(Last updated March 2024).

A guide to Charity Commission filing requirements and UK charity year-end accounts.

Entity type.

Mainstream registered charities in the UK usually fall into one of three categories, which can be determined from the charity’s governing documents:

• A charitable company — a charity which is incorporated as a company, usually limited by guarantee, registered with both Companies House & the Charity Commission.

• A CIO (Charitable Incorporated Organisation) — a type of incorporated charity that’s not a company, registered only with the Charity Commission.

• An unincorporated charity — a non-company entity regulated by the Charity Commission and not incorporated, e.g. a trust.

The category along with the level of annual income and gross assets at the balance sheet date, are key factors in determining the correct accounts to prepare and the applicable filing (and scrutiny) requirements.

Note that there are charities that don’t need to register with the Charity Commission — for example exempt and excepted charities (see the note at the very bottom of the page) and whose requirements aren’t discussed directly here. Academy trusts, colleges, some Churches and Scout groups are the ones to watch out for here. There are also social purpose entities which are companies or constituted in other ways, again they aren’t considered here.

Legal obligations.

All charities and companies are required by law to keep accounting records, which should consist of the elements one would expect, such as a cashbook, invoices, gift aid records and other constituents. Although varying rules apply around how long these should be kept, a broadly safe assumption is that they should be held for at least six years.

There are then three main elements to the required compliance in most cases:

• Year-end accounts.

• Trustees’ annual report (the annual report).

• Annual return to the Charity Commission.

Year-end accounts and a Trustees’ annual report need to be prepared and are often combined into one annual report & accounts document and submitted in that form to the Charity Commission, which requires filing of annual reports & accounts where annual income is above £25,000, except for CIO’s, all of whom are required to file. Annual gross income of £25,000 or above is also the threshold at which the accounts need to be either independently examined or audited — see a separate article on scrutiny.

The annual return (discussed later) needs to be completed and submitted by every registered charity with income over £10,000 and by all CIO’s regardless of size.

Filing deadline: Annual returns and the annual report & accounts need to be submitted to the Charity Commission within 10 months of the year-end. For charitable companies the Companies House accounts filing deadline applies and is sooner — 9 months from the year-end.

‘Accruals’ or ‘receipts & payments’ accounts?

There are two types of charity accounts:

Receipts & payments accounts:

These are an option available to non-company charities with gross annual income of less than £250,000. Company law rules out this approach for charitable companies.

Receipts & payments accounts are simpler than accruals accounts, they involve accounting for transactions only on a cash basis. A simple statement of actual monetary movements is needed, summarising the money received and paid out in the year. This is accompanied by another statement detailing assets and liabilities at the balance sheet date.

Preparing receipts & payments accounts can be an attractive option for smaller CIO’s & unincorporated charities with straight forward operations.

Accruals accounts:

These are the only option available to charitable companies and non-company charities with gross annual income of over £250,000. Smaller non-charities can opt to prepare accruals accounts and this isn’t uncommon, for example if they’re a more complex organisation, part of a larger group structure, or would like their accounts to appear more sophisticated for another reason, for example to appeal to new donors.

Accruals accounts need to contain a statement of financial activities (the name of the income and expenditure statement for a charity), a balance sheet, a statement of accounting policies and accompanying notes. Larger charities include a cash flow statement, typically small entities are exempt from the requirement.

The accounts need to comply with the accounting framework applicable to UK charities, which for mainstream charities is the SORP (the Charities’ Statement of Recommended Practice). The SORP introduces concepts such as fund accounting, and mandates a greater volume of disclosure than company accounts for example around the salaries of higher paid staff, with the goal of transparency.

Accruals accounting involves considering the timing of income and expenditure, not just the date of cash movements in & out of the bank account. This is best explained through examples:

• E.g. 1. A charity hasn’t yet paid the last month of the financial year’s utility bills at year-end, it normally pays these monthly in arrears. It needs to accrue for the final month’s cost at year-end, by recognising a further one month’s expenditure and a corresponding creditor on the balance sheet.

• E.g. 2. A charity with a property hires out one of its meeting spaces to a corporate customer, who pays in advance for the hire - the charity receives the cash before the year-end but the hire isn’t until the year-end. It doesn’t yet have entitlement to the income as the cash is returnable if the hire doesn’t go ahead, so it needs to defer it, reducing income & recognising a corresponding creditor entry on the balance sheet.

The accruals accounting approach has a capital accounting impact too, allowing for expenditure on assets held for the longer term (vehicles, furniture, IT) to be spread across multiple years in the form of depreciation:

• E.g. 3. A charity buys a minibus which the Trustees expect will last about 10 years before being scrapped. The charity can recognise the purchase cost as a fixed asset on its balance sheet, then each year for 10 years reduce that balance sheet value by a tenth of the original purchase cost, via the recognition of a corresponding annual depreciation charge in expenditure. Thus more accurately reflecting the useful economic life of the asset & its value to the charity over time.

A background in accountancy is advisable for preparing accruals accounts.

Drafting the Trustees’ annual report.

The Trustees’ report is principally a compliance document charities need to prepare each year to demonstrate they’ve achieved public benefit – and hence keep their legal charitable status, their exemption from corporation tax and ability to claim gift aid.

There are a number of areas to include such as the charity’s Structure, Governance & Management, recent Achievements & Performance, and Future Plans. There are resources available to help with compliance. A basic template can be found via our resource library.

The report is also a great way to showcase the charity’s latest achievements and outcomes for beneficiaries. The best reports use case studies and visual aids to demonstrate impact.

The Charity Commission Annual Return.

Within ten months of year-end, a charity should submit its online annual return. The return prompts the charity to check its standing information and update as necessary, that’s Trustee contact details, the main themes of the charity’s work, details of the core bank account, other key information — however this should be kept up to date throughout the year by the charity anyway.

The return asks questions about the charity’s finances for the period. There are questions around governance practices, for example whether the charity reviewed its internal controls in the year, whether certain policies & procedures exist, whether any Serious Incident Reports were made.

Annual returns can be submitted by charity personnel to the Commission directly, or the charity can assign user rights to a third-party agent (for example their accountant) who can file on the their behalf.

For Thoroughfare’s assistance in preparing your charity’s year-end accounts, and/or with independent examination, please get in touch using the form or contact details at the bottom of the page.