1 reporting requirements aren’t expected to impact academy trusts and it is likely that the AAD will give an indication of how they should implement the tiered approach in due course.

Enhanced narrative reporting requirements

New and expanded requirements for trustees’ annual reports relate to areas including impact, volunteers and sustainability. As with tiered reporting, we expect the AAD to be the guide on how this additional reporting should be implemented by academy trusts.

Revised income recognition requirements

The new Charities SORP introduces new income recognition rules that follow the five-step model included in the revised FRS 102. As part of this, the distinction between exchange and non-exchange transactions has been clarified.

The five-step model applies to all income from contracts which could include some types of lettings where services are provided. This could also extend to holiday clubs and wraparound care, additional music and sports lessons, transport and consultancy services where there is a contract in place.

Although the basis of recognition for many income streams may not significantly change, academy trusts will need to review their income streams to see where the five-step model needs to be applied.

Updated requirements for leases

Academy trusts also need to be aware of a new model for lease accounting. This is included in the new SORP with examples that are relevant to the charity sector to help illustrate and explain the implications of the new model. Peppercorn arrangements and ‘social donation’ leases are also considered in this module.

For lessees, there is no longer a distinction between lease agreements that transfer all the risks and rewards of ownership of the asset (finance leases) and lease agreements that do not (operating leases). Instead, there’s now a single accounting treatment for lessees, meaning academy trust accounts will record many more leases on their balance sheets.

FRS 102 offers two exemptions:

• Short term leases of 12 months or less at the start date.
• Low-value assets like personal computers, tablet devices, small items of office furniture and telephones.

Church academies typically occupy land and buildings owned by a diocese, other religious body or by independent trustees under a licence to occupy.

Academy Trusts will need to look at these arrangements and consider if they meet the definition of a lease under the new SORP and revised FRS102. We hope that specific DfE guidance will be issued on accounting for leases given some of the complexities that will be common for academy trusts in this area.

How academy trusts can prepare for the new Charities SORP

Given the significance of the changes, academy trusts should start preparing for these changes today using the Charities SORP exposure as a guide.

For more information on the changes to income recognition and lease accounting, please visit our Trustee Insight hub.

To discuss the changes to income recognition and lease accounting further, please contact Kerry Gallagher, Sharon Monteith or your usual RSM contact.

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