Lease accounting for charities: the new helpsheet, and what to do before your year end

Charity trustees reviewing building floor plans to identify leases under SORP 2026

If your charity leases anything, SORP 2026 changes how it appears in your accounts. On 8 October 2026 the Charities SORP-making body published a helpsheet to help you work through it.

This guide explains what the helpsheet covers, who needs to read which part, and what you can usefully do now. It is written for trustees and finance leads rather than for accountants.

Why lease accounting changed

SORP 2026 applies to reporting periods beginning on or after 1 January 2026. It follows the Financial Reporting Council’s revised FRS 102, and the biggest change for most charities is leases.

Under the previous rules, leases were split into operating and finance leases. An operating lease, which covered most property and equipment rentals, stayed off the balance sheet. You charged the rent as an expense and disclosed future commitments in a note.

That split has gone for lessees. For most leases you now recognise two things on the balance sheet:

In the Statement of Financial Activities, the rent charge is replaced by depreciation on the asset and interest on the liability. The total cost across the life of the lease is broadly the same, but more of it falls in the early years.

There is no tier relief. A Tier 1 charity renting a small office applies the same model as a Tier 3 charity renting a head office.

What the helpsheet covers

The helpsheet is in three parts.

Part 1: whether a lease exists, and which exemptions might apply. Everyone should read this part. It determines whether parts 2 and 3 apply to you at all.

Part 2: accounting for general leases. The standard case. Property, vehicles, equipment on commercial terms.

Part 3: accounting for peppercorn and social donation leases. Arrangements where a charity occupies property at a nominal rent, or at well below market value, because the owner intends to support the charity.

Part 3 is the one many charities have been waiting for. It is also the one with the least general guidance available elsewhere, because it is a charity-specific problem that mainstream FRS 102 commentary does not address.

The Charity Commission’s announcement notes that the changes “may be challenging for some charities”, and that the helpsheet cannot cover every arrangement, so professional advice may still be needed.

The peppercorn and discounted problem, in plain terms

A great many charities occupy premises on terms no commercial tenant would ever get. A council lets a community building for £1 a year. A diocese makes a hall available at a nominal rent. A local business gives a charity a unit rent-free for five years.

Under the old rules this barely touched the accounts. A nominal rent meant a nominal expense.

Whilst, under the new SORP, a true peppercorn rent is still not a lease under FRS 102, it does need to be included in the accounts in line with module 6 for donated assets or facilities depending on the arrangement.

However, a below market rate lease is a lease and needs accounting for as such, but the discounted element must be accounted for as well – this is where professional advice is recommended, from someone such as ourselves.

Part 3 of the helpsheet works through both. The right treatment depends on the terms of each arrangement, so the useful work now is identifying which ones need looking at.

What to do now, in order

You do not need to understand the accounting to do the useful part. These five steps are worth an afternoon and they are the input to everything else.

1. List every lease

Not just the ones in the lease file. Everything you occupy or use that belongs to somebody else.

The informal arrangements take longest to pin down, because the person who agreed them has usually moved on. Start with those.

2. Record the terms for each one

For every item on the list: the start date, the end date or notice period, the payments, whether there is a purchase option, and whether there is a break clause.

If you cannot state the term, you cannot account for the lease. That alone is often the biggest piece of work.

3. Identify the exemptions

Two exemptions exist. Short-term leases, and leases of low-value assets.

Both are decisions to record, not assumptions to make. Write down which exemption you are relying on and why. An examiner will ask, and “we assumed it was low value” is not an answer.

4. Flag everything at below-market rent

This is the part-3 pile. Peppercorn rents, donated space, rent-free periods, anything from a connected party, anything where the rent has not changed in a decade.

Set these aside for a proper conversation rather than trying to resolve them yourself.

5. Work out the balance sheet impact before the accounts are drafted

Your assets and liabilities will both rise. That is not a problem in itself, but it has consequences if anyone reads your balance sheet.

Check your reserves policy, because free reserves calculations often start from net assets. Check your loan covenants if you have any. Check whether any funder sets conditions by reference to balance sheet figures. Finding out in advance is a conversation. Finding out afterwards is a problem.

What does not change

Comparatives are not restated. The lease comes onto the balance sheet from the start of your first SORP 2026 year, and last year’s figures stay as they were. Anyone reading both columns will see a step change, so the annual report should explain it.

The underlying cash does not change either. You pay the same rent you always did. What changes is how it is presented, and over what pattern the cost is recognised.

Which charities this applies to

SORP 2026 applies to charities preparing accruals accounts, for periods beginning on or after 1 January 2026.

If you prepare receipts and payments accounts, you do not follow the SORP. In England and Wales, non-company charities can use receipts and payments where income is below the threshold, which rose from £250,000 to £500,000 for financial years ending on or after 30 September 2026.

Note that those two tests run in opposite directions. The SORP goes on when your year starts. The scrutiny thresholds go on when your year ends. We cover that in our guide to the new audit and examination thresholds.

Frequently asked questions

Do small charities have to put leases on the balance sheet?

Yes, if they prepare accruals accounts. There is no relief based on SORP tier. The exemptions are for short-term leases and leases of low-value assets, and they apply at every size.

What is a peppercorn rent?

A nominal rent, often a token amount such as £1 a year, on terms far below market value. In the charity sector these are usually granted by a council, a church, a trust or a private owner who wants to support the charity’s work. A true peppercorn rent is not accounted for as a lease, but it still needs to be included in the accounts as a donated asset or facility.

Does a rent-free arrangement count as a lease?

Not as a lease, because no rent is paid. The use of the property still needs to be included in the accounts as a donated asset or facility. Part 1 of the helpsheet works through whether an arrangement is a lease.

When does this apply from?

Reporting periods beginning on or after 1 January 2026. A charity with a 31 December year end is in its first SORP 2026 year now. A charity with a 31 March year end started its first SORP 2026 year on 1 April 2026.

Do we have to restate last year’s figures?

No. The lease is brought onto the balance sheet from the start of the first SORP 2026 year. Comparatives are unchanged.

Talk to us about your lease schedule

Enaid Accountancy works only with charities and third sector organisations. We prepare year end accounts, carry out independent examinations, and help finance teams and trustees work through changes like this one.

If you want your lease schedule reviewed, or you have an arrangement you are not sure even counts as a lease, get in touch with the team.

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