This guide explains the Tier 1 Statement of Financial Activities (SOFA) using a Natural Classification basis for UK charities, in line with Phase 2 SORP changes.

These changes apply to accounting periods commencing on or after 1 January 2026 and are available to eligible charities reporting under Tier 1.

Overview

As part of the Charity SORP Phase 2 updates, Tier 1 charities can now prepare a simplified Statement of Financial Activities using a natural classification of income and expenditure.

Bright Accounts Production (Bright AP) supports this new reporting format through a dedicated report:

Statement of Financial Activities – Tier 1 Reporting (Natural Classification Basis)

This report improves clarity and aligns with the simplified reporting requirements for smaller charities.

Applicability

This report is available only where all of the following apply:

• Reporting Tier is set to Tier 1 • Accounts commence on or after 1 January 2026 • The entity is a UK Charity

For accounting periods commencing before 1 January 2026, the report is not available or is clearly marked as not applicable.

Report Availability and Access

Availability Rules

• The Statement of Financial Activities – Tier 1 Reporting (Natural Classification Basis) is available only for eligible accounting periods. • Users with Tier 1 reporting access can view the report in the Statement of Financial Activities reports section. • The report is hidden or disabled for earlier accounting periods.

Selecting the Tier 1 SOFA Report

1. Open the charity client dataset.
2. Navigate to Reports → Statement of Financial Activities.
3. Select Statement of Financial Activities – Tier 1 Reporting (Natural Classification Basis).
4. The report configuration screen opens automatically.

The configuration screen loads successfully for all eligible accounting periods.

Natural Classification Basis Explained

Under Tier 1 reporting, income and expenditure are presented using a natural classification, meaning costs are grouped by their nature rather than by function.

What You Will See

Income and expenditure are grouped into natural categories such as:

• Salaries and wages • Rent • Utilities • Depreciation • Grants • Donations

What Is Excluded

Functional classifications are not included in this report. The following will not be displayed:

• Programme costs • Administration costs • Fundraising costs • Any functional analysis of expenditure

This ensures compliance with Tier 1 simplified reporting requirements.

Tier 1 Reporting Context

Tier 1 reporting applies to charities with income up to £500,000 and includes the following simplifications:

• A simplified Statement of Financial Activities using natural classification • No requirement to produce a Cash Flow Statement • Reduced disclosure requirements, limited to:

• Trustee remuneration
• Related party transactions
• Reserves information

Nominal Grouping

A new nominal grouping structure supports the Tier 1 natural classification SOFA. This ensures income and expenditure are correctly mapped into the appropriate natural categories when the report is generated.

The grouping operates automatically and requires no manual intervention where standard nominal codes are used.

Summary

The Statement of Financial Activities – Tier 1 Reporting (Natural Classification Basis) enables UK charities to meet the latest SORP requirements for simplified Tier 1 reporting. By grouping income and expenditure by nature rather than function, the report provides a clearer and more proportionate view of financial activity for smaller charities.

Ensure your reporting tier and accounting period are correctly set to access this report.