Not for profit accounting: Essential guidelines and updates in the UK

Not for profit accounting is the backbone of financial transparency, sustainability, and compliance for UK charities and community organisations. In 2025, UK non-profits face an evolving regulatory environment shaped by updates to non-profit accounting standards UK, the upcoming Charities SORP 2026, and global initiatives such as the International Non-Profit Accounting Guidance (INPAG). For trustees, finance officers, and managers, understanding these changes is no longer optional—it is essential for securing funding, meeting reporting obligations, and safeguarding public trust.

A well-structured accounting framework ensures that funds are allocated fairly between programs, administrative functions, and reserves. Yet, many organisations still struggle with complex reporting requirements, fundraising regulation, and navigating tax obligations. Whether you are a small community group or a large charity, not for profit financial reporting provides the transparency that donors, regulators, and beneficiaries expect.

This article offers a step-by-step guide to not for profit accounting in 2025, covering everything from tiered reporting for non-profits UK to the impact of corporation tax for charities. We will break down the latest UK-specific updates, explore international guidance, and provide practical insights into software, compliance, and best practices. Our goal at NGO Finance Hub is to equip you with the expertise to stay compliant while building financial sustainability.

By the end of this guide, you will know:

• What the new Charities SORP 2026 update means for your reporting.

• How tiered reporting will affect small vs. large non-profits.

• Which accounting software for not for profits offers the best efficiency.

• How to manage charity tax obligations UK, including Gift Aid and corporation tax.

• Practical strategies for accurate reporting, governance, and compliance.

At NGO Finance Hub, we specialise in supporting organisations through ngo financial management, delivering practical solutions via our ngo finance course and financial management for NGOs training. If your team needs hands-on guidance to implement these new standards, our experts are ready to help.

Non-profit accounting standards UK and the Charities SORP 2026 update

Accounting standards for not for profit organisations in the UK are designed to ensure consistency, comparability, and accountability across the sector. For most charities and community interest organisations, compliance with FRS 102 (the Financial Reporting Standard applicable in the UK and Ireland) and the Charities SORP (Statement of Recommended Practice) is mandatory. These frameworks establish how income, expenditure, grants, and restricted funds should be recognised and reported.

What are the latest accounting standards for not for profit organisations in the UK?

As of 2025, non-profits must continue to follow Charities SORP 2019 (FRS 102), but a major change is on the horizon with the upcoming Charities SORP 2026. This update will introduce enhanced requirements for fund accounting, transparency in income recognition, and improved reporting on reserves and risk management. Smaller charities will benefit from simplified disclosures, while larger organisations will need to strengthen governance and demonstrate clearer links between finances and strategic outcomes.

How will the updated Charities SORP 2026 impact reporting for charities?

The SORP 2026 update will affect nearly every UK non-profit. It is expected to:

• Introduce tiered reporting for non-profits UK, allowing proportional requirements for different sizes of organisations.

• Require improved reporting on donor restrictions, designated reserves, and grant income recognition.

• Strengthen the emphasis on impact reporting, showing how resources are linked to outcomes.

• Align more closely with the International Non-Profit Accounting Guidance (INPAG), ensuring UK organisations stay in step with global transparency standards.

For finance teams, this means preparing now: reviewing internal controls, updating chart of accounts, and ensuring that staff and trustees understand the new requirements. At NGO Finance Hub, our financial management for NGOs training provides tailored workshops to help your organisation transition smoothly to the new framework.

Best practices for preparing for SORP 2026

• Review your current reporting gaps: Compare existing annual reports against draft SORP 2026 proposals.

• Invest in accounting software for not for profits that supports multi-fund and tiered reporting.

• Train trustees and staff on governance and compliance expectations under the new SORP.

• Document your reserves policy clearly to meet new disclosure requirements.

The upcoming changes are not just about compliance—they are about strengthening trust. Charities that prepare early will demonstrate resilience and professionalism to funders, regulators, and communities.

