Most small charities never pay an accountant to keep their books, and most do not need to. If your charity's income is modest, the law asks for honest, complete records and a set of annual accounts that somebody independent can check. This guide covers what that means in practice in England and Wales, for a volunteer treasurer doing it in the evenings.
It is general guidance rather than advice about your charity in particular. The thresholds below are the ones in force at the time of writing. They are set by government and they do change, so check the Charity Commission's current guidance before relying on a figure. Scotland and Northern Ireland have their own regulators and their own rules.
Which kind of accounts can you prepare?
There are two ways to prepare a charity's annual accounts.
- Receipts and payments accounts record the money that actually came in and went out during the year, with a statement of what the charity held at the end of it: the cash in each bank account, and a list of anything else it owns or owes. There are no accruals and no depreciation. Most volunteer treasurers can prepare these themselves.
- Accruals accounts record income when it is earned and spending when it is incurred, whether or not the money has moved yet, and follow the Charities SORP (the Statement of Recommended Practice). They take more skill, and many charities that need them pay for help.
A charity that is not a company can choose receipts and payments accounts if its gross income for the year is £250,000 or less. Above that, it must prepare accruals accounts. A charitable company has to prepare accruals accounts under company law whatever its size, so if your charity is a company limited by guarantee the simpler option is not open to you. A charitable incorporated organisation (CIO) is not a company for this purpose, and can use receipts and payments under the threshold.
Read your governing document as well. It can ask for more than the law does, such as an audit whatever the income, and where it does, it wins.
Does somebody have to check them?
If the charity's gross income in the year is more than £25,000, its accounts must be externally scrutinised. For a small charity that normally means an independent examination: a check by somebody the trustees reasonably believe has the skills and experience to do it, and who has no connection with the charity that could affect their independence. The examiner does not have to be a qualified accountant unless the charity's income is over £250,000 and it prepares accruals accounts, in which case they must hold one of the qualifications the Charities Act lists. A full audit is only needed by considerably larger charities.
At or below £25,000 there is no legal requirement for an examination, unless your governing document or a funder asks for one. Plenty of small charities still ask a suitably skilled person from outside the committee to look over the books each year. It is good practice, and it protects the treasurer as much as anybody.
The Commission's guidance on independent examination of charity accounts (CC31) explains what the examiner does and how to choose one.
What you report, and when
Every charity should prepare a trustees' annual report alongside its accounts: what the charity set out to do, what it did, and how the money was used. A registered charity with income over £10,000 must file an annual return with the Commission within ten months of the end of its financial year, and one with income over £25,000 must send its accounts, its trustees' annual report and the examiner's report as well. Smaller charities still have to keep their details on the register up to date.
The records to keep through the year
Charity law requires a charity to keep accounting records that are enough to show and explain all its transactions, and to keep them for at least six years from the end of the financial year they relate to. In practice that means:
- a record of every payment in and out, with the date, who it was from or to, what it was for and how much
- the receipt or invoice behind every payment, and the paying-in slip or remittance behind money received
- statements for every bank account, reconciled to your own record
- which money is restricted, meaning given for a particular purpose such as a grant towards a minibus, and how much of it is left
- Gift Aid declarations and the donations they cover, if you claim Gift Aid, kept the way HMRC asks
- a list of anything the charity owns and anything it owes
- minutes of the meetings where the trustees approved the budget, significant spending and the annual accounts
A routine that works without an accountant
The habit that matters most is recording things as they happen rather than at the year end. A treasurer who enters each payment the week it goes out, with the receipt kept alongside it, has very little to do at the year end but add up. A treasurer with a carrier bag of receipts has a fortnight of archaeology ahead of them.
- As it happens: record money in and out, keep the receipt or slip, and note which fund it belongs to if it is restricted.
- Every month: reconcile each bank account against its statement, so a mistake is found while somebody still remembers the transaction.
- Before each trustee meeting: a one-page summary of income and spending against the budget, and what is in the bank, with restricted money shown separately.
- At the year end: total the year under each heading, list what the charity owns and owes, write the trustees' annual report with the rest of the committee, and hand the lot to your examiner if you need one.
Controls that protect the treasurer
The Commission's guidance on internal financial controls for charities (CC8) is written for charities of every size, and most of it is common sense. More than one person involved in approving payments. Nobody approving a payment to themselves. Bank statements seen by a trustee other than the one who keeps the books. A budget the trustees agree at the start of the year. None of this suggests anybody is dishonest. It means that when a question is asked, the answer is already on paper.
When to get help
Doing it yourself stops being sensible when the charity's income gets close to the £250,000 line, when it becomes a company, when it takes on staff, or when the books start to involve VAT or significant trading. A charity accountant or an experienced independent examiner can also be worth a short conversation the first year you prepare accounts, simply to agree the format they will expect to see.
Keeping it where the committee can see it
Whether you use a spreadsheet, a ledger or software, the aim is the same: records the rest of the committee can look at, and the next treasurer can pick up without starting again. That is what we built The Charity Office for, with spending, income, restricted funds and the budget in one place and a summary a committee can read. Whatever you use, the rules above are what it has to support.