charity FAQs

Common Questions/Problems Faced by the Voluntary Sector

As a charity, do I need to register for VAT and can I recover the VAT that I am charged?

Exemption from Tax, in the case of VAT, usually means an exemption from recovering it.  In order to recover VAT on costs, a Charity must have some income upon which it charges VAT in order to be able to register and then recover a proportion of the VAT it incurs on costs.

This recovery will be a percentage based upon the ration between its income upon which it charges VAT and its total income, including Grants.

There are 2 particular VAT schemes which are appropriate to Charities, the Partial Exemption Scheme and the Non-Business Scheme.  Both of these can be very complicated in operation and our expertise in both will enable you to maximise your VAT recovery.

How do I incorporate my existing charity?

There are a number of stages that you need to go through to enable you in incorporate your existing charitable organisation.

Key Areas to consider:

  1. NAME - In most cases it will be possible to incorporate a charity with the same name. There is no need to add "limited" after the name. A check will, however, need to be made to ensure that there is not an existing company of that name - this is because there is no tie up between the Charities register and Companies House
  2. OBJECTS - It is usual, and easier when it comes to registering the new body with the Charity Commission, to have exactly the same objects as the old body.
  3.  MEMBERS - If the current charity has many members, a decision will have to be made as to the rights and duties of members as these will need to be incorporated into the Articles of Association.
  4. APPROVAL OF CURRENT MEMBERS/TRUSTEES – Approval will have to be sought before going ahead with incorporation.
  5. TIMETABLE – The timing of the incorporation will need to allow for the actual registration with Companies House, Registration with the Charity Commission, changing bank accounts, leases etc

We can assist you, both in forming the new charitable company and its registration with the Charity Commission on the charity’s behalf.

Does my charity need an audit?

The requirement for an audit depends upon the level of income of the charity.   The different limits and requirements are listed below:

Unincorporated Charities with a gross income of less than £25,000

If the charity’s income is less than £10,000 in their financial year, they do not need to send their accounts and trustees’ report to the Charity Commission, however, they should complete an Annual Update Form to keep their entry on the Charity Commission Register.   

Charities with income in excess of £10,000 but less than £25,000 must complete an Annual Return, but do not need to submit their annual accounts or trustees’ report unless asked.

Unincorporated Charities with a gross income of over £25,000 but not exceeding £250,000 in the relevant financial year

Accounts must be prepared either on the receipts and payments basis or the accruals basis.  If prepared on the latter, then they must be prepared in accordance with the 2008 Regulations and the SORP.

The accounts must also be subject to outside scrutiny, but the trustees may choose either an “Independent Examination” or “Audit by a Statutory Auditor”, unless the charity’s governing document stipulates one or the other.

Unincorporated Charities with a gross income of over £250,000 but not exceeding £500,000 in the relevant financial year, and total assets not exceeding £3.26m

Accounts must be prepared on the accruals basis in accordance with the 2008 regulations and the SORP.

The accounts must also be subject to outside scrutiny, but the trustees may choose either an “Independent Examination” or “Audit by a Statutory Auditor”, unless the charity’s governing document stipulates one or the other.  If an Independent Examination is chosen and gross income exceeds £250,000, then the independent examiner appointed must be a member of a body specified under the 1993 Act.

Unincorporated Charities with a gross income exceeding £500,000 in the relevant financial year, or whose gross assets exceed £3.26m

Accounts must be prepared on the accruals basis in accordance with the 2008 regulations and the SORP.

A statutory audit is required by a statutory auditor.

Charitable Companies

The recommendations of the SORP apply to charitable companies as well as non-company charities.  A charitable company must prepare a directors’ report and accounts under the Companies Act and file these with the Registrar of Companies.  These accounts must be prepared on an accruals basis.

If the charitable company’s income exceeds £25,000, the trustees must also send the Charity Commission an Annual Report and its accounts.

A charitable company will only require an audit under the Companies Act if it exceeds the Companies Act Audit Threshold.  However, for smaller charitable companies, which are not required to have an audit under the Companies Act, the Charities Act arrangements now apply and these companies must have their accounts audited by a statutory auditor if either of the following conditions are met:

  • Gross income exceeds £500,000; or
  • Gross assets exceed £3.26m and gross income exceeds £250,000

Unless the Articles of Association specifically require an audit, charitable companies may have an independent examination where:

  • Gross income does not exceed £500,000; and
  • Where gross income exceeds £250,000, the charity’s gross assets do not exceed £3.26m

We can assist you with your annual accounting requirements whether you require an audit or an independent examination.

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