International Non-Profit Accounting Guidance (INPAG) and Tiered Reporting for Non-Profits UK

Non-profit financial reporting is evolving beyond national borders, with the introduction of the International Non-Profit Accounting Guidance (INPAG). This initiative, led by CIPFA and Humentum, aims to create the first global accounting standard specifically for the not-for-profit sector. For UK charities, INPAG is particularly important as it will align closely with the upcoming Charities SORP 2026 update, ensuring greater comparability for international funders and grant-makers.

What is the International Non-Profit Accounting Guidance (INPAG) and how does it relate to UK standards?

INPAG introduces a consistent framework for recognising income, expenses, grants, and restricted funds across borders. For UK-based charities working internationally, this means:

• Easier reporting to overseas donors.

• Stronger harmonisation between UK’s FRS 102 SORP and global frameworks.

• Enhanced credibility when competing for international funding.

The UK’s adoption of certain INPAG principles in SORP 2026 demonstrates a shift towards transparency, making it vital for organisations to stay ahead of these updates.

What are the tiered reporting requirements starting in 2026 for non-profits?

From 2026, UK charities will see tiered reporting requirements introduced:

• Tier 1: Small charities below the income threshold will have simplified disclosures, reducing administrative burden.

• Tier 2: Medium-sized charities will provide fuller notes on governance, reserves, and restricted funds.

• Tier 3: Large organisations will need to adopt the most comprehensive disclosures, including impact measurement and detailed governance reporting.

This approach ensures proportionality: smaller charities are not overwhelmed, while larger organisations maintain higher levels of accountability.

Best practices for adapting to INPAG and tiered reporting

• Segment your chart of accounts to handle restricted and unrestricted funds separately.

• Use accounting software for not for profits that supports multi-tier reporting and integrates with donor management.

• Train your finance team on the differences between UK SORP 2026 and INPAG to avoid duplication of effort.

• Engage trustees early—as governance disclosures will carry more weight in future reporting.

At NGO Finance Hub, we work with non-profits to streamline reporting processes, whether you are a small local community group or a large international NGO. Our ngo financial management services ensure you stay compliant while also building confidence with funders.

INPAG and tiered reporting are more than compliance updates—they represent a cultural shift towards global consistency, transparency, and accountability in the non-profit world. Those who prepare now will have a competitive edge in attracting grants and demonstrating credibility.

Charity Tax Obligations UK and Fundraising Regulation

One of the most critical aspects of not for profit accounting is understanding how charity tax obligations in the UK work, alongside compliance with fundraising rules. Unlike for-profit entities, charities benefit from several exemptions and reliefs, but only if they meet the legal requirements set by HMRC and the Charity Commission.

What are the key tax obligations for charities in the UK?

Charities do not generally pay corporation tax on most types of income, provided the money is used for charitable purposes. This includes:

• Donations and legacies

• Rental income from charity-owned property (if reinvested in charitable activities)

• Profits from trading subsidiaries transferred back to the charity

However, charities may be taxed if income falls outside “primary purpose trading.” For example, running a café not linked to a charity’s mission could be subject to corporation tax. This makes it essential to maintain clear accounting records separating taxable and exempt activities.

How is corporation tax handled for not for profit organisations?

• Exemption application: Charities must register with HMRC to claim tax reliefs.

• Partial exemptions: Non-charity arms of the organisation (such as social enterprises or CICs) may still be liable for corporation tax.

• VAT considerations: Some services may be exempt from VAT, while others require careful VAT accounting.

Our financial management for NGOs training at NGO Finance Hub guides charity leaders on how to structure income streams to remain compliant while maximising tax reliefs.

How does the new Code of Fundraising Practice affect charity fundraising activities?

