A Guide to Charitable Entity Accounting In The UK

Do you know there are over 170,000 charities in the UK, and these are all registered charities? So, the actual number of charities will be obviously much more. Now, what is meant by charitable accounting? Of course, it is nothing but financial practices that these charities must follow to comply with the various laws and regulations established by the Charity Commission, a non-ministerial Government department.

Let us dive deep into the world of charitable accounting, as it is important to ensure compliance, efficiency and transparency. It is also significant for trust-building and fostering a long-term relationship among community members and donors.

Do Charities Need to Prepare Accounts?

Regardless of whether a charity is registered with the Commission, account preparation is a must so that the charity can show it to anyone on request. However, registered charities must send their annual return and accounts. Depending on their size, they may have to send a yearly report too. By visiting the website of the Commission, one can view these details as they are displayed over there. Here, it is vital to remember that if the annual income of a charity exceeds £10,000, it is mandatory to send this information to the Commission within ten months from the end of their financial year, as any failure to comply with the same can result into loss of reputation as they may be shamed on the Commission’s website.

Know the Unique Obligations of Some Charities

It is interesting to note that some charities have unique obligations, which an accountant must know. While for charitable companies, it is mandatory to prepare their reports and accounts under the Companies Act and they are required to file them at Companies House, there is no such rule for charities like the British universities as they are not under the regulation of the Charity Commission. However, they are required to follow certain guidelines established by the HEFCE (Higher Education Funding Council for England). Also, unregistered charities are not required to send their accounts to the Commission unless there is some exceptional case.

Types of Funds in Charities

Charities often encounter various types of funds collected from various sources like membership fees, grants, and donations from generous people. For an accountant, these funds fall under three distinct categories-restricted, unrestricted, and endowment funds. While the restricted fund, as the name suggests is used mostly for specific purposes as per the specifications of their donors, it is the unrestricted fund, which is used for day-to-day operations and other expenses in a charity organization. Moreover, there is also the endowment fund, which is mostly used for investment purposes. Income from these investments can be used partially for future charitable activities.

Navigating SORP

SORP stands for Statement of Recommended Practice. For UK charities, it is mandatory to adhere to the same to meet all the legal and regulatory requirements. It is basically a framework for ensuring transparency and consistency but may seem complex for small charities. It is really important for accountants to comprehend all the nuances of rules related to fund accounting, income and expenditure for adherence to SORP.

Charitable accounting is not all overwhelming. If you are an accountant, you may be likely well aware of the fundamentals and best accounting practices for UK-based charities. With experience, you can genuinely help these charities to ensure compliance while strictly following the Charities SORP. Most importantly, do not forget to monitor updates from the HMRC and the Charity Commission.