Charity Accounts: What Small UK Charities Need to Prepare

Preparing the right type of accounts is one of the fundamental obligations for any registered charity in England and Wales. Get the format wrong — or use the simpler receipts and payments format when accruals accounts are required — and the Charity Commission can query your annual return submission and, in some cases, launch a regulatory inquiry.

This guide explains the two main formats, the income thresholds that determine which applies, what an independent examination covers, and the practical steps to produce accounts that will pass scrutiny.

The two account formats

Receipts and payments accounts record money actually received and paid out during the year. They are simpler to prepare than accruals accounts and do not require any accounting qualifications to produce. Small charities that qualify can produce receipts and payments accounts themselves.

Accruals accounts are prepared on the basis of income earned and expenditure incurred during the year, regardless of when cash was received or paid. They must follow the Charities Statement of Recommended Practice (SORP). Accruals accounts are more complex and most charities at this level use a professional accountant.

Which format applies to your charity?

Gross income under £250,000 — receipts and payments accounts are permitted (£500,000 for financial years ending on or after 30 September 2026 — see the note below). This covers the majority of small registered charities in England and Wales.

Gross income over £250,000 — accruals accounts required. Note: for financial years ending on or after 30 September 2026, this threshold rises to £500,000 under SI 2026/427 (a Charities Act 2011 amendment) — the change applies by your charity's year end, not a fixed calendar date. If your charity currently sits between £250,000 and £500,000, check which threshold applies to your current accounting period before preparing accounts.

Charities that are companies (charitable companies limited by guarantee) — must prepare accruals accounts regardless of income level, as company law requires this format for all companies.

Beyond the format question, income level determines what independent review is required alongside the accounts.

Independent examination and audit thresholds

Under £25,000 income — no independent examination required (for financial years ending on or after 30 September 2026, this threshold rises to £40,000). The trustees prepare and approve the accounts themselves.

£25,000 to £1 million income (£40,000 to £1.5 million for financial years ending on or after 30 September 2026) — an independent examination is required. The examiner must be independent of the charity and have the skills and experience to carry out the examination. Whether the examiner must also be professionally qualified turns on gross income, not on which accounting format you use. Charities Act 2011 s.145(3) requires a qualified examiner only where "the charity's gross income in that year exceeds £250,000", in which case the examiner must be a member of one of the bodies listed in s.145(4) — ICAEW, ICAS, ICAI, ACCA, AAT, CIMA, CIPFA and others — or a Fellow of the Association of Charity Independent Examiners. Below that income level the examiner does not need to be a qualified accountant, even where the charity prepares accruals accounts (as every charitable company must, whatever its income) — though it is common practice to use one. For financial years ending on or after 30 September 2026 that £250,000 rises to £500,000 (SI 2026/427 art.3(5)).

Over £1 million income, or assets over £3.26 million with income over £250,000 — a statutory audit by a registered auditor is required. Audits cost significantly more than independent examinations and require a registered auditor (a firm or individual registered with the FRC for audit purposes). For financial years ending on or after 30 September 2026, every figure in that test moves: the income threshold rises to £1.5 million and the asset limb becomes assets over £5 million with income over £500,000 (SI 2026/427 art.3(4) substitutes £1.5 million and £5 million in Charities Act 2011 s.144; art.3(3) moves the s.133 accounts threshold, which s.144 refers to, from £250,000 to £500,000).

The thresholds and formal requirements are set out in the Charity Commission's CC31 guidance: Independent examination of charity accounts.

What an independent examination covers

An independent examination is not an audit. The examiner does not verify every transaction. Their role is to:

• Check that the accounts have been prepared correctly and in the right format
• Confirm that the accounts are consistent with the accounting records
• Review whether anything has come to their attention suggesting a material misstatement or failure to follow the SORP (for accruals accounts)
• Look for any transactions that appear contrary to the charity's purposes or to charity law

The examiner produces a report that accompanies the accounts when they are submitted to the Charity Commission. If the examiner finds a problem, they must report it to the Commission — they cannot simply refuse to sign off without flagging the issue.

