The Context of Independent Examination

By Gareth Morgan

This note is only a summary of a few key features of the charity accounting framework and the place of independent examination, as at summer 2019.  The information is only in bullet form and it omits a number of explanations and details and that apply to certain types of charities.  Please refer to more detailed ACIE guidance on specific aspects of this and to the guidance provided by the charity regulators.

In the UK, charity law is devolved

There have always differences between England & Wales, Scotland, Northern Ireland. Charity regulation is nowadays devolved matter for Scottish Parliament and Northern Ireland Assembly. However, most aspects of tax law are not devolved: tax concessions to charities mostly apply to the whole of UK. Tax law generally uses English definition of “charity” except in specific areas such as property taxes/business rates.

So across Britain and Ireland there are four separate systems of charity law and regulation –

Three jurisdictions each with their own charity regulator...

England and Wales: The Charity Commission for England & Wales (CCEW)        

Scotland:  The Office of the Scottish Charity Regulator (OSCR)              

Northern Ireland: Charity Commission of Northern Ireland  

 

And…

UK Wide Tax Law: HM Revenue & Customs (HMRC)  

Each jurisdiction has a slightly different definition of charitable purposes/public benefit, but there is also a UK wide charity tax definition in the Finance Act 2010.

In England and Wales there are many exempt and excepted charities (especially churches, also many scout and guide groups) – so not all charities in E&W are registered with the CCEW.  Also, in Northern Ireland, the process of charity registration is ongoing, and many charities that were formerly recognised by HMRC are not yet registered with CCNI.

Primary legislation:

Charities and Trustee Investment (Scotland) Act 2005

Charities Act 2011 as amended by Charities (Protection & Social Investment) Act 2016

Charities Act (Northern Ireland) 2008 as amended by Charities Act (NI) 2013

Finance Act 2010 – definition of charity for tax purposes is based on E&W definition of charity in Charities Act 2011

There are a range of legal structures for charities:

• Charitable trusts, associations, companies available in each jurisdiction
• CIOs – specific to England & Wales at present time
• SCIOs – specific to Scotland
• CIOs not yet implemented in Northern Ireland
• Some more specialised structures – e.g. Parochial Church Councils (PCCs) in Church of England are specific to England. 

The requirements for charity accounting vary between the jurisdictions.

Crucially, each jurisdiction has differences in the income levels at which requirements become compulsory.  For financial years starting in 2016 or later this table summarises the main requirements.

Charity Accounting Differences:

Income Llevels at which requirements become compulsory*

Requirement	England & Wales	Scotland	Northern Ireland
Must keep proper accounting records	£0	£0	£0
Must publish annual statement of accounts (can be on a receipts and payments basis).	£0	£0	£0
Must register with relevant regulator if not a CIO/SCIO (local charities in jurisdiction concerned)	£5,000	£0	£0
Annual report and accounts must be filed with regulator	£25,000 (£0 for CIOs)	£0	£0
Accounts must be independently examined (lay examiner)	£25,000	£0	£0
Accounts must be prepared on an accruals basis (as opposed to receipts and payments) complying in most respects with the SORP indicated.	£250,000 SORP 2015 (unless applying "True & Fair" override)	£250,000 SORP 2015 (FRS102)	£250,000 SORP 2015 (FRS102)
Independent examiner must be professionally qualified	£250,000	All accruals accounts	£250,000
Full audit required (by a firm of registered auditors).  Accounts must comply fully with Charities SORP (with any departures disclosed).	£1M	£500,000	£500,000

*Excluding charitable companies and non-company charities with £3.26m+ assets for which additional requirements apply.  Also this table does not include “special case charities” which may be subject to other SORPs.