With charity thresholds set to increase, more charities may soon have a choice over how they prepare their annual accounts. For trustees, that choice is not just administrative; it can affect how clearly the charity’s finances are understood and how confidently decisions are made.
One of the first questions to consider is whether the charity should prepare receipts and payments accounts or accruals accounts. For many smaller charities, both options may be available, but the simpler approach will not always be the right one.
What are receipts and payments accounts?
Receipts and payments accounts record money when it is actually received or paid during the financial year. They do not include income that has been earned but not yet received, or costs that have been incurred but not yet paid.
They are generally simpler to prepare and can be a good option for charities with straightforward finances.
What are accruals accounts?
Accruals accounts recognise income and expenditure when they are earned or incurred, regardless of when cash changes hands. They also include assets, liabilities, debtors, creditors and other accounting adjustments, giving a fuller picture of the charity’s financial position.
Accruals accounts must comply with the Charities SORP and generally provide more detailed information for trustees, funders and other stakeholders.
Which charities can prepare receipts and payments accounts?
For financial years ending on or after 30 September 2026, eligible non-company charities with gross income below £500,000 can prepare receipts and payments accounts, provided this is allowed by charity law and their governing document.
However, charitable companies, including companies limited by guarantee, must continue to prepare accruals accounts regardless of income. CIOs are not subject to this restriction and can prepare receipts and payments accounts on the same basis as unincorporated charities, provided their governing document does not say otherwise.
What should trustees consider?
Although receipts and payments accounts are simpler, trustees should consider more than just the legal threshold.
Questions to ask include:
- Does the charity have significant restricted or endowment funds?
- Are there grants received in advance or income owed at year end?
- Does the charity own property or other significant assets?
- Do funders, lenders or stakeholders expect accruals accounts?
- Would accruals accounts provide better information for decision-making?
The answers may indicate that accruals accounts are more appropriate, even where receipts and payments accounts are permitted.
What are the advantages of each?
Receipts and payments accounts
- Simpler to prepare and understand.
- Lower accountancy costs in many cases.
- Suitable for charities with straightforward income and expenditure.
- Focus on cash received and spent during the year.
Accruals accounts
- Provide a more complete picture of the charity’s financial position.
- Better reflect long-term commitments and available resources.
- Improve comparability between financial years.
- Often preferred by funders, lenders and larger stakeholders.
It’s not just about compliance
Choosing the simplest accounting method is not always the best decision.
Trustees have a duty to ensure the charity’s accounts give a clear and accurate picture of its financial position and support good governance. For charities managing significant assets, multiple funding streams or long-term projects, accruals accounts may offer useful insight that receipts and payments accounts cannot provide.
The key takeaway
The increase in the receipts and payments threshold for financial years ending on or after 30 September 2026 gives many smaller charities greater flexibility. However, trustees should base their decision on the nature and complexity of the charity’s activities, rather than simply opting for the least burdensome approach.
