What Does a Charity Accountant Do and Does Your UK Charity Need One?

Charity accounting is different from business accounting. Very different.

If you run a charity in the UK, your reporting obligations go beyond what a standard limited company faces. You are accountable to the Charity Commission, to HMRC for tax reliefs, and to your donors and beneficiaries. The accounting framework is the Charities SORP (Statement of Recommended Practice), not FRS 102 alone. And the penalties for getting it wrong can include reputational damage, loss of charitable status, and personal liability for trustees.

That is why many charities use a specialist accountant for charities rather than a general practice accountant. The difference in knowledge matters. A general accountant may not know the SORP, the audit exemption thresholds, or how to structure Gift Aid claims correctly.

This post covers what charity accounting involves, the key tax reliefs, the reporting thresholds, and what to look for when appointing an accountant for your charity.

What makes charity accounting different?

Charities in the UK must prepare their accounts under the Charities SORP if their gross income exceeds £250,000. Below that threshold, they can use the receipts and payments basis (for unincorporated charities) or the accruals basis under FRS 102 with reduced SORP disclosures. The SORP requires specific formats for the Statement of Financial Activities (SOFA), the balance sheet, and the notes to the accounts. A SOFA replaces the profit and loss account you would see in a limited company. It shows incoming resources, resources expended, and the net movement in funds. Restricted funds must be tracked separately from unrestricted funds. If you misclassify restricted income, the Charity Commission will take an interest.

Charities also file an annual return with the Charity Commission. The level of detail depends on income. Charities with income over £10,000 must file. Those with income over £25,000 must file full accounts. Above £500,000 income, a professional independent examination is required. Above £1 million gross income or £3.26 million gross assets, a full statutory audit is required. These thresholds are for England and Wales. Scotland and Northern Ireland have their own rules.

The accounting year end also matters for filing deadlines. Most charities have 10 months from year end to file with the Charity Commission. Late filing can lead to inquiries and reputational damage.

Tax reliefs available to charities

Charities are exempt from corporation tax on most income used for charitable purposes. This includes trading income, rental income, investment income, and gains on disposals of assets. But the exemption is not automatic. You must claim it on your corporation tax return (CT600) each year. And the income must be applied for charitable purposes. If you build up reserves without spending them on charitable activities, HMRC may challenge the exemption.

Gift Aid is the most widely used relief. It allows charities to reclaim basic rate tax on donations from UK taxpayers. The current rate is 25p for every £1 donated. So a £100 donation is worth £125 to the charity after the Gift Aid claim. The donor must have paid enough UK income tax or capital gains tax to cover the amount reclaimed. Higher rate taxpayers can claim additional relief on their own self assessment return.

Charities can also claim relief on business rates. Mandatory relief gives 80% off the bill. Discretionary relief can top that up to 100%. The local authority decides. Charities occupying property for charitable purposes should apply for mandatory relief as a matter of course.

VAT is more complex. Most charity supplies are exempt from VAT, which means the charity cannot recover the VAT it incurs on costs. There are partial exemption rules and special schemes for charities. The charity VAT relief on certain goods (like advertising, fuel, and equipment for disabled people) can reduce costs. A good accountant for charities will know these schemes and help you structure your operations to minimise irrecoverable VAT.

Payroll giving is another relief. Employees can donate directly from their pay before tax is deducted. The charity receives the full donation, and the employee gets tax relief at their marginal rate. It is simple to set up through a payroll provider.

When do you need an accountant for charities?

If your charity has income under £10,000 and uses the receipts and payments basis, you may manage the bookkeeping yourself. Many small community groups do. But once income exceeds £25,000, the reporting requirements increase. The accounts must follow the SORP format. The annual return becomes more detailed. And if you have restricted funds, you need to track them properly.

At £250,000 income, the SORP applies in full. The accounts must include a trustees' annual report, a SOFA, a balance sheet, and notes. The trustees are personally responsible for the accuracy of the accounts. If they are not accountants, they need professional support.

At £500,000 income, an independent examination is required. The examiner must be a member of a recognised professional body (like ICAEW, ACCA, or CIPFA). Many charities use their existing accountant for this role. At £1 million income, a full audit is required. That means a registered auditor, not just an accountant. The audit can be costly, but it is a legal requirement.

Even below these thresholds, there are good reasons to use a specialist. Gift Aid claims need to be accurate. HMRC can and does audit Gift Aid claims. If you claim on ineligible donations or fail to maintain the correct records, you could face a penalty and a repayment demand. A charity accountant will set up the correct donor records, issue the correct declarations, and submit the claims on time.

