Charities

Helping charities to be well-managed to deliver their charitable objectives

Charities are not businesses - they should be focused on their charitable objectives. But to do this, they do need to be managed in a businesslike manner, both to be effective and to ensure that they - and their trustees - don't fall foul of increasingly rigorous regulation.

Reporting to the Charities Commission

If a charity's gross income is over £10,000, it is a legal requirement for the trustees to send an Annual Return to the Charities Commission each year.

If a charity has an annual gross income of more than £25,000, it must send a copy of the Trustees' Annual Report and the audited or independently examined accounts (including the examiner's report) to the Charities Commission.

Where a charity is required to send the Charities Commission an Annual Return and/or accounts, it must submit them within ten months from its financial year end.

Books and accounts

All charities must, by law, maintain accounting records.

All charities must prepare a Trustees' Annual Report and accounts and make them available on request. However, the way in which each charity must maintain, prepare and report its accounts depends on its gross income and expenditure, gross assets and constitution.

Accounts prepared on an accruals basis must comply with the SORP, which is an accounting standard; if the charity is a limited company, they must also comply with the Companies Act 2006.

The SORP (and charity accounting) generally are based around funds. The accounts distinguish between restricted funds and unrestricted funds and all the activities of the charity must be so categorised. Individual funds must be segregated and properly accounted for in the accounting records, although there is no requirement to keep different funds in different bank accounts

The Statement of Financial Activities (SOFA) shows all the incoming resources of a charity, whether capital or revenue and real or notional (for example goods or services donated), and all the outgoing resources. All the figures are analysed over different funds and all are also analysed between charitable activities and other activities.

Independent examination and audit

For charities with gross income over £25,000 in the accounting year there is a legal requirement for external scrutiny of the accounts. This may take the form of either an Independent Examination (by a suitably qualified examiner) or a Charities Act audit (by a Registered Auditor).

Also, if the charity is a company, then the usual company law rules apply and an audit under the Companies Act may also be required.

Taxation of charities

Charities are not exempt from tax.

However the law does grant charities certain reliefs and exemptions from several taxes provided conditions (often very stringent) are complied with. In many cases, the reliefs and exemptions are not automatic but have to be claimed.

The details vary from tax to tax but the essential points are:

  • the entity must be a charity in law;
  • the charity must have been ‘recognised’ by HM Revenue and Customs;
  • the activities concerned must be within the objects of the charity; and
  • the activities concerned must be permitted by charity law

Helping you

Our specialist team is headed up by Gill Goddard, a Fellow of the Association of Charity Independent Examiners. They have a detailed knowledge and wide practical experience of charity accounting, the charities SORP and the taxation issues surrounding these organisations.