What you need to know about charity accounting

Are you new to accounting for a charity?

When a charity should register

Charities exist in different legal forms, some are unincorporated, meaning they have no status with Companies House, whilst others are incorporated with Companies House, usually limited by membership guarantee. All charities must follow the Charity Commission’s framework and register when required in accordance with registration thresholds. Charitable companies must also meet Companies House requirements. Charitable Incorporated Organisations (CIOs), although having ‘Incorporated’ in their title, are only registered with the Charity Commission.

Charity Commission thresholds are based on gross income, that is before deduction of any charitable expenses. If a charitable organisation raises gross income of less than £5,000, there is no requirement to register unless it is a CIO, (CIOs register with the Charity Commission in all cases). When gross income exceeds £5,000, the charity must register with the Charity Commission unless it is deemed an exempt or ‘excepted’ charity. Exempt charities are those within the regulation of another regulatory body and ‘excepted’ charities are churches and chapels of certain religious charities and Scouts and Guides groups.

Accounts and scrutiny – basics

Accounting records should always be kept regardless of income levels. The record keeping method can be decided by the charity trustees and may be on a simple incoming/outgoing basis for smaller organisations but may warrant greater detail as size and transactions increase, this might lead to using accounting software geared to charities. The charity’s trustees must also prepare a Trustee Annual Report (TAR) if registered to accompany their accounts.

The Charity Commission will require sight of accounts when gross income exceeds £25,000. Those accounts and TAR must be filed online within 10 months of the year end to the Charity Commission via a secure ‘My Charity Commission Account’ portal which each charity must set up with the Charity Commission in advance of submission.

Additionally, trustees are required to get their accounts externally checked when gross income exceeds £25,000, known as an independent examination. This independent check must be performed by someone who is unconnected to the treasurer or trustees personally before the accounts and report are submitted. A caveat to this is the charity’s governing document may override here if it states that a check is always required. Should gross income either exceed £1million, or gross assets exceed £3.26million combined with a gross income of more than £250,000, an audit is required instead.

For further information, please contact Karen Evans.

The information contained within this publication is given by way of general guidance. Specialist advice should always be sought in relation to your particular circumstances. No liability is accepted by Ensors for any actions taken without seeking appropriate professional advice.