Aspects	Old SORP (2019)	New SORP (2026)
General Principles	Income was recognised when the three criteria were all met: Entitlement, Probable and Measurable.	Three set model removed: Now there is a requirement to use specific criteria per income type.
Exchange Transactions (e.g. Course fees for education, Sale of goods by a museum or gallery and Residential care fees)	Recognised when service delivered under entitlement, probability and measurement.	Completely new five-step model aligned with FRS 102 (contract-based).
Non-Exchange Transactions	Recognise when entitlement exists and inflow is probable; defer if conditions unmet.	Largely unchanged; clearer guidance on deferral and disclosure.
Grants	Non-exchange unless linked to goods/services; defer if conditions unmet.	Largely unchanged: performance-related grants follow stricter deferral rules.
Donations	Recognised immediately when received or when entitlement is certain.	Unchanged.
Legacies	Recognised when charity is entitled, value measurable, and inflow probable.	Recognised when receipt is probable and measurable. No need to separately demonstrate entitlement. Clearer definitions about probability.

What’s New in SORP 2026 – A Fresh Approach to Income Recognition

The updated SORP, published 31 October 2025, and effective for accounting periods beginning on or after 1 January 2026, introduces significant changes in how charities recognise income. Key among these are clearer distinctions between exchange and non-exchange income, and alignment with updated FRS 102 rules.

SORP 2026 restructures “Module 5 – Recognition of Income” so it now comprises two main parts: income from exchange transactions and income from non-exchange transactions.

Below we walk through how the treatment of different types of income has changed or stayed the same under the new SORP framework.

Exchange Income (e.g. Contracts, Trading, Service Delivery)

Under the previous SORP, “exchange” income was often treated under general revenue recognition guidance inherited from broader standards. Under SORP 2026, income from exchange transactions must now follow the revised FRS 102 income-recognition approach.

The new “five-step model”

When a charity delivers services or goods in return for payment (e.g. a contract with a customer, a service-level agreement, trading income), SORP now requires application of a five-step model to recognise revenue:

Identify the contract with the customer/funder.
Identify the separate performance obligations (i.e. what distinct services or goods the charity is promising).
Determine the transaction price (the amount of consideration expected).
Allocate the transaction price between the distinct performance obligations.
Recognise revenue when (or as) the charity satisfies each performance obligation.

In practice, for many charities the timing of recognition may not differ materially from prior treatment. Nonetheless, the new model introduces a consistent, structured approach particularly for more complex funding or service arrangements.

Because of this change, charities should review all existing or future contracts and income streams to determine whether they are exchange transactions, and if so, whether the five-step model affects the timing or measurement of income.

Non-Exchange Income (Donations, Grants, Legacies): What looks the same and what is clarified

Non-exchange income remains under a somewhat different regime under the new SORP: rather than applying the five-step exchange model, such income continues to be treated under a non-exchange framework, but the criteria and presentation are refined.

Donations, Gifts and Unconditional Grants

For donations, charitable gifts and non-conditional grants (i.e. where no further performance/purpose-related obligations attach), recognition remains broadly the same:

Income should be recognised when the resources are received or receivable, provided the amount can be measured reliably.
That means that if a donor’s pledge constitutes a firm commitment (rather than a mere intention), and the charity can reliably measure the gift, it may be recognised even before cash is physically received.

This parallels the previous SORP approach (entitlement, probability, measurement), but under SORP 2026 the language is more straightforward and tailored to non-exchange transactions.

Grants with Conditions (Performance-related Grants) Grants

Grants that impose conditions (e.g. delivery of certain outputs or performance-related targets) are treated differently:

If a grant includes performance-related conditions, income is only recognised when the charity satisfies those conditions.
If funds are received (or receivable) before those conditions are met, the amount must be recorded as a liability (i.e. deferred income) until conditions are fulfilled.

This aligns with prior practice for conditional grants under the old SORP (i.e. holding as deferred income until the condition is met), but gives clearer, more explicit guidance on when deferred income is appropriate and how to account for it.

Legacies

The new SORP retains the requirement that legacy income (i.e. promised gifts as a result of a will) should only be recognised when it is probable the legacy will be received and the amount can be measured reliably.

While previous SORP guidance did emphasise “entitlement, probability, measurement,” the updated version removes some of the older terminology (“entitlement”) and replaces it with a simpler basis, but the test remains comparable.

If reliable valuation information is not available at the reporting date, the legacy must be disclosed rather than recognised; if more definitive information arrives before approval of accounts, it may be treated as an adjusting post-balance sheet event and the value of the legacy included.

Non-Exchange Income (Donations, Grants, Legacies): What looks the same and what is clarified

1. Review all current contracts, funding agreements, grant letters, and donation/pledge documentation to determine which streams are exchange vs non-exchange.

2. Update accounting policies to reflect the new SORP classification and recognition criteria (especially for exchange income using the five-step model; and non-exchange income using the clarified rules).

3. Train finance staff, Trustees and report-preparers on the changes — especially in relation to conditional grants, deferred income, legacy valuation, and disclosures.

4. Prepare internal systems (accounting, ledger, tracking of conditions, deferred income, cashflow, reserves) to accommodate new recognition and reporting requirements.

5. Communicate with auditors/examiners early, to ensure smooth transition, clarity on comparative reporting, and consistent application across reporting periods.

Conclusion

The new SORP 2026 brings the accounting framework for charities up to date, aligning with revised FRS 102 and introducing a clearer, more structured approach to income recognition. For exchange income, the five-step revenue model will govern how and when revenue is recognised. For non-exchange income (donations, unconditional grants, legacies) the SORP retains a performance based model, but with clearer, more transparent guidance.

For many charities the changes may be modest in practice. But for those with complex income streams (trading contracts, service agreements, conditional grants) the implications could be significant. Now is the time to review, plan, and adapt accounting policies and internal systems.

For the benefit of donors, trustees, stakeholders and the public, the new SORP offers an opportunity to improve transparency, consistency and trust, if the changes are implemented thoughtfully.

There may be circumstances where the value of the legacy cannot be accurately measured (for instance where this is dependent on selling property).

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