A charity’s reporting and accounting obligations to the Charity Commission will depend on a number of factors including whether the charity is exempt or excepted from registration, whether the charity is a company, the charity’s gross annual income, and the value of the charity’s assets.  (Note that this Article only deals with a charity’s obligations to report to the Charity Commission and does not set out the additional obligations on charitable companies under the Companies Act.)

  1. A. Registered Charities

Generally, if a charity’s income is greater than £5,000 per year it must register with the Charity Commission (unless it is an exempt or excepted charity – see further below).

All registered charities must file the following with the Charity Commission:

  • an Annual Return;
  • a Trustees’ Annual Report; and
  • Annual Accounts (there are different types of accounts and trustees will need to be clear which they should submit, and whether the accounts should be independently examined or audited).

 The Annual Report and Annual Account must be filed within 10 months of the end of the charity’s financial year.

 B. Excepted Charities (may apply to some churches)

 Since 31 January 2009, all excepted charities with an annual income in excess of £100,000 have been required to register with the Commission.  The accounting and reporting requirements for an excepted charity which is registered with the Commission are the same as for any other registered charity.

An excepted charity with an annual income below £100,000, does not have to register with the Commission and does not have to submit Annual Reports and Accounts.

However, it must still produce annual accounts and must provide copies to the public upon request.  Excepted charities with a gross annual income of more than £25,000 will need to have their accounts independently examined or audited (see threshold requirements below).

The Commission also recommends that excepted charities produce an Annual Report and may direct the trustees to prepare and submit a Report in exceptional circumstances.

If an unregistered, excepted charity is also a charitable company, it must comply with any requirements for filing under the Companies Acts.

C. Exempt Charities (unlikely to apply to most types of Christian charity)

 Exempt charities cannot register with the Charity Commission but are instead regulated by an alternative principal regulator.  They are exempt from the obligation to file their Annual Accounts, Trustees’ Annual Reports and Annual Return with the Charity Commission.

It is nevertheless good practice for an exempt charity to prepare a Trustees’ Annual Report and Accounts as these may be required by their principal regulator; an exempt charity must also provide a copy of the most recent accounts to anyone who makes a written request.

Whilst exempt charities are not required to have their accounts audited or independently examined, they should keep proper accounting records which should be retained for at least 6 years unless the charity ceases to exist and the Charity Commission gives written consent to their disposal.

If an exempt charity is a charitable company, it will need to prepare its annual accounts under the Companies Acts.

  1. 1. ANNUAL RETURNS

All registered charities are sent an annual return form by the Commission shortly after the end of their financial year end which should be completed and returned online.  The following registered charities are under a legal duty to complete and file an Annual Return:

  • has a gross annual income greater than £10,000; or
  • is a CIO (irrespective of its gross annual income).

If the charity’s gross annual income is less than £10,000, they may be asked to complete certain sections of the annual return, eg trustees details.

Charities with a gross annual income of more than £25,000 should file their Annual Return, Trustees’ Annual Report and the Annual Accounts at the same time.

What information should you include in the Annual Return?

 The Annual Return provides the Commission with a snapshot of the charity’s finances and governance, and details of contacts and the charity’s activities.  The Annual Return must include the following:

  • Charity information – confirmation of details appearing on the extract from the Register of Charities on the Commission’s website.
  • Financial information – details of total income and spending.
  • Serious incidents report – trustees must sign a declaration that there were no serious incidents over the previous financial year that they should have brought to the Commission’s attention but have not done so.

How do you file the Annual Return?

 The Annual Return should be filed online (you will need your charity registration number and password).  Failure to do so will result in the charity’s details being marked as ‘overdue’ which can put off potential donors, funders or volunteers.

Recent changes to Annual Returns

 In 2018, changes to the Annual Return were brought in and for all charities whose financial years start on or after 1 January 2018, there are now additional questions regarding staff salaries, overseas income and expenditure, fundraising, government funding and trustee benefits.

  1. 2. TRUSTEES’ ANNUAL REPORT

All registered charities must prepare an Annual Report and make it available to the public upon request, but they only need to file the report if the charity’s annual income is more than £25,000.

All CIOs, irrespective of gross annual income, must complete and file an Annual Report.

Do you have a large or small charity, or a CIO?

 Large charities (whose income is either (i) over £1 million, or (ii) above £250,000 and its assets are worth more than £3.26 million) will need to complete a full report.

Both types of Annual Report contain similar information, but a larger charity will need to provide greater depth and the report must follow guidelines set out in the relevant SORP (Statement of Recommended Practice).

What information should be included in the Annual Report?

If the charity is a company, the contents of the Trustees’ Annual Report will overlap with the directors’ report required under the Companies Act 2006 and which is filed at Companies House.  For practical purposes, the same document can be filed at the Charity Commission.

