Government to raise audit threshold for charity accounts from £500,000 to £1m

Consulted sector umbrella bodies were broadly in favour of the plan, which the Cabinet Office says means that 4,000 charities will not have to pay a statutory auditor

Charity accounts
Charity accounts

The government will raise the annual income threshold at which charities must have their accounts audited from £500,000 to £1m, after a majority of consultation responses supported the change.

In December, the Cabinet Office opened a consultation on the plan, which it said would release 4,000 charities from the obligation to pay for the services of a statutory auditor.

The consultation closed at the end of January and the plans were broadly supported by the sector umbrella bodies the Charity Finance Group, the National Council for Voluntary Organisations and Navca, as Third Sector has previously reported. A spokesman for Navca said, however, that many of those 4,000 charities would still have to have their accounts audited because it was a requirement of their funders.

In its response to the consultation, published yesterday, the government says the majority of respondents supported lifting the threshold from £500,000 to £1m and that the same should apply to charity groups in which a parent charity’s income is counted alongside that of its subsidiaries.

But the proposal that charities with assets of more than £3.26m would have to have their accounts audited only if their annual income exceeded £500,000 – up from the existing level of £250,000 – will not be carried forward. It means the annual income threshold for audits for charities in this bracket will remain at £250,000.

Raising this threshold was supported by the majority of consultation responses – although the joint CFG/NCVO response opposed it on the grounds that this would remove scrutiny from some charities with substantial assets.

The government response says that since consultation began it has realised that this cannot be changed through secondary legislation without also inadvertently changing the threshold below which charities can choose to prepare either receipts and payments or accruals, which it does not want to do. The government hopes to revisit this point if an opportunity arises, its response says.

The consultation also asked whether any other professional bodies’ members should be able to carry out independent examinations – a simpler and cheaper alternative to audits – of the accounts of below-the-threshold charities. Only a few submissions addressed this question but because they were positive the government will add the Institute of Financial Accountants and the Certified Public Accountants Association to that list, although the latter must first provide further evidence to the government.

The changes are due to come into force on 31 March, with the government response saying a statutory instrument to this effect will be laid before parliament before its dissolution on 30 March.

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