All charities must understand new accounting rules

The Charity Commission for England and Wales has issued a call to all charity trustees and professional advisers to familiarise themselves with its updated guidance, effective from this year. The regulator’s research highlights that financial transparency is essential for maintaining public trust in the £100 billion charities operate within England and Wales, making accurate and timely information submissions critical.

To address the varying accounting requirements based on legal structures, the Commission has created distinct guides catering to three primary types: trusts or unincorporated associations, charitable companies, and charitable incorporated organisations (CIOs). This fine-tuning also includes updates to two significant areas. Firstly, changes to the Charities Statement of Recommended Practice concerning Accounting and Reporting by Charities, also known as the SORP. Secondly, adjustments to income thresholds for charity law compliance, which dictate when charities must align with the SORP or have their accounts independently examined or audited.

Starting from financial years that begin on or after 1 January 2026, the revised SORP introduces new stipulations regarding the acknowledgment and reporting of certain income types and lease arrangements. Enhanced transparency requirements are also in place, particularly for charities with substantial incomes. For financial years ending on or after 30 September 2026, the government has increased the income thresholds that necessitate preparation of SORP-compliant accruals accounts or independent examinations. The revised thresholds are now set at above £500,000 for accruals accounts (up from £250,000), above £40,000 for checks by independent examiners (previously £25,000), and an obligatory audit at above £1.5 million gross income or above £500,000 gross income with over £5 million in gross assets (previously above £1 million).

Sue Smith, Charity Commission Senior Trustee Guidance Manager noted, "You may need to prepare your accounts differently this year as there are some changes to the accounting requirements for charities in England and Wales." She added that the refreshed guidance "sets out clearly what to do, step by step" while also addressing feedback by making the guidance easier to navigate for both trustees and their advisers.

For now, guidance pertaining to previous financial years will remain accessible on gov.uk, as charities may need it when assembling their accounts. The Commission has indicated that it will evaluate options for future accounting reforms to ensure these processes remain relevant.

Pointing to the importance of financial stewardship, Amie Woods, Assistant Director of Accountancy at the Commission remarked, "Charity trustees have stewardship of around £100 billion of charitable money and people want to see how those funds are being spent to do good." She emphasised that well-maintained accounts and annual returns foster public trust and confidence in the charity sector.

Woods further explained, "Our guidance should help charities continue to get it right under the current system," while reiterating the complexity of the accounting rules and the need for potential refinements in the long-term. Her remarks underscored the balance between minimising administrative burdens for charities and upholding accountability to protect public trust.

The Commission continues to publish a suite of guidance and policies aimed at helping trustees fulfil their responsibilities. A complete list of available resources can be found on gov.uk, which includes tools for improving charity finances (CC12) and accruals accounts packs.