Are you running a charity and are unsure about what measures should be in place? Do you understand the accountancy requirements for a charity? Find out more by downloading our handy guide or reading about it below.


What do I need to know?

You should know that if you are running a charity, it is very different from running a business as its motives and goals will be extremely different.

Managing a charities accounts can be challenging as they are managed differently by law as they are a non-profit organisation.

Why is accounting for a charity important?

Charities are under a lot of pressure due to the reduced investment from the government, and with the increase of people who are reliant on charities to survive it is essential that careful accounting is in place.

As charities are dependent upon public trust, it is fundamental that they maintain an ethical reputation and are transparent with their financial activity.

What is the main role of the accountant?

The main role of an accountant for a charity:

  • Ensure that finances are managed carefully and there are systems in place
  • Maximise income from investments and assets
  • Ensure compliance
  • Make sure that tax is not over payed

What counts as a charity?

Tax law defines an official charity as: “A body of persons or trust…using all its income and assets for its stated charitable purpose”.

To determine the status of a charity is to decide whether it exists to benefit the public, as if it does not benefit the public then it cannot be classed as a charity.

There are also requirements that the people running the charity must be “fit and proper”.

The validation of a charity status is delegated from HMRC to the Charity Commission in England and Wales, the Office of the Scottish Charity Regulator in Scotland or Charity Commission for Northern Ireland. 

If a charity has officially regulated and confirmed that it meets the requirements to be considered as a charity, it can then register with HMRC, who will then issue a charity tax reference number.

You should know that if the regulator does not confirm a charitable status, then a separate application can be made from the Revenue for tax-free status, and in some cases it can be granted.

What is a SORP?

Accounting for Charities has special treatment within law, and larger charities are expected to adhere to the sector-wide statement of recommended practice or Charities Statement of Recommended Practice (SORP).

SORP became mandatory in 1995 and it is owned and managed by a partnership of charity regulators in Britain and Ireland.

SORP terms are that charities must match a certain size and income criteria must prepare an annual report and a set of accounts and submit an annual return to the Charity Commission by 31 January.

If charities that are registered in England and Wales have a gross income of less than £10,000 in the financial year are asked to complete the annual return only.

What is Gift Aid?

Gift Aid was introduced in 1990 and it enables charities to reclaim 25p of every £1 donated by an individual or on the amount your unwanted goods are sold for.

You should be aware that there is a lot of responsibility and paperwork that comes with Gift aid to prevent any abuse of the scheme.

Charities must ensure that Gift Aid donors sign a declaration of eligibility and keep a record of donations above £30.

Individuals must make sure that they are eligible to make Gift Aid donations before they sign any declaration form as HMRC can insist that any repayments made to charities for innocent Gift Aid donations are paid back by the Charity.

Tax Relief on gifts to charity?

You and your business may be eligible to claim tax-relief on certain types of investment, and land or buildings, given, or sold at less than market value, to a UK charity.

 What is eligible:

  • Investments which includes shares or securities listed on recognised stock exchange
  • Units in an unauthorised trust
  • Shares in an open-ended investment company based in the UK
  • Land or buildings that the charity is willing to accept and there is a certificate confirming the deal

If you make a gift to a charity that qualifies for tax relief then you should make sure that you deduct this when you are calculating your income for the tax year you made your donation.

If you make an outright gift, you can deduct the value of the net benefit to the charity, any incidental costs such as brokers fees from the process and add them back on the value of other benefits you receive such as a thank you present from the charity.

Further Actions

If you are operating a charity, then you should make sure that you maintain the reputation by ensuring that you have an efficient accountant who is aware of the current legislation for charities.

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