Changes to lease accounting - what charity trustees need to know

Changes to lease accounting - what charity trustees need to know

As we look ahead to the implementation of the new Charity SORP (Statement of Recommended Practice) in 2026, one major area of change is how leases will be treated in charity financial statements. Whether you’re a finance officer, trustee, or part of a charity's leadership team, staying informed about these changes is essential.

Why the change?

The new SORP reflects the updates to FRS102 which is in place for Companies. This will impact how leases are accounted for across the board for all entities following FRS102. For charities, this means a shift towards greater transparency and consistency - but it will also require some preparation and understanding.

What’s changing?

In short, the traditional distinction between operating and finance leases is going away for leases. Under the new framework:

  • Most leases will now be shown on the Balance Sheet.
  • Charities (and Companies) will need to recognise a Right-of-Use Asset and a lease liability for the majority of their lease agreements.
  • This change applies regardless of whether the lease is for office space, vehicles, or equipment - if it's a lease, there’s a good chance it will now need to be shown on your Balance Sheet.
  • Only a few leases will be exempt from the new rules – typically those lasting less than 12 months or relating to low-value items, such as mobile phones, office printers, or small IT equipment – but everything else will need to be assessed and included on the Balance Sheet.

This move aims to provide a more accurate picture of an organisation’s financial position and future commitments, and to make it easier to compare organisations on a like-for-like basis.

What does this mean for your charity?

Improved financial clarity: By recognising leases on the Balance Sheet, stakeholders get a clearer view of a charity’s future financial obligations (so they aren’t ‘off Balance Sheet’).

More complex reporting, including:

    • Tracking of key lease details: such as the length of the lease, payment terms, renewal options, and whether there are any service charges or break clauses.
    • Calculation of Net Present Value: this means applying a discount rate to future lease payments to show today’s value of your lease commitments.
    • Recognise ‘Right-of-Use’ Assets: a new category on your Balance Sheet showing the value of what you’re leasing, alongside a matching lease liability.

    Trustee involvement: Trustees need to be aware of the implications—especially in understanding how liabilities and asset values might appear in future accounts, and what impact this might have on their funding applications.

    Budgeting and forecasting: As lease liabilities become more prominent, it may affect how organisations budget for long-term commitments.

    What can you do now?

    Although 2026 may seem far off, now is the time to prepare -even if you only lease a few items, the new rules still apply unless they fall under the short-term or low-value exemptions. Early preparation will make the transition much smoother.

    Here are a few proactive steps:

    • Review existing lease agreements and assess which ones will need to be reported under the new standards.
    • Engage with your finance team or advisor to understand the technical implications.
    • Update your accounting systems or spreadsheets to handle the new calculations, and ensure your finance team has undertaken training and understands how to apply the new rules.
    • Keep trustees informed, especially those involved in audit or risk management.
    • Decide now if you will be restating comparative figures in the accounts, which may mean gathering information on leases in your current financial year.
    • Look out for further guidance as the SORP Committee continues its work.

    Summary

    At Beeston Clarke Accountants, we believe good preparation is the key to smooth transitions. While the changes to lease accounting under the Charity SORP 2026 may seem daunting, they’re designed to enhance transparency and accountability – values that sit at the heart of the charitable sector and its relationship with funders, regulators, and the public.

    And remember, lease accounting is just one of several significant changes in the new Charity SORP 2026 – so make sure you stay informed as further guidance is released.

    If you'd like help reviewing your leases or understanding the impact of these upcoming changes, feel free to get in touch with our team.

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