Not-for-profit accounting runs on a different axis from commercial accounting: the question is not "what profit did we make" but "did we use the money as we promised". That single shift drives everything distinctive about the field — fund accounting, the SORP, trustees' reports that explain impact rather than margins — and 2026 is the biggest year the sector's reporting has had in a decade: a completely rewritten Charities SORP applies to periods beginning on or after 1 January 2026, and the audit thresholds rise from October. Here is the landscape, current rules and new, for trustees and finance teams.
Fund accounting: the discipline underneath everything
A charity's balance sheet is really several pots with different rules:
- Unrestricted funds — usable for anything within the objects; the organisation's genuine free resources;
- Designated funds — unrestricted money the trustees have earmarked (a building project, a resilience buffer). The designation is self-imposed and reversible, and labelling reserves "designated" to make them look spoken-for is a presentation game auditors and the Commission both see through;
- Restricted funds — given for a specific purpose, legally usable only for it. Spending restricted money on core costs is not a presentation issue; it is a breach of trust, and "borrowing" from restricted funds to manage cash flow is the classic route into serious trouble;
- Endowment — capital to be held, permanently or expendably, with income put to work.
Every deficit conversation, reserves policy and funding bid ultimately routes through this analysis, which is why weak fund accounting is the most common root cause we find under "the charity ran out of money unexpectedly". The Commission's reserves guidance (CC19) expects trustees to set and justify a target range for free reserves and report against it — a policy of "as much as possible" satisfies nobody.
The new SORP: what changes from 2026
The rewritten SORP, published October 2025, applies to accruals accounts for periods starting 1 January 2026. The load-bearing changes:
- Three tiers by income — under £500k, £500k to £15 million, and above — scaling disclosure to size, with the cash-flow statement mandatory only at the top tier. Small charities gain genuine simplification; larger ones gain expectations;
- Income recognition rebuilt on a five-step, exchange-versus-non-exchange model aligned with the updated FRS 102 — grants, contracts and donations each need re-mapping through the new framework, and some organisations will find income recognised in different periods than before;
- Leases on balance sheet — following FRS 102's lease reform, most operating leases (that peppercorn-adjacent office, the equipment fleet) arrive as right-of-use assets and liabilities, changing balance sheets and, for some, covenant and reserves optics;
- A beefed-up trustees' report, with more expected on impact and — encouraged rather than mandated — sustainability matters.
December 2026 year ends are already living in transition territory: comparatives, lease data and income re-mapping all need collecting through this year, not next.
Thresholds: who needs what scrutiny — and the October change
The current England and Wales framework: accruals accounts above £250,000 income (receipts and payments below); independent examination from £25,000; audit above £1 million income, or £250,000 income combined with gross assets over £3.26 million. From 1 October 2026 the bands shift materially: audit from £1.5 million, independent examination from £40,000, receipts-and-payments accounting up to £500,000.
That change puts a strategic choice in front of every charity between £1 million and £1.5 million: drop to independent examination and save the fee, or keep the audit that funders, lenders and some regulators still expect. Our standing advice is to ask your major funders before assuming — plenty of grant agreements hard-code "audited accounts" regardless of statute — and to remember an audit shed casually is expensive to re-establish credibly. Annual returns, meanwhile, stay due within ten months of year end, a deadline the Commission publicises defaulters on.
Beyond charities: the wider not-for-profit family
The sector's edges each carry their own rulebooks: CICs file company accounts plus a community interest report and get no charity tax reliefs; academy trusts answer to the ESFA's accounts direction on an August year end; co-operatives and societies have FCA registration and their own thresholds. The common thread is that "not-for-profit" describes the mission, never the rigour — if anything, spending other people's money to a promise demands cleaner books than spending your own.
Getting ready, practically
The 2026 to-do list for a typical charity finance team: map every income stream through the new recognition model; inventory leases and gather the data to capitalise them; decide your tier and draft the new-format trustees' report early; revisit the reserves policy against CC19 with real numbers; and — for those in the £1m–£1.5m band — settle the audit question with funders before the October thresholds land. None of it is hard; all of it is worse in the last quarter before year end.
Acumon works across the sector — charity accounts and SORP transition, charity audit and independent examination, and not-for-profit audit for the wider family — with the charity sector team handling the day-to-day. If your first new-SORP year end is December 2026, the transition planning belongs in this autumn's trustee meeting.