How do I put together a Statement of Financial Activities?

England and Wales: This page sets out the position in full. Scotland: the same SORP requirement, the same tiers, with no difference in principle. Northern Ireland: the same SORP requirement, the same tiers, with no difference in principle.

What the SORP tiers change for this Statement

For this Statement, the tiers in the Charities SORP 2026 matter in one place: the natural classification option. The SORP and its tiers are the same in England and Wales, Scotland and Northern Ireland. That holds whether the charity reports to the Charity Commission, OSCR or the Charity Commission for Northern Ireland.

The tiers are often described as a set of simpler rules for smaller charities. Read plainly, they are narrower than that. They touch five modules only. Those cover the trustees’ annual report, this Statement, cost allocation, staff and related-party disclosures, and cash flows.

Cash flows is the module where the tiers give most away. The SORP requires only a Tier 3 charity to prepare a statement of cash flows. That is a different statement from the Statement of Financial Activities. A Tier 1 or Tier 2 charity that is a small entity under FRS 102 need not prepare one.

Natural classification is a real choice for the smallest accruals charities in how they present the Statement of Financial Activities. It is not new: the SORP carries it over from the previous edition. Income recognition and lease accounting apply in full at every tier; what the Charities SORP is and which tier you are in sets out why.

This page assumes the records are on the accruals basis, fund-coded, with grants recognised, a cost allocation basis chosen and the tier known. The pages that cover those are:

• convert your records to the accruals basis
• build your chart of accounts
• record your first restricted grant
• calculate your full cost recovery rate
• determine your SORP tier

Fund columns in the Statement of Financial Activities

A Statement of Financial Activities is the statement in a charity’s accruals accounts that sets out all its income and expenditure for the year. Whatever the presentation basis, it is built in fund columns.

Unrestricted funds, restricted income funds and endowment funds each get their own column (the fund types are explained in restricted and designated funds). A total column adds them together. Nothing about this changes with tier. Every accruals charity, however small, presents its income and expenditure by fund.

Which presentation basis can you use?

Tier 1 charities — gross income of £500,000 or less — may present the Statement using natural classification instead of the activity basis. Natural classification means showing expenditure by type (staff costs, grants payable, premises costs, and so on), rather than splitting it across the activities it paid for.

Choosing it also switches off the cost allocation module. It also removes the analysis of total staff costs that the activity basis requires. A company that is not eligible for the small companies regime still gives it.

Above Tier 1, the activity basis is required. A gross income above £500,000 and not more than £15,000,000 puts a charity in Tier 2.

Tier 2’s own requirements apply on top of Tier 1’s, not instead of them. A Tier 2 charity complies with both tiers at once. The same pattern continues into Tier 3, above the Tier 2 ceiling.

Tier is reassessed every year, on that year’s gross income alone, with no smoothing. The rule and its unsettled history are set out in determine your SORP tier. So a charity near the Tier 1 boundary may use the activity basis one year and natural classification the next. Each time, its comparatives would be prepared on a different basis.

Where do gains and losses go?

Gains and losses on investments have their own line, above the Statement’s net income/expenditure line. Gains on revaluing fixed assets sit below that line, with the other recognised gains and losses. Either way, they are kept apart from income. This is more than a choice of layout.

Gains are excluded from gross income for every threshold test in this hub. A charity that folds a large investment gain into its income figures will overstate its own gross income. It may end up paying for a level of scrutiny it does not need.

The charitable company’s extra document

A charitable company does not stop at the Statement of Financial Activities. It must do one of two things. It must include a separate summary income and expenditure account alongside it. Or it must state plainly that the summary is incorporated within the Statement itself.

In the Commission’s own data, this one point is one of the two largest causes of benchmark failure among companies. That holds at every size band, not only the smallest.

If your charity is a company, check this before you treat the Statement as finished. What the company then files is covered in file with Companies House.

Cross-casting: what has to agree with what

Every fund column has to add down correctly. The total column has to add across correctly from the fund columns beside it. That is what “cross-casting” means in practice.

Accounts that fail it are accounts that do not add up. The Statement’s closing total funds figure then has to agree with the matching figure on the balance sheet. Build your balance sheet is where that figure is built. The two documents have to tell the same story about where the charity ended the year, so the balance sheet is the next step.

Common mistake: a charitable company omitting the summary income and expenditure account

The Statement of Financial Activities looks like it covers everything a set of accounts needs. The extra company-law requirement is easy to miss.

A charitable company must include a separate summary income and expenditure account. Otherwise, it must state that the summary is incorporated within the Statement of Financial Activities. In the Commission’s own data, this is one of the two largest causes of benchmark failure among companies, at every size.

Common mistake: treating gains as income

Gains increase the charity’s funds and appear in the Statement, so they can look like more income. They have their own lines, apart from income, and are excluded from gross income for threshold purposes. A charity that includes them will overstate its income and may pay for scrutiny it does not need.

Worked example

Tollgate Youth CIO is a Tier 1 charity. Its gross income sits at or below £500,000. Its trustees choose the natural classification basis for the year. Expenditure is shown by type — salaries, programme costs, premises — rather than split across activities.

That choice switches off the cost allocation module. It also removes the analysis of total staff costs that a Tier 2 charity would have to give. If Tollgate’s income rose above the Tier 1 ceiling in a later year, it would have to use the activity basis for that year. Tollgate’s comparatives would then sit on a different basis from the year before.