Accounting for UK charities (Charity SORP)

The Charities SORP (FRS 102) is the Statement of Recommended Practice that all UK charities preparing accruals accounts must follow. It sits on top of FRS 102 and adapts the framework for restricted funds, donated income and the Statement of Financial Activities (SOFA) in place of a profit and loss account.

Charity accounting differs from ordinary company accounting in one fundamental way: a charity does not exist to generate profit for owners, so the accounts must show how income was applied to deliver the charity’s purposes. That shift in emphasis — from profit to public benefit and stewardship of funds — drives almost every difference you will meet. This guide is part of our industry accounting guides hub, where we cover the sector-specific rules that general bookkeeping advice tends to skip.

Who applies the SORP

Most charities preparing accruals accounts apply the SORP. The exception is very small charities preparing receipts and payments accounts.

Independent examination thresholds differ slightly for the OSCR (Scotland) and CCNI (Northern Ireland) — check your regulator.

The Statement of Financial Activities

The SOFA is the SORP equivalent of the P&L, organised around fund types and activity, not just nature.

Income and expenditure are then split by activity — donations and legacies, charitable activities, trading, investments, and so on. The key discipline is keeping restricted funds ring-fenced: money given for a named purpose can only be spent on that purpose, and the SOFA must demonstrate this fund by fund.

Charities that also run a trading arm face the same VAT and revenue-recognition questions as any business. If your charity sells online or operates an enterprise alongside its grant income, the principles in our ecommerce accounting guide and hospitality accounting guide will help you separate trading results from charitable activities before they consolidate into the SOFA.

Trustees’ Annual Report

The Trustees’ Annual Report (TAR) is the narrative document that accompanies the accounts. It must explain how the charity’s activities deliver public benefit.

• Mission, objectives and activities
• Achievements and performance
• Financial review including reserves policy
• Plans for future periods
• Structure, governance and management
• Reference and administrative details
• Statement of trustees’ responsibilities

Reserves policy is closely scrutinised by the Charity Commission and donors alike.

Fund accounting in practice

Fund accounting is the engine behind the SOFA. Every transaction is tagged to a fund before it is tagged to a nominal code, so your bookkeeping system needs to handle this dimension natively rather than as an afterthought.

• Unrestricted general funds — freely available for any charitable purpose, and the source of the reserves figure trustees scrutinise.
• Designated funds — unrestricted money the trustees have earmarked internally; still legally unrestricted, but disclosed separately.
• Restricted income funds — given by a donor for a specified purpose and spent within a reasonable period.
• Endowment funds — capital that must be retained, either permanently or until the trustees exercise a power to spend.

Getting fund tagging right at the point of entry is far easier than unpicking it at year end. If a contractor delivers work for the charity, the same Construction Industry Scheme rules apply as for any client — see our CIS guide for the deduction and reporting detail.

Common issues

Closing thoughts

The SORP is detailed but well-supported by published guidance and example accounts. Pair this with our FRS 102 for UK SMEs article, the Companies House annual accounts guide, and the year-end checklist. For more sector-specific reading, browse the full set of industry accounting guides or our wider UK accounting guides. The official Charities SORP microsite hosts the full text. See pricing for fund accounting software with SORP-ready reporting.