What Academy Trusts Need to Know
The Charities SORP (Statement of Recommended Practice) is being updated to reflect changes in FRS 102, the financial reporting standard that underpins charity accounting in the UK. Academy trusts also follow the Academies Accounts Direction (AAD) issued by the ESFA, but they are also charitable companies and must comply with the Charities SORP where applicable.
Why are changes being made?
The Charities SORP Committee is revising the SORP to align with the updated FRS 102, which is being restructured as part of a UK-wide shift towards international financial reporting. This revision is also a chance to improve transparency and consistency across the charities sectors.
The 2026 update is not just a technical refresh – it’s a response to growing demands for greater transparency, consistency, and accountability in the charity sector. For academy trusts, this means clearer expectations around how you report income, explain your impact, and demonstrate financial resilience.
Key SORP 2026 Proposals
The draft SORP changes, published in July 2024, include a number of technical and governance-focused proposals. These aim to improve how charities present their financial story and demonstrate public benefit.
It is worth noting that these are draft changes and may evolve before final publication, meaning it’s important to stay up to date with the possible changes to SORP.
1. Tiered Reporting Requirements
- Tier 1: Income under £500,000
- Tier 2: Income between £500,000 to £15 million
- Tier 3: Income over £15 million
Most single-academy trusts will fall into Tier 2, while multi-academy trusts (especially those with multiple schools) may fall into Tier 3.
Implications
Larger trusts will face more detailed reporting requirements, particularly around narrative reporting and sustainability, while smaller trusts may benefit from simplified reporting, such as using natural classifications for income and expenditure.
2. Narrative Reporting: Telling Your Story Better
The Trustees’ Annual Report will need to go beyond compliance and provide a clear, meaningful narrative about:
- Educational impact: How your trust is improving outcomes for pupils.
- Reserves policy: Why you hold reserves and how they support your objectives.
- Financial resilience: How you manage risk and ensure long-term sustainability.
Sustainability and ESG: Environmental and social governance reporting will be mandatory for Tier 3 trusts and encouraged for all.
Implications
Trustees and senior leaders will need to be more involved in shaping the annual report.
You may need to collect non-financial data (e.g. carbon footprint, community engagement) to support your narrative.
3. Revenue Recognition: Five Step Model
SORP 2026 introduces a new model for recognising income from contracts with customers, aligned with Section 23 of FRS 102. This includes income from catering contracts, lettings and facility hire, service-level agreements (e.g. with local authorities) and other commercial trading activities.
The five steps of revenue are:
- Identify the contract
- Identify performance obligations
- Determine the transaction price
- Allocate the price to obligations
- Recognise revenue when obligations are fulfilled
Implications
Income must be recognised only when services are delivered, not when cash is received.
You may need to defer income that was previously recognised upfront.
Finance teams will need to review all contracts and assess how income should be treated under the new model.
4. Lease Accounting
Under the new rules, academy trusts must recognise operating leases on the balance sheet. This includes leases for:
- ICT equipment
- Vehicles (e.g. minibuses)
- Buildings or land (including peppercorn leases)
You’ll need to record a right-of-use asset on the balance sheet and a corresponding lease liability.
Implications
This will increase both your assets and liabilities, potentially affecting your reporting thresholds under the tiered system and financial ratios.
Calculations involve discounting future lease payments, which may require specialist support.
Special guidance is provided for peppercorn leases and below-market leases, which are common in the education sector.
5. Statement of Cashflows
A cashflow statement will only be required for trusts that exceed two of the following three thresholds:
- Income over £15 million
- Gross assets over £7.5 million
- More than 50 employees
Implications
Most single-academy trusts and smaller multi-academy trusts will be exempt from this requirement. Larger MATs will need to prepare a cash flow statement, which may require system changes or additional training – all areas that Botham Accounting can help with.
What should academy trusts do now?
Academy trusts need to look at the possible impacts for their financial statements. The final version of the revised SORP is expected in 2025, with adoption likely from 1 January 2026. But preparation should start now.
If your trust has an August year-end, the new rules will apply from 1 September 2026 (i.e. the 2026–2027 academic year).
Here’s how you can begin getting ready:
✅ Check your income recognition policies and various income schemes – make sure they are categorised, robust and support clear audit trails.
✅ Build a contracts and leases register, ensuring you have up-to-date records of all agreements in place
✅ Ensure your trustees are up to speed – changes to governance disclosures will need trustee input and ownership.
✅ Plan for training and system updates, as your finance teams may need guidance on the new revenue models and support with lease accounting
✅ Speak to your accountant or auditor – ideally someone who understands the charity sector and the implications of the revised FRS 102 and SORP.
SORP 2026 represents a significant shift in how academy trusts report their finances and impact. While it introduces complexity – especially around income recognition and lease accounting – it also offers an opportunity to improve transparency, strengthen governance, and tell a clearer story about your trust’s work.
Early preparation is key. By reviewing your income, contracts, and leases now, and engaging trustees and staff, you can ensure a smooth transition and avoid surprises.
Get support from Botham Accounting
At Botham Accounting, we support Academy Trusts & Charities of all sizes across the UK. From strategic advisory to audit and reporting, we help you stay compliant and focused on your mission.
If you’d like a conversation about how the SORP changes might affect your organisation, get in touch.
