Getting started with your charity accounts requirements

Make your charity accounting requirements much more simple with this handy beginners guide. From defining your legal structure to calculating your annual income and trustee’s annual report, we’ve got you covered.

We should expect transparency and accountability across all charity work, especially when it comes to its accounting and financial reporting.

But without knowing the correct methods and navigating the necessary regulations by the book, how can you ensure you satisfy legal procedures while maintaining your organisation's reputation?

In this blog, we’ve broken down charity account requirements with an easy beginners' guide so you can get the ball rolling on your accounting without too much trouble.  

Are charities required to show their accounts?

By law, every charity must prepare a set of accounts and a trustee’s annual report. This law includes all charities, even those not officially registered with the Charity Commission.

Depending on your charity type, you may be required to present your annual accounts and trustee’s annual report to your members for approval at an Annual General Meeting (AGM).

We recommend this approach for best practice, even if your charity is not required to conduct an AGM by law. After all, what defines your organisation as a charity must be clear to see across all your activity, financing and reporting. You display an honest overview of your activities and finances by presenting these accounts and reports.

The type of accounts and reporting that your charity must produce will depend on the following factors:

·       Your legal structure

·       Your income

·       The value of your assets

But before we begin, let’s briefly overview what you can expect from your charity accounts requirements so you can prepare effectively.

Accounting for charities: What first?

Detailed in the official guidance published by the UK Government – ‘Charity reporting and accounting: the essentials November 2016 (CC15d) – the initial charity accounts requirements begin with the following points:

·       Checking whether your charity is also a company or charitable incorporated organisation.

·       Recording the total income for the current financial year.

·       Evaluating the value of your assets.

·       Establishing whether your charity is required to be registered.

After clarifying these points, the final stage relies on you establishing the following:

·       The type of accounts you’re required to prepare.

·       The information your trustee needs to display in their annual report.

·       Whether your accounts need an independent examination or audit.

·       The information required to be sent to the Charity Commission.

So, on this basis, the first step is establishing what legal form and corresponding structure applies to your charity.

Charity accounting requirements: Legal structure

In the UK, charities have a few options for accounting with different implications.

One of these forms is Charitable Incorporated Organisations (CIO). The CIO was developed in 2013 to help simplify the process of establishing a charity after demands for a new structure in the UK.

CIOs are legal structures regulated by the Charity Commission and governed by Charity Law (Not Company Law). The liability of its trustees is limited, and you have no minimum income required to register.

There are two forms of CIO:

·       Foundation model – Trustee-only membership.

·       Association model – Involves a wider membership, including voting members outside of charity trustees.

Other forms of charity include the following:

·       Unincorporated Associations – Unregistered with the Charity Commission.

·       Registered Charity – Registered with the Charity Commission.

·       Company Limited by Guarantee (CLG) – Registered with Charity Commission and Companies House to comply with Charity Law and Company Law.  

·       Co-operative/Community Benefit Society (CBS) – Running a business, trade or industry on behalf of a community.

·       Community Interest Company (CIC) – Must pass a Community Interest Test while registered with the Companies House.

Depending on which structure applies to your charity will significantly determine how you manage your finances and reports. We recommend researching further into the implications of each one before you make a decision.

Charity accounting requirements: Annual income

Firstly, by law, any charity with an annual income over £5,000 is required to register with the Charity Commission. In registering with the Charity Commission, you’re obliged to produce a trustee’s annual report, which must always remain accessible.

Secondly, if your charity income is below £10,000, you must submit an Annual Update to the Charity Commission. Inside this update, you must include any changes to your charity or trustee details along with income and expenditure.

Thirdly, if your charity makes more than £10,000 (All CIOs, regardless of income amount), it must submit an annual return to the Charity Commission within 10 months of the financial year ending. This report includes your annual accounts and the trustee’s annual report.

And finally, stepping it up a level, charities with an annual income over £250,000 and with assets worth less than £3.26 million must keep accruals accounts. These accounts must be audited or independently examined by a professional approved by the Charity Commission.

Charity accounting requirements: Charitable companies

As a charitable company, you must oblige company law and charity law. Therefore, you must submit information to the Charity Commission and Companies House while keeping accruals accounts regardless of your income or assets.  

Charity accounting requirements: Statements and reports

Regarding the accounting for charities, you can break down your accounts into:

·       Receipts and payments

·       Accruals

The types of accounts depend on your income and whether you’re registered as a company or a charity.

Your financial statements should include the following points:

·       Income and expenditure – Provide a detailed breakdown of your financial activities.

·       Balance sheets – Offer an assessment of your financial position.

·       Cash flow statements – Highlights cash flow in and out of your organisation.

But beyond numbers, the trustee’s financial report should detail how your organisation plans to operate with your objectives, challenges and achievements. The trustee’s financial report serves as a financial narrative to garner trust in your cause from donors and stakeholders by providing them with valuable insights.

Streamline your accounting with an easy, all-in-one software solution

Fulfilling your charity accounting requirements is made all the simpler when you have the right tools at your fingertips. 

At Data Developments, we’ve supported charities, churches and other non-profit organisations for over 30 years with their accounting. Our advanced software solutions include cloud applications (MyFundAccounting.Online) and desktop devices (Finance Coordinator v4) and can be custom-made to suit your exact preferences.   

Get in touch today for more details about how our software can support your charity accounting requirements.