Charity accounting is a specialist topic that requires specialist advice, especially compared to simpler organisational structures.
So if you’re starting a charity, or if your organisation has grown large enough that you need some additional support, it’s important to get that advice from an accountant with experience and knowledge of the sector.
A good accounting service will not only keep your organisation compliant with its legal obligations, but also help it to achieve its financial goals – ultimately leading to better outcomes for its charitable goals.
But when time is limited and your budget is tight, which services should you prioritise?
Charity accounting requirements
Firstly, if you’re starting a charity for the first time, it’s important to understand what exactly your accounting and reporting obligations are.
These vary depending on the size and structure of your organisation, but in simple terms, every registered charity must prepare:
- an annual report
- a set of accounts
- an annual return form.
If you run a charitable incorporated organisation (CIO), or your charity’s income exceeds £25,000 in the financial year, you’ll be required to submit your annual report and accounts to the Charity Commission. In other cases, you’ll just need to make them available on request.
Additionally, all CIOs and all other registered charities with a gross income of more than £10,000 must complete and file an annual return with the commission. Registered charities with a lower gross income are asked to complete the annual return for certain items.
Then there are special rules when it comes to audits and independent examinations.
Charities with a gross income between £25,000 and £1 million in their financial year are required to have their accounts independently examined, while those with an income of more than £1m must have an audit.
An audit is also needed if the charity’s gross income is more than £250,000 and its total assets before liabilities exceed £3.26m.
Getting to grips with these different rules can be complicated, so it’s generally best to explain your organisation’s position to a professional, who’ll be able to tell you what you need to do.
Which accounting services does your charity need?
Whether you need a fully outsourced accounting service or just some extra support for your in-house finance team, there are various services a charity accountant can offer.
This one sounds basic, but it’s essential. As we mentioned above, all charities must prepare a set of accounts and make them available on request.
There are two main ways in which you can prepare accounts: receipts and payments, or accruals.
Receipts and payments is the simplest method of the two, and can only be used by unincorporated charities with a gross income of £250,000 or less.
Accounts prepared with this method involve a summary of all the money received and paid out by the charity during the financial year, and another statement outlining the details of its assets and liabilities at the end of the year.
If you’re running a charitable company, however, or if your charity has a gross income of more than £250,000, you’ll be legally required to prepare accruals accounts.
These must also comply with the statement of recommended practice (SORP) for that financial year, and show a “true and fair view” of the charity’s finances.
Accruals accounts contain a balance sheet, a statement of financial activities and some explanatory notes.
Even for relatively simple receipts and payments accounts, the value of an accountant with specialist expertise is not to be underestimated – and it’s even more important when you need to comply with SORP.
External audit or independent examination
Whether it’s a legal requirement or a part of your governing document, an audit or independent examination can be a great opportunity to ensure your financial records and systems are all as they should be.
This should be carried out by a reliable, knowledgeable and impartial professional.
As well as meeting your statutory requirements, the auditor or examiner should be able to explain what they mean for you, and what changes you can make to improve.
An audit or examination can be a great chance to make your own systems more accurate and efficient, giving you more time to focus on your charity’s mission.
Advice and training
Beyond tax compliance alone, one of the most valuable things you can get from an accountant is their strategic input.
It can be hugely helpful for charity leaders to have the support of someone experienced and knowledgeable from outside of the organisation – someone to bounce ideas off of, to challenge your thinking and push you to improve what you do.
A specialist charity accountant will be able to bring their knowledge of the structural and financial side of your charity together with their understanding of your goals and challenges, to offer personal advice that will help you make important decisions.
They’ll also help you to streamline your accounting processes, keep you informed on regulatory changes, and offer guidance on governance.
At JCS, we’re proud to support charities across the UK with specialist tax and accounting services.