Social Housing SORP

“We were pleased to share our social housing expertise and support the SORP working party as technical advisor. Our role was to advise on technical accounting standards and how the working party could achieve desired best practice, consistency and transparency for the social housing sector within the confines of UK accounting standards.”

As is expected, the primary amends in this iteration of the Housing SORP result from updates to FRS 102 in respect of revenue recognition and leases. However, the SORP working party has also taken the opportunity to provide clarification on a number of areas (such as asset capitalisation, regenerations schemes, and impairments) where evolution in working practices since the last iteration of the SORP has led to potential inconsistencies in accounting treatments. 

In this article, we outline the amendments to the extant SORP, highlighting the key changes registered social providers and social landlords should be aware of.

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Repairs responsibility – new shared ownership model

Following the amendments to the shared ownership model in the Affordable Homes Programme 2021 to 2026, this proposed treatment of the repair’s responsibility was subject to a 12-week consultation in 2023. With no significant observations raised, the accounting treatment has been reflected in SORP paragraphs 9.12 to 9.18.

Right to shared ownership

Following the introduction of this requirement, this proposed treatment was subject to a 12-week consultation in 2023. This aligns with the existing 'right to buy' treatment of categorisation. With no significant observations raised in the consultation, the accounting treatment has been reflected in SORP paragraphs 6.60 to 6.62.

Narrative reporting

Where there are over 5,000 homes in management, Chapter 4 of the extant SORP requires social landlords to prepare a Strategic Report. For greater transparency and consistency among large providers, the proposed update sees this figure reduced to 1,000, bringing an additional 84 providers in scope in England.

To avoid confusion with the Strategic Report requirements of the Companies Act 2006, the SORP has renamed the narrative report as the ‘Annual Report’.

Financial instruments and joint ventures

Due to a lack of specificity in application to social landlords, Chapter 6 and Chapter 7 of the extant SORP, focusing on financial instruments and joint ventures respectively, have been removed. The working party have instead elected to reference the relevant sections of FRS 102 in Chapter 18 Other accounting requirements.

Housing properties

To align more closely with Chapters 16 and 17 of FRS 102, the structure of Chapter 6 of the SORP has been refreshed to provide clarity and consistency in accounting treatment of the areas below.

• Clarification of the accounting treatment of land acquired for mixed-tenure development schemes.
• Clarification of what constitutes 'net disposal proceeds' for the purpose of derecognition of assets in accordance with paragraph 17.30 of FRS 102 regarding costs associated with continuing to service a revenue contract that can’t be terminated prior to disposal (such as costs of alternative accommodation following decant).
• Moved the section on Stock Transactions from Chapter 17, Specialised Activities of the extant SORP, to the Housing Properties chapter, as this more closely aligns with the nature of the transactions.
• Added a new section on ‘Regeneration schemes’ as the SORP working party recognised that there is an increase in regeneration in the sector and inconsistencies in accounting treatment had been noted.
• Added a new section on ‘Exchange of assets’. This section is aimed at clarifying the point at which the derecognition of the exchanged asset is made in the financial statements, due to inconsistencies being identified in the sector.
• Provided clarification on the capitalisation of certain costs and enhanced the definition of incremental future benefits. This was particularly necessary to address the increase in costs associated with environmental sustainability.

Stock transactions – grants

The SORP Working Party did seek consultation responses to proposed changes to grant accounting in stock transactions.

Based on the responses received, the SORP Working Party reverted to the extant SORP treatment.  As such, a grant received from another RP in a stock transaction is NOT recognised on the balance sheet.

The Housing SORP 2026 Chapter 11 has elaborated on the contingent liability disclosure requirements related to a grant received by an RP (either directly or through a stock transaction).

Regeneration schemes

The extant SORP did not provide definitive accounting treatment for regeneration schemes. Complexities arise with the definition and treatment of a demolition (treated as a disposal and therefore derecognised accordingly) prior to the rebuild of an improved asset. The treatment of such can have a significant impact on loan covenants such as interest cover or EBITDA/EBITDA-MRI. This is further complicated by component accounting and the need for social landlords to estimate the split between components (typically, at a minimum, the land, the structure, the roof, the windows and the kitchens/bathrooms) for existing assets.

The SORP working party considered it appropriate for the decision by a social landlord to proceed with a regeneration scheme to trigger a reassessment of the residual value or useful life of the housing asset under paragraph 17.19 of FRS 102. For example, if the building is due to be demolished in two years' time, then a shortening of the useful life would be expected, and the net book value of the asset would be depreciated over the two years (being the remaining useful economic life), and therefore the value of the asset at demolition would equate to the land value only.

As a result, accelerated depreciation would be recognised in the statement of comprehensive income. It is noted that this would not impact on EBITDA / EBITDA-MRI.

Exchange of assets

Additional guidance has been produced to bring clarity to such transactions and to set guidance on the correct accounting treatment in SORP paragraphs 6.66 to 6.73.

Impairment

While there are no substantial changes to impairment resulting from the updates to FRS 102, with the growth of Right-to-Buy, Right to Acquire and Right to Shared Ownership, it has been considered necessary to revise the guidance in the Housing SORP on these matters specifically, to bring further clarity to the impairment consideration.

Provisions

Chapter 9 of the Housing SORP has been updated to provide further clarity in respect of recognising provisions for non-compliance with laws and regulations in relation to property assets.

Capitalisation

Social landlords are making substantial investments in their existing housing assets to comply with regulatory requirements and meet sustainability goals. These investments include both the installation of new components and the replacement of existing ones. Replacements are often necessary to meet updated regulations or sustainability objectives, even when the property already has a similar component. This surge in investment has led to inconsistencies in how these costs are accounted for, prompting the Housing SORP working party to propose clearer guidance.

To address this, the new SORP incorporates direct extracts from FRS 102, specifically paragraphs 17.6 and 17.7, to reinforce the principles around recognising replacement components. Additionally, new wording is proposed to clarify the treatment of incidental costs during construction or development. For example, costs such as temporary accommodation for tenants or fire safety waking watch which are not considered essential to bringing the asset to its intended condition, should therefore be expensed in the Statement of Comprehensive Income.

The guidance on assessing future economic benefits has also been updated. Works to housing properties should only be capitalised if they provide incremental future benefits. These benefits may include increased rental income; reduced maintenance costs; extended property life and, additionally, in the new SORP, ‘enhanced environmental outcomes aligned with social purpose objectives (such as decarbonisation)’.

The SORP highlights that the costs of the components being replaced must be derecognised in accordance with the relevant accounting standards. 

Employee benefits

The draft SORP issued for consultation proposed disclosure requirements relating to salary bandings of staff earning over £60,000.  This is akin to the Charity SORP, which includes this disclosure requirement.

However, there were responses to the consultation which highlighted inconsistencies with how the disclosure requirements of the English Regulator of Social Housing’s Accounting Direction are interpreted.  

Whether the disclosure was in relation to all staff, as paragraph 27 would suggest or purely key management personnel, which the heading would suggest.  
As such, it was felt by the SORP Working Party that regulators were better placed to prescribe the disclosures they wish to see and as such, this requirement has been removed from the final published Housing SORP 2026.

We expect the Accounting Direction to be reissued in due course to clarify this point.

How we can help you

We have been living and breathing the SORP changes for over two years now and would be very happy to talk further about the changes or support you in your transition. Please get in touch for advice specific to your organisation.