SORP 2026: Key changes to lease accounting for charities

From 1 January 2026, new rules under the Charities Statement of Recommended Practice (SORP) will change how leases are reported in charity accounts. These changes aim to make financial reporting clearer and more transparent. Our charities experts share their guidance on the changes.

What’s changing for charities?

Currently, most leases are treated as operating leases where the lease payments are recognised as an expense.

Under the new rules, charities will need to show leases on their balance sheet. This means recording both a right-of-use asset, which represents the item being leased, and a lease liability, which reflects the payments owed. This approach gives a more accurate picture of a charity’s financial commitments.

Are there any exceptions to the rules?

Charities can continue to treat leases as expenses if the lease is short-term (12 months or less) or if the item is low-value, such as office furniture or IT equipment.

New tiered framework

SORP 2026 also introduces a tiered reporting framework based on annual income:

• Tier 1: Up to £500,000
• Tier 2: £500,000 to £15 million
• Tier 3: Over £15 million

Larger charities in Tier 3 will face more extensive disclosure requirements, including non-financial reporting such as environmental impact and outcomes. However, all charities, regardless of tier, must recognise and disclose lease-related assets and liabilities.

What does this mean for charities and their accounts?

These changes will affect several areas of a charity’s accounts. A balance sheet will show higher assets and liabilities, and your income statement will split lease costs into depreciation and interest rather than a single expense.

Notes to the accounts will need to include more detail about leases, and lease repayments will appear as financing activity in your cash flow statement.

What do charities need to do?

To prepare, charities should review all existing leases, check whether any exemptions apply, and update systems to track assets and liabilities. It’s also important to brief trustees and finance teams so they understand the implications of these changes.

Charities may also wish to consider liaising with specialist charity accountants to ensure that their accounts are accurate and compliant.

If you are a charity trustee and have any questions about the changes or how they might affect your charity, please don’t hesitate to get in touch with us.

Our charities and not-for-profits team specialises in advising charities on commercial property matters. The team also assists with other charity law matters, such as helping charities to comply with regulations.