Charity reporting and accounting
All charities have legal accounting obligations and most are required to prepare annual reports. However, these requirements vary so there is the possibility of some confusion.
This article does not apply to charities that are companies, which have an annual income in excess of £250,000, or have charitable or non-charitable subsidiaries. The detail of this article only covers charities operating in England and Wales. The relevant regulators provide relevant information for charities operating in Scotland and Northern Ireland.
Most rural churches are smaller charities and this article describes the key components of accounts and reports, and tabulates how these apply to charities of this size.
More detailed information is given in the Charity Commission’s guidance ‘Charity reporting and accounting: the essentials’ (CC15d) reissued in November 2016 applies for financial years beginning on or after 1st November 2016.
The core components of charity reporting and accounting are:
- Accounts type: Accounts may be prepared on either a receipts and payments or an accruals basis. The receipts and payments method is a conventional bookkeeping approach which records transactions as they occur, whereas accruals record income when it is earned and records deductions when expenses are incurred - for example, an annual fee of £100 for something paid on the 1st July 2017 would assign half the expenditure to 2018. The Charity Commission has templates for accounts prepared on a receipts and payments or accruals accounting basis.
- Accounts examination: Most charities covered here do not have in-house accounting expertise and so external review by someone qualified can help make sure that accounts are prepared properly and in line with industry accounting practice. Even where an independent examination is not required it can provide reassurance to the trustees that an error is not building up over time. It also protects the treasurer who can be in a vulnerable position if things go wrong. An external audit is unlikely to be required for most small charities although in exceptional cases the Charity Commission does have the power to insist one is carried out.
- Reports: An annual report is useful to a charity as it gives the chance to take stock and compare how the charity performed in practice with the trustees’ aspirations. It also gives the trustees the opportunity to highlight the many good things that have been achieved for the public benefit. Small excepted charities do not need a report but it is considered good practice. If a report is required, then most charities covered by this article can follow the simplified version requirements listed in Section 7 of CC15d.
- Annual return: This is essentially for almost all charities and is just an online update and confirmation of the information about a charity and its trustees that is held by the regulator.
This guidance only seeks to provide generalised advice on the subject covered to assist churches in their operation. It is not a substitute for seeking specific advice on any particular issue.