UK Nonprofit Charity Compliance Checklist

Topics Covered:

• Charity Accounts
• Preparing Charity Accounts
• Charity Trustees
• Trustees' Annual Report
• Record Keeping

Charities registered in England or Wales should submit an annual return or annual report to the Charity Commission. This is in accordance with the Charities (Protection and Social Investment) Act 2016.

The return includes:

• Accounts
• Trustees' annual report
• Independent exam or audit report, if applicable

Registered charities receive an annual return form from the commission shortly after the financial year's end.

The types of documents included in the annual return will depend on a few things about your charity:

• Is it a company registered with the Companies House or a charitable incorporated organization solely registered with the Commission?
• Income for the current financial year
• Value of the charity’s assets
• Size of the charity
• Typically, all charities must prepare accounts.
• All registered charities with gross income in the financial year exceeding £25,000 and all charitable incorporated organizations must prepare accounts along with a trustees’ annual report.

The annual return to the commission must be sent within ten months of the end of your charity's financial year.

Note:

• Charities are exempt from income tax.
• Charities are required to pay corporation tax on grants, donations, and other similar sources of income.
• Charities are required to pay Value Added Tax (VAT) if the turnover exceeds £85,000 every year

Charity Accounts

The types of accounts that you need to prepare depend on the type of charity you run.

Charitable Companies

Income under £10,000

• Report income and spending

Income between £10,000 and £25,000

• Report income and spending
• Answer other questions in the annual return form

Income over £25,000

• Report income and spending
• Answer other questions in the annual return form
• Have your accounts examined (independent examiner)

Income over £1 million; Gross assets over £3.26 million and income over £250,000

• Report income and spending
• Answer other questions in the annual return form
• Have your accounts fully audited

Charitable Incorporated Organizations

In general:

• Report income and spending
• Answer other questions in the annual return form

Income over £25,000

• Report income and spending
• Answer other questions in the annual return form
• Have accounts examined or audited

Income over £1 million; Gross assets over £3.26 million and income over £250,000

• Report income and spending
• Answer other questions in the annual return form
• Have your accounts fully audited

Preparing Charity Accounts

There are two types of accounting templates that charities can use, receipts and payment accounts, and accruals.

Receipts and Payments Accounts

• Simpler method
• For a non-company charity with a gross income of up to £250,000
• Not for charitable companies
• Includes the following:
  • A statement summarizing all money received and paid out by the charity in the financial year
  • Statement giving details of its assets and liabilities
• Template and Receipts and Payments Accounts Pack

Accruals

• For non-company charities with a gross income of over £250,000 and charitable companies
• Must comply with the Statement of Recommended Practice (SORP), dependent on the charity's financial year
• Includes the following:
  • Balance sheet
  • Statement of financial activities
  • Explanatory notes
• Template and Accrual Accounting Pack
• Accrual accounting pack for a small charitable company

Audit or Independent Examination
You are required to have your accounts independently audited or examined by an accountancy firm if your gross income is more than £25,000. An independent examination is a "light touch" scrutiny that an examiner does to check for specific matters. It does not involve forming an opinion about whether the accounts are "true and fair."

Independent Examination

• Gross income is between £25,000 and £1 million

Full Audit Required

• Gross income exceeding £1 million
• Gross income exceeding £250,000, and total assets exceed £3.26 million

Charity Trustees

Trustees have independent control and legal responsibility for a charity’s management and administration.

These are the 6 main duties of charity trustees:

1. Ensure your charity is carrying out its purposes for the public benefit
2. Comply with your charity’s governing document and the law, including counter-terrorism laws
3. Act in your charity’s best interests
4. Manage your charity’s resources responsibly
5. Act with reasonable care and skill
6. Ensure your charity is accountable

In terms of a charity’s finances, each charity, before qualifying for tax relief:

• Appoint up to 2 authorized officials to manage tax-related concerns and file a tax return. They can also contact HMRC about the charity’s tax.
• Appoint 2 to 4 persons to be legally accountable for running the charity (either a trustee, director, or treasurer)

Trustees' Annual Report

A charity’s board of trustees produces the annual report, which informs the public about your charity’s work, sources of funding, and spending for the past year. This report will show how you have carried out your charity’s purposes for the public benefit and if the money has been accounted for adequately.

Income under £500,000, assets less than £3.26 million

• Small, non-company charity
• Report includes:
  • Charity's name, registration number, address, and trustee names
  • Charity structure, how it is managed
  • Activities and objectives in the year
  • Achievements, performance, reporting on public benefit
  • Financial review
  • Any funds held as a custodian trustee
• Template for small charities

Large Charity

• Charitable company or a charitable incorporated organization
• Full trustees’ annual report, with guidelines set out by a statement of recommended practice (SORP) for accrual accounts

Statement of recommended practice (SORP)

• Financial Reporting Standard for Smaller Entities (FRSSE) SORP
• For smaller charities
  • Income is less than £6.5 million
  • The value of assets is less than £3.26 million
  • No more than 50 employees
• FRSSE SORP

Financial Reporting Standard (FRS102) SORP

• For other charities
• FRS102 SORP

Record Keeping

Record keeping is essential for any organization, but even more so for a nonprofit or charity, as you are exempt from taxes, and donations are often accepted. You must ensure you are accurate and transparent with your records to build donors' trust and protect the organization's mission.

Charities must keep records and make the accounting records available to the public on request.