The Fundraising Regulator UK has updated its Code of Fundraising Practice to strengthen donor protection and improve transparency. Key requirements include:

• Clear communication of how funds will be used

• Greater accountability in online fundraising and third-party platforms

• Stricter rules for vulnerable donor protection

• Enhanced record-keeping obligations for fundraising appeals

Failure to comply not only risks penalties but can also damage public trust—an invaluable asset for any charity.

Best practices for fundraising and tax compliance

• Develop a fundraising strategy that aligns with legal requirements and mission delivery.

• Train fundraising teams and volunteers in the new Code of Fundraising Practice.

• Use charity accounting software that tracks Gift Aid and fundraising transactions.

• Schedule regular tax health checks with professionals experienced in not for profit accounting standards UK.

At NGO Finance Hub, we support UK charities in balancing mission delivery with compliance, offering expert guidance in ngo financial management and ongoing reporting. By staying ahead of both tax obligations and fundraising regulations, non-profits safeguard their sustainability while protecting donor confidence.

Accounting Software for Not for Profits and Charity Commission Annual Returns

Efficient financial management in the charity sector requires both the right tools and compliance with reporting rules. For UK organisations, combining accounting software for not for profits with strict adherence to the Charity Commission annual return requirements ensures both transparency and operational efficiency.

What accounting software features are recommended for not for profit organisations?

Not all accounting platforms are designed with the unique needs of charities in mind. The best solutions for nonprofits typically include:

• Fund accounting capability – allows organisations to track restricted vs unrestricted funds.

• Donor and grant management tools – linking income directly to funding agreements.

• Gift Aid integration – automating claims and reporting for HMRC submissions.

• Multi-currency support – vital for NGOs with international projects.

• Audit-ready reporting – producing SORP-compliant statements quickly.

Cloud-based tools such as Xero, QuickBooks (with charity add-ons), or sector-specific platforms like Sage Intacct for Nonprofits can dramatically reduce manual errors. At NGO Finance Hub, our team provides hands-on support to configure these systems as part of our ngo financial management services.

What are the requirements for Charity Commission annual returns?

Every registered charity in England and Wales must file an annual return with the Charity Commission. This is a public-facing report designed to demonstrate accountability. Requirements vary depending on charity size:

• Charities with income over £25,000 must submit an annual return.

• Charities with income over £1 million face additional disclosure requirements, including detailed breakdowns of fundraising, governance, and salaries.

• All registered charities must file accounts and trustees’ reports annually, with the level of detail depending on income thresholds and whether they are incorporated.

Best practices for managing annual returns

• Establish a year-round reporting cycle rather than rushing at deadlines.

• Link financial data directly from accounting software to SORP-compliant templates.

• Engage trustees early in reviewing the annual return for governance assurance.

• Keep detailed records of restricted and unrestricted income, ensuring accuracy in fund allocation reporting.

By integrating software solutions with compliance planning, charities can reduce administrative burdens while improving transparency. At NGO Finance Hub, we not only train teams through our financial management for NGOs training but also offer ongoing support to charities completing their annual returns.

Best Practices in Not for Profit Financial Reporting and Sustainability

Strong reporting practices underpin the credibility and resilience of charities. Beyond compliance, not for profit financial reporting is a strategic tool to demonstrate impact, attract funding, and build stakeholder trust.

What are the best practices for accurate financial reporting in non-profits?

Accuracy and transparency are critical. Recommended practices include:

• Adopting SORP-compliant templates – ensuring statements meet UK standards.

• Clear fund categorisation – separating restricted, unrestricted, and designated funds.

• Narrative reporting – providing a trustees’ report that explains achievements alongside numbers.

• Regular internal reconciliations – monthly or quarterly checks prevent year-end surprises.

• External audits or independent examinations – offering assurance to donors and regulators.

Linking reporting to sustainability planning

Financial sustainability goes hand in hand with reporting clarity. Donors and funders increasingly demand evidence of:

• How resources are allocated to core programmes.

• Whether administrative costs are efficient and proportionate.

