Charities, regulators, and sector bodies have long highlighted the need to update financial reporting thresholds to reflect inflation and the rising costs of compliance. In response, following a consultation, The Department for Culture, Media and Sport (DCMS) has recently confirmed welcomed changes to the financial thresholds for the Charity sector in England and Wales.
These impact the thresholds for various financial reporting and review requirements, including the charity audit and independent examination thresholds. These changes affect when charities are required to have an independent examination or audit and the form of accounts that may be prepared.
Increase in Statutory Audit Thresholds
The threshold for requiring a statutory audit based on gross annual income will rise by 50%, from £1 million to £1.5 million, reflecting approximate compounded inflationary increases since the thresholds were last revised in 2015.
It is expected that the legislation will be laid before Parliament in 2026, with implementation from accounting years ending on or after 30 September 2026.
New Charity Audit and Independent Examination Thresholds
The new thresholds are as follows:
| Requirement | Current threshold | New Threshold |
|---|---|---|
| Accounts must be independently examined* | Income over £25,000 | Income over £40,000 |
| Examination must be by a professional qualified Independent Examiner | Income over £250,000 | Income over £500,000 |
| Non-company charities can choose to produce receipts and payments accounts | Income below £250,000 | Income below £500,000 |
| Accounts must be audited | Income over £1,000,000 Or Assets over £3,260,000 and income over £250,000 | Income over £1,500,000 Or Assets over £5,000,000 and income over £500,000 |
| Group accounts must be prepared and audited | Aggregate income of group £1,000,000 | Aggregate income of group £1,500,000 |
*An important point to note here, is that the threshold for submitting annual reports and accounts to the Charity Commission remains unchanged at £25,000.
Charity Annual Returns and Filing Deadlines
Charity annual return thresholds and accounts filing deadlines (Companies House being 9 months after the year end and Charity Commission 10 months after the year-end) are also not expected to change.
What This Means for Charities
For many charities these changes may not impact your reporting or scrutiny requirements however, for others they may provide greater flexibility or reduce regulatory burdens in future years.
Even if your charity falls below the new thresholds, an audit may still be required due to factors such as your articles of association, governing documents, funding agreements, other legal or contractual obligations.
Charities may also wish to have a “voluntary” audit, recognising that the process provides an element of comfort to the board of trustees who are volunteers and not usually operating full time in the charity (albeit, the statutory audit certainly should not be the only reassurance/checks in place). We have seen first-hand how much our audit clients value the audit process, particularly the insights and recommendations that can add real value to the organisation.
Next Steps
If you would like to discuss how the changes to Charity audit thresholds may affect your charity, or to review your Charity compliance and reporting requirements ahead of implementation, please do not hesitate to contact us.