Restricted fund accounting is another area where mistakes are common. If a donor gives money for a specific purpose, it must be spent on that purpose. If you spend it on general running costs, you breach the trust. The Charity Commission takes a dim view. An accountant who understands restricted funds will help you set up the right fund codes and reporting lines.

What to look for in a charity accountant

Not all accountants are the same. A general practice accountant may file your CT600 and your annual return, but they may not know the SORP inside out. They may not know the independent examination standards. They may not know the VAT partial exemption rules for charities.

Look for an accountant who is a member of a recognised professional body (ICAEW, ACCA, CIPFA, or AAT). Check that they have experience with charities of a similar size and type to yours. Ask about their knowledge of the SORP, the Charity Commission filing requirements, and the tax reliefs available. Ask if they have handled Gift Aid audits. Ask if they have dealt with restricted fund accounting.

At Holloway Davies, our ICAEW qualified team works with charities across the UK. We prepare accounts under the SORP, handle Gift Aid claims, manage independent examinations, and advise on tax reliefs. We are based in Manchester but work remotely with charities nationwide. You can read more about our services for charities or get in touch for a no-obligation discussion.

What does a charity accountant cost?

Costs vary depending on the size and complexity of the charity. A small charity with income under £25,000 might pay £500 to £1,000 per year for basic bookkeeping and annual return preparation. A medium charity with income between £250,000 and £1 million might pay £2,000 to £5,000 for full SORP accounts, independent examination, and tax advice. A large charity requiring a full audit will pay more, often £5,000 to £15,000 or more depending on the auditor's rates.

These are rough figures. The best approach is to ask for a fixed fee quote based on your specific circumstances. A good accountant will give you a clear scope of work and a fixed price. Avoid hourly rates for ongoing compliance work. Fixed fees give you certainty and align the accountant's incentives with yours.

You can use our charity accounting cost calculator to get an estimate based on your income and reporting requirements.

Common mistakes charities make with their accounts

Here are the most common errors we see when charities come to us after using a general accountant or managing the accounts themselves.

• Restricted funds not tracked separately. The SOFA must show restricted and unrestricted funds separately. If you mix them up, the accounts are wrong and the trustees are exposed.
• Gift Aid claims submitted without proper declarations. HMRC requires a valid Gift Aid declaration for each donor. If you claim without one, you must repay the amount plus interest and possibly a penalty.
• VAT not claimed correctly. Many charities miss the VAT reliefs available on certain goods. Others claim VAT on costs that are not eligible under the partial exemption rules. A specialist accountant will get this right.
• Annual return filed late. The Charity Commission can open an inquiry if accounts are filed late. The trustees' names appear on the register. Late filing damages trust.
• Independent examiner not qualified. The examiner must be a member of a recognised body. If they are not, the accounts are not compliant and the trustees are in breach.
• Corporation tax return not filed even when no tax is due. Charities must file a CT600 each year if they have taxable income or if HMRC has issued a notice to file. Even if all income is exempt, the return must be filed. Failure to do so can lead to a penalty.

A good accountant for charities will prevent all of these. They will set up the right systems from day one and keep you compliant year after year.

How to switch to a charity specialist

If you are currently using a general accountant and you suspect your charity accounts are not fully compliant, it is worth getting a second opinion. Switching accountants is straightforward. Your new accountant will write to your old one to request the files. You will need to authorise the transfer. The process usually takes two to four weeks.

Before switching, check that the new accountant has professional indemnity insurance, is registered with a recognised body, and has experience with charities of your size. Ask for references from other charity clients. A good accountant will be happy to provide them.

At Holloway Davies, we handle the switch for you. We liaise with your previous accountant, review the existing accounts, and identify any compliance gaps. We then set up the correct systems for the future. You can read more about our approach to charity accounting or book a call to discuss your situation.

Final thoughts

Charity accounting is a specialist area. The rules are different from business accounting. The penalties for getting it wrong are serious. And the trustees are personally liable for the accuracy of the accounts.

If your charity has income over £25,000, or if you have restricted funds, or if you claim Gift Aid, you should consider using a specialist accountant for charities. The cost is modest compared to the risk of non-compliance. And the peace of mind is valuable.

If you want to discuss your charity's accounting needs, get in touch. We are happy to have a no-obligation conversation about your situation.