Updated Charities SORP requirements are now in force for accounting periods starting on or after 1 January 2026, changing how charities account for leases.
While the changes are technical, they could have a noticeable impact – particularly for charities with property leases or longer-term arrangements.
What is changing?
The distinction between finance and operating leases has been removed.
Instead, most leases now appear on the balance sheet as:
- A right-of-use asset
- A lease liability
This replaces the previous approach, where many leases were treated as straightforward expenses through the statement of financial activities.
Are there any exemptions?
Two key exemptions in place:
- Short-term leases (12 months or less); and
- Low-value assets (e.g. laptops, small office equipment).
Where these apply, payments can still be expensed. However, commitments must continue to be disclosed.
Key considerations:
Social donation leases
Where assets are leased at below market value, there may be a donated element that needs to be reflected in the accounts.
The donation component is the difference between the market rent and the actual rent paid and is treated as a non-exchange income transaction.
Impact on reporting
You may see:
- Higher assets and liabilities on the balance sheet;
- Lease costs split into depreciation and interest rather than a single expense; and
- Changes to reported reserves, KPIs, or covenants.
What should charities be doing now?
With the new rules now in effect and likely to apply to your next set of financial statements, charities should:
- Review lease and rental arrangements;
- Identify which fall within the new requirements;
- Assess whether exemptions apply; and
- Understand the impact on reported figures.
How M+A Partners can help
These changes represent a shift in how lease arrangements are reflected in charity accounts and may require careful judgement in practice.
Our team support charities in assessing lease arrangements, understanding the impact on financial reporting, and ensuring compliance with the latest SORP requirements. If you would like to discuss how these changes affect your organisation, please get in touch.
