New Housing SORP – changes to income recognition
The Housing SORP Working Party has published the draft SORP 2026: Statement of Recommended Practice for registered social housing.
We are now in a period of consultation on the new draft SORP and stakeholders have until 12 January 2026 to submit their comments. The SORP working party has provided details on their consultation process on their website.
One area subject to significant changes in the draft is income recognition. This area is being updated to reflect changes in the revised FRS 102 (2024), focusing on aligning revenue recognition and lease accounting with International Financial Reporting Standards (IFRSs).
3 changes to income recognition
Contract income
The draft SORP adopts the five-step model for revenue recognition for income from contracts, aligning with IFRS 15 principles:
- Identify the contract with a customer.
- Identify the performance obligations.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations.
- Recognise revenue when (or as) the entity satisfies a performance obligations.
Income from service charges will now be treated as revenue from contracts with customers, meaning it must follow the five-step above model for recognition.
Grant income
Grant income is excluded from the five-step revenue model. Instead, it is treated as a non-exchange transaction and accounted for under:
- Section 24: Government Grants.
- Section 34: Specialised Activities of FRS 102.
This means income is generally recognised when there is reasonable assurance that:
- The entity will comply with the conditions attached to the grant.
- The grant will be received.
- If a grant includes performance-related conditions, income is recognised only when those conditions are met.
- This approach ensures that income is not prematurely recognised before the provider has fulfilled its obligations.
Rental income
Rental income from tenants is now explicitly treated as lease income under Section 20 of FRS 102. This reflects the view that social housing tenancies are, in substance, lease arrangements.
Rental income should be recognised on a straight-line basis over the lease term, unless another systematic basis better represents the pattern of benefit derived from the leased asset. Any variable elements of rent (e.g. service charges or performance-based rent adjustments) are excluded from the lease income and accounted for separately under Section 23 revenue if they meet the definition of revenue from contracts with customers.
Clarification on regeneration schemes and stock swaps
The draft SORP seeks to improve consistency by standardising accounting treatment across the sector, especially for complex transactions like regeneration schemes and stock swaps.
Stock swaps, which typically involve the exchange of housing units between providers, are now more clearly addressed in terms of grant income recognition and asset treatment.
Grants received as part of a stock swap will now be treated under Section 24 of FRS 102 (Government Grants) meaning grants will be recognised in the primary financial statements, rather than being treated as contingent liabilities as was often the case previously.
Clearer guidance is provided on valuation, timing of recognition, and narrative disclosures for regeneration schemes and stock swaps.
Where stock swaps are part of a merger or acquisition, the SORP provides updated guidance on business combinations, including the treatment of goodwill and fair value adjustments.
For further advice on how to prepare for these changes, you can read our Preparing for change: countdown to January 2026 guide.
If you would like to discuss the updated SORP and explore ways to improve your inhouse processes, get in touch with John Guest, Kerry Gallagher or your usual RSM contact.