Running a charity comes with significant responsibilities, and charity accounting and reporting obligations are key areas trustees need to stay on top of. Ensuring compliance avoids penalties and builds trust with donors and stakeholders. This guide outlines the essential accounting and reporting requirements for charities in the UK, highlighting key differences based on size and structure.
Understanding the role of the Charity Commission
The Charity Commission oversees charity regulation in England and Wales, with the Office of the Scottish Charity Regulator (OSCR) covering Scotland and the Charity Commission for Northern Ireland operating in Northern Ireland. Charities must register with the appropriate regulator and meet their reporting obligations annually.
The Commission monitors compliance, investigates misconduct, and offers guidance to help charities fulfil their legal duties. Regular reporting helps ensure transparency, accountability, and good governance.
Annual accounting requirements
All charities must prepare annual accounts, but the type and level of detail required depend on the charity’s size and legal structure. Key factors influencing reporting obligations include:
- Income under £250,000: Charities with an income below £250,000 can prepare receipts and payment accounts if they are not companies. This more straightforward format summarises money received and spent during the year.
- Income over £250,000: Charities with an income above £250,000 must prepare accruals accounts in line with the Charities Statement of Recommended Practice (SORP). This involves preparing a balance sheet, statement of financial activities (SoFA), and notes to the accounts.
- Charitable companies: All charitable companies must prepare accruals accounts regardless of income level.
Independent examination or audit?
The requirement for an independent examination or full audit depends on the charity’s income and assets:
- Income between £25,000 and £1 million: An independent examination is required unless the charity holds assets over £3.26 million and income exceeds £250,000, in which case an audit is necessary.
- Income over £1 million: A full audit is required.
- Income below £25,000: Charities with income under £25,000 do not require an audit or an independent examination, but they must still prepare annual accounts and file them with the Charity Commission if they are registered.
Independent examinations are less rigorous than audits but still provide an external review of the charity’s financial records. Audits, on the other hand, offer a more detailed examination and a higher level of assurance.
SORP compliance
The Charities SORP sets out the framework for charity accounting, ensuring consistency and transparency. SORP is mandatory for all charities preparing accruals accounts and outlines how to present income, expenditures, and financial activities.
Recent updates to SORP have emphasised reporting the impact of the charity’s work, providing clearer insights for funders and beneficiaries. Trustees should regularly review SORP guidance to ensure ongoing compliance.
Reporting to the Charity Commission
Annual returns must be filed with the Charity Commission, alongside the charity’s accounts and reports. The specific reporting requirements vary:
- Income under £10,000: Minimal reporting is required, but trustees must update the charity’s details.
- Income between £10,000 and £25,000: Charities over £10,000 must submit an annual return providing details about income, spending, and activities.
- Income between £25,000 and £250,000: Charities in this bracket must submit an annual return, a copy of their accounts, and an independent examiner’s report.
- Income over £250,000: A full set of accounts and trustees’ annual report must accompany the return.
Failure to file returns on time can result in penalties and reputational damage, so it’s important to keep track of deadlines.
Trustees’ annual report
The trustees’ annual report overviews the charity’s activities, achievements, and financial performance. This can be a brief summary for smaller charities, while larger organisations must produce a detailed narrative that aligns with SORP guidelines.
Key elements include:
- Objectives and activities
- Achievements and performance
- Financial review
- Plans for the future
Practical tips for staying compliant
- Keep accurate records: Maintain clear and accurate records of income, expenditure, and assets throughout the year.
- Review deadlines regularly: Create a calendar of key reporting dates to avoid last-minute submissions.
- Engage professional support: Consider working with accountants specialising in charity finances to ensure compliance with evolving regulations.
- Train trustees and staff: Regular training ensures everyone understands their financial responsibilities.
- Conduct internal reviews: Periodic internal reviews help identify potential issues early and keep financial processes on track.
Staying compliant and building long-term trust
Accounting and reporting obligations are essential to maintaining a charity’s integrity and public trust. Regular and transparent reporting helps meet legal requirements and demonstrates accountability to donors, funders, and the wider community. Organisations can strengthen relationships and encourage continued support by clearly communicating how funds are managed and the impact of charitable activities.
Investing in good financial governance benefits charities in the long term. It ensures smooth day-to-day operations, builds a foundation for growth, and allows the organisation to focus on its charitable objectives without unnecessary administrative stress. Trustees who proactively manage compliance and seek professional advice when needed can confidently lead their organisations, knowing their charity meets the highest standards.
If your charity needs support with accounting, audits, or regulatory compliance, our team is here to help. Get in touch today to find out how we can assist you in managing your charity accounting and reporting obligations.