The Trustees’ Annual Report is intended to help people understand what your charity does and should include the following information:

  • reference and administrative details of the charity (including the charity’s name and address, registration number, its trustees and advisors)
  • structure of the charity (including how the charity is constituted and how it recruits its trustees)
  • governance and management details (including particulars of the governing document and how the trustees are recruited and appointed)
  • summary of the charity’s objectives and activities
  • the charity’s main achievements and performance for that financial year
  • a financial review, including:
    • where the charity gets its income from
    • how it spends its money
    • information on fundraising practices
    • policy on reserves
    • details of any funds which are materially in deficit, including the circumstances giving rise to the deficit and the steps being taken to eliminate it
  • if any funds are held as custodian trustee:
    • a description of the assets held
    • the name and objects of the charity/charities on whose behalf the assets are held and how this activity falls within charity’s own objects
    • details of the arrangements for safe custody and segregation of such assets from the charity’s own assets
  • a public benefit statement (ie a statement confirming whether the charity trustees have complied with their duty to have due regard to the guidance on public benefit published by the Commission in exercising their powers or duties)

Charities subject to a statutory audit (see below) and all CIOs must produce a “full” annual report in accordance with the relevant SORP; this should include the following additional information:

  • Administration:
    • the name of the CEO or other senior staff members to whom day-to-day management of the charity is delegated
    • the names and addresses of any other relevant organisations or persons, e.g. bankers, solicitors, auditor or independent examiner
  • Structure and Governance:
    • policies and procedures for the induction and training of trustees or a statement to the effect that no such policies have been adopted
    • organisational structure including how decisions are made (e.g. which types of decision are taken by the trustees and which are delegated to staff)
    • if the charity is part of a wider network (eg affiliated within an umbrella group), an explanation of the impact this has on the charity’s operating policies
    • relationships between the charity and related parties, eg subsidiaries or other charities and organisations with which it co-operates
    • statement on risk management
  • Objectives and Activities:
    • explanation as to how the objectives set for the year relate to longer term strategies and objectives
    • summary of the charity’s objects and an explanation of the charity’s aims including the difference it seeks to make through its activities
    • explanation of the main objectives for the year and the strategies for achieving them
    • review of the significant activities undertaken for the public benefit
    • where the charity conducts a significant amount of its activities through grantmaking, a statement should be provided setting out its grantmaking policies
    • where social or programme-related investment activities are material, these should be explained
    • where a charity uses volunteers to a significant extent, this should be noted
  • Achievements and Performance
    • a review of charitable activities which explain the performance achieved against the objectives set (a summary of the measures or indicators used to assess achievement should be included)
    • where significant fundraising activities are undertaken, details of performance against fundraising objectives
    • where significant investments are held, details of the investment performance against the investment objectives
    • comment on factors within and outside the charity’s control which are relevant to the achievement of its objectives, e.g. relationship with employees, users, beneficiaries, funders and the charity’s position in the wider community
  • Financial Review
    • principal funding sources and how expenditure in the year has supported the charity’s key objectives
    • where material investments are held, the investment policy and objectives, including the extent to which social, ethical or environmental considerations are taken into account
  • Future Plans
    • aims and key objectives for future periods together with details of any activities planned to achieve them

Where group accounts are prepared, the following must also be included:

  • the relationship between the charity and related parties, including its subsidiaries
  • significant activities undertaken through subsidiary undertakings
  • achievements and performance of the charity and the group is set out to enable the reader to understand and assess the achievements of the charity and its subsidiary undertakings in the year
  • the financial review is set out to enable the reader to understanding the financial position of the charity and its subsidiaries

3. ANNUAL ACCOUNTS

All charities (whether registered with the Charity Commission or not) must keep accounting records and prepare annual accounts which must be made available to the public on request.

Only registered charities with a gross annual income greater than £25,000 and all CIOs (regardless of income) need to file their accounts with the Commission.

Which method should you use to prepare your accounts?

Charities must prepare their annual accounts using either the receipts and payments method or the accruals method.

The receipts and payments method is simpler but is not allowed by company law; it may only be used by unincorporated charities or CIOs, whose gross annual income is £250,000 or less.  However, if they choose to do so, these charities may still use the accruals method of accounting.

All charitable companies, and unincorporated charities or CIOs whose gross annual income is greater than £250,000, must use the accruals method and must comply with the applicable SORP.

Should your accounts be audited or independently examined?

Generally, only charities with a gross annual income greater than £25,000 are required to have their accounts independently examined or audited, although small charities may choose to have an independent examination of their accounts provided an audit is not required by their constitution or, for charitable companies, by the Companies Act.  (Note that the Charity Commission has the power to require an audit of a small charity in exceptional circumstances.)

An “audit” is an inspection and examination of a charity’s accounts under the Charities Act by a registered auditor. The auditor has to express a professional opinion as to whether the accounts are ‘true and fair’ and they conduct the audit in accordance with relevant auditing standards.

Large charities (whose income is either (i) over £1 million, or (ii) above £250,000 and its assets are worth more than £3.26 million) must have their accounts professionally audited.

Medium charities (ie those below the thresholds stated above) only need to have their accounts examined by an Independent Examiner, unless a professional audit is required under the charity’s constitution or specifically required for that year by the Charity Commission.

An “independent examination” is a simpler and less expensive form of external scrutiny, conducted by an independent person with the requisite ability and practical experience; this does not need to be a qualified accountant.  The examiner need only confirm that no evidence has been found that suggests certain things have not been done by the charity.

All registered charities which fall within the definition of “medium charity” but have a gross annual income of more than £250,000, and which have chosen to have their accounts independently examined, must appoint an independent examiner who is a member of a body specified in the Charities Act.

Charitable companies which have either charitable or non-charitable subsidiaries must prepare group accounts where the aggregate income of the group exceeds £1 million, and those group accounts must be audited.

 

We cannot give financial or accountancy advice but are happy to refer you to other specialists in this area as required.

This information has been provided by solicitors working for Edward Connor Solicitors. It is designed for the purpose of knowledge sharing only and does not constitute legal advice.