• The organisation’s ability to diversify income streams (grants, trading, partnerships).

• Long-term reserves planning to withstand funding volatility.

By aligning reporting practices with sustainability goals, nonprofits position themselves as accountable and forward-thinking organisations.

Practical example: From compliance to growth

Consider a mid-sized UK charity struggling with fragmented bookkeeping and late filings. After adopting integrated accounting software for not for profits, supported by tailored training from NGO Finance Hub, they:

• Reduced annual reporting preparation time by 60%.

• Demonstrated impact more clearly to funders.

• Secured multi-year grants due to improved transparency.

Building capacity with training and systems

Our ngo finance course and financial management for NGOs training are designed to help trustees, finance officers, and managers implement these best practices. By mastering reporting standards and building sustainability strategies, organisations can move beyond compliance and focus on achieving their mission effectively.

Here’s Section 7: Frequently Asked Questions (FAQs) for your article:

---

Frequently Asked Questions on Not for Profit Accounting

What are the latest accounting standards for not for profit organisations in the UK?

The UK applies FRS 102 with the Charities SORP framework. The upcoming SORP 2026 introduces updates on narrative reporting, impact measurement, and tiered reporting thresholds to align with international best practice.

How will the updated Charities SORP 2026 impact reporting for charities?

From 2026, charities will face tiered reporting based on size. Smaller organisations may benefit from simplified disclosures, while larger ones must provide enhanced transparency on reserves, governance, and risk management.

What is the International Non-Profit Accounting Guidance (INPAG) and how does it relate to UK standards?

INPAG is the first global accounting framework for non-profits. While UK charities continue to follow SORP, INPAG is influencing revisions to ensure comparability across borders — particularly important for international NGOs.

What are the tiered reporting requirements starting in 2026 for non-profits?

Tiered reporting will categorise organisations by income and assets. This ensures proportional reporting: smaller charities avoid excessive compliance burdens, while larger entities demonstrate greater accountability to stakeholders.

What are the key tax obligations for charities in the UK?

Charities benefit from exemptions on most income and capital gains if funds are used for charitable purposes. They must comply with Gift Aid rules, VAT considerations, and maintain accurate records for HMRC audits.

How does the new Code of Fundraising Practice affect charity fundraising activities?

The updated Code requires charities to evidence transparency in fundraising costs, safeguard donor data, and demonstrate ethical practices. Compliance strengthens donor confidence and reduces reputational risks.

What accounting software features are recommended for not for profit organisations?

For UK charities, accounting software should support:

• Fund accounting (tracking restricted vs unrestricted funds).

• Gift Aid integration for efficient claims.

• Donor and grant management features.

• Tiered reporting compliance in line with SORP.

• Cloud-based access for trustees and finance teams.

Popular solutions include QuickBooks Nonprofit, Xero for Charities, and specialist NGO accounting platforms.

What are the requirements for Charity Commission annual returns?

Every registered charity must file an annual return via the Charity Commission portal. Requirements include:

• Income and expenditure breakdowns.

• Trustee information.

• Serious incident reporting (if applicable).

• For larger charities: audited or independently examined accounts.

Failure to comply can lead to regulatory penalties and reputational damage.

How is corporation tax handled for not for profit organisations?

Most charities are exempt from corporation tax if profits are applied for charitable purposes. However, income from non-charitable trading may be taxable unless it falls below HMRC’s small-trading exemption threshold. Proper accounting and advice help avoid costly errors.

What are the best practices for accurate financial reporting in non-profits?

• Maintain segregation of duties for financial controls.

• Use fund accounting systems to separate restricted and unrestricted income.

• Adopt a regular reporting cycle (monthly or quarterly).

• Ensure trustee boards review and approve financial reports.

• Provide clear narratives alongside numbers to demonstrate impact.

👉 At NGO Finance Hub, we help UK charities implement these best practices through our ngo financial management services and financial management for NGOs training.