For small charities using receipts and payments accounts, the independent examination is relatively straightforward if the records are in good order. The most common issue is incomplete records — missing receipts, bank statements that do not reconcile, or donations recorded in a spreadsheet without adequate supporting documentation.

What the accounts must include

Receipts and payments accounts contain:

1. Receipts and payments account — two columns: one for unrestricted funds, one for restricted funds (donations or grants given for a specific purpose). List each category of income and expenditure.
2. Statement of assets and liabilities — what the charity owns (cash, investments, property) and what it owes (loans, unpaid invoices) at the year end.

Accruals accounts following SORP contain:

1. Statement of financial activities (SOFA) — the charity equivalent of an income and expenditure account, showing incoming resources and expenditure under each heading.
2. Balance sheet — assets and liabilities at year end.
3. Notes to the accounts — including accounting policies, restricted fund details, trustee remuneration declarations, related-party transactions, and other required disclosures.
4. Trustees' annual report — under section 162 of the Charities Act 2011, the trustees of every charity must prepare an annual report for each financial year, whatever the charity's income. Charitable companies and unincorporated charities with income over £25,000 must also file it, with the accounts, as part of their annual return; a CIO must file it whatever its income, because s.163(3)(a) applies the filing duty to a CIO "whatever the charity's gross income is". That £25,000 is the s.163(1) filing threshold and is not one of the figures SI 2026/427 moves.

Preparing the accounts: practical steps

Step 1: Reconcile your records. Before you start, reconcile your bank statements to your accounting records. Every receipt and payment in the accounts should be traceable to a bank transaction or cash record.

Step 2: Separate restricted and unrestricted funds. If you received any grants or donations given for a specific purpose, these are restricted funds and must be reported separately. Spending restricted funds on the wrong purpose is a serious governance failure.

Step 3: Prepare the accounts in the right format. Use the Charity Commission's model receipts and payments accounts as a template — they are published on GOV.UK and include the required sections and notes. For accruals accounts, follow the SORP 2026 framework (applies to periods starting on or after 1 January 2026).

Step 4: Appoint your independent examiner and allow time. Examiners typically need 2–4 weeks to complete their work once they have your draft accounts and records. Build this into your timeline before your annual return deadline.

Step 5: Trustees approve the accounts. The accounts must be formally approved by the trustees at a board meeting, with the approval noted in the minutes. One trustee then signs the accounts to confirm they were approved.

Step 6: Submit with your annual return. Charities with income over £25,000 must attach signed accounts and the examiner's (or auditor's) report to their annual return submission through My Charity Commission Account. A CIO must attach its accounts and trustees' annual report whatever its income (s.163(3)(a)); the examiner's report is what the £25,000 threshold adds. For a step-by-step walkthrough of the annual return itself, see our charity annual return guide.

Common problems that examiners flag

Restricted funds not tracked separately — a grant for a specific project mixed into general funds, making it impossible to show the money was spent as intended.

Trustee expenses not properly recorded — claims without receipts, or mileage claims without a record of dates, journeys, and business purpose. Your charity expenses policy should specify what records are required.

Related-party transactions not disclosed — payments to a trustee's family member, or use of a trustee's premises, that are not disclosed in the accounts notes. These are not necessarily improper, but they must be disclosed.

Reserves not explained — the trustees' annual report should include a reserves policy explaining why the charity holds the level of unrestricted reserves it does. Charities with high reserves and no reserves policy regularly attract Charity Commission queries.

Use our free Compliance Checklist Generator to track your accounts preparation timeline alongside your other annual compliance obligations, including your annual return deadline and independent examination appointment.

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This guide covers charities registered in England and Wales under the Charities Act 2011. Every threshold referenced above is given with its SI 2026/427 replacement figure where the Order moves it. Those replacements apply to financial years ending on or after 30 September 2026 (art.5(6)) — the Order itself comes into force on 30 September 2026, but the test is your charity's year end, not the calendar date. This is general guidance, not legal or accountancy advice.

Sources

• Prepare your charity's annual accounts — GOV.UK
• CC31: Independent examination of charity accounts — Charity Commission
• Prepare a charity annual return — GOV.UK