Income recognition changes for charities: What’s in the 2026 SORP?

The upcoming 2026 SORP brings some important updates to how charities recognise income. Compared with the lease accounting changes, these updates are generally less disruptive, but they still require careful review, especially for charities with more complex income streams.

Here’s a quick overview of what’s changing and what your charity needs to start thinking about.

A clearer split between exchange and non‑exchange income

One of the biggest improvements in the new SORP is how clearly it distinguishes between exchange and non‑exchange income:

• Exchange income, for example: membership fees, ticket and entrance income, shop and café sales, room hire, merchandise, sponsorship, and event income. These involve providing a good or service in return for payment.
• Non‑exchange income includes grants, donations, legacies, Gift Aid, donated goods/services, and similar transactions where the charity receives value without giving equal value in return.

For non‑exchange income, the underlying principles have not changed dramatically, but the new SORP provides much clearer definitions, especially around conditions, performance‑related terms, and when income should or should not be recognised.

The new five‑step model for exchange income

The key technical change affects exchange contracts, where the existing  risk‑and‑reward model is being replaced with a new five‑step revenue recognition framework taken from FRS 102 Section 23:

1. Identify the contract with the customer
2. Identify the performance obligations
3. Determine the transaction price
4. Allocate the transaction price
5. Recognise revenue when (or as) performance obligations are met

For many charities, this may not change the amount of income recognised, but the process of getting to that number will be different and requires more structured assessment.

What it means for non‑exchange income

The SORP now offers more precise rules for:

• Assessing whether grant conditions create a barrier to recognising income
• Determining when income should be deferred
• Distinguishing exchange vs non‑exchange contracts

This should result in more consistency and more understandable income recognition across the sector.

What charities should do now

To prepare for the new rules:

• Review all your income streams
• Identify those with exchange components
• Apply the new five‑step model where required
• Revisit your accounting policies to ensure alignment with the updated SORP
• Assess whether any contracts include both exchange and non‑exchange elements
• Get familiar with the new, clearer SORP guidance

For most charities, the impact of these income recognition changes will be manageable, particularly if your main income streams are grants, donations, or legacies. But where exchange contracts are a significant part of your activities, now is the time to start reviewing contracts and preparing for the 2026 implementation.

Talk to Bishop Fleming’s Charity Specialists

Revenue recognition can quickly become complex, especially when multiple services or conditions are bundled together. Bishop Fleming’s Charity team can provide clear, practical advice if you’re unsure how the 2026 SORP changes may impact your charity.