Do I have to prepare accruals accounts, or can I use receipts and payments?

England and Wales: researched. Scotland: researched — a lower ceiling, a stricter operator, and extra exclusions apply; see below. Northern Ireland: researched — a lower ceiling, and the company exclusion is written directly into the statute rather than reached indirectly.

Two conditions, not one — and the second one is absolute

★ The income test is the one everybody checks. The structural test is the one that actually decides it. Charities Act 2011 s.135 provides that nothing in the receipts-and-payments sections applies to a charitable company — so a charitable company must prepare accruals accounts however small its income is. Company law reaches the same place independently: a company must give a true and fair view via a balance sheet and profit and loss account, and a charity’s individual accounts must be Companies Act accounts.

This is easy to get backwards. A charitable company’s turnover is tested against the small-companies regime for its Companies Act audit exemption, using ordinary company-law “turnover” — not “gross income” substituted in. No source anywhere supports treating the two as interchangeable for that test; the correct account is that “gross income” and “turnover” are separate concepts serving separate thresholds, and a charitable company relies on the ordinary small-companies exemption exactly like any other small company.

The two ceilings are mirror images of the same line, not two independent rules: the receipts-and-payments option is available up to the ceiling above, and accruals accounts become required above the ceiling — £250,000 for financial years ending before 30 September 2026; £500,000 for financial years ending on or after 30 September 2026 — for a non-company England and Wales charity. Worth knowing while you’re at it: from that date, this ceiling also happens to equal the SORP’s own Tier 1 boundary, £500,000 — a non-company charity at or below it either sits outside the SORP altogether, or, if it stays on accruals by choice, is by definition a Tier 1 charity. That alignment is specific to England and Wales; it does not hold in Scotland or Northern Ireland.

What counts as “gross income” — and what doesn’t

The statutory definition is nine words long, verbatim: “‘gross income’, in relation to a charity, means its gross recorded income from all sources including special trusts” (Charities Act 2011, s.353(1)). Those nine words do almost no work on their own — every practical question is answered by regulator guidance, not by the Act, so treat the guidance as doing the real work here rather than the statute.

The most common technical error in this area is reading “total income” straight off the face of the Statement of Financial Activities and using that figure for the threshold test. It is not the same figure: for accruals accounts, gross income is total income for all funds, minus any endowment received in the year, plus any amount transferred to income funds from endowment during the year — and gains on revaluation or on investments never form part of it. A charity with any endowment movement in the year will be wrong in one direction or the other if it uses the unadjusted SoFA figure.

Two further points the research confirms directly: gross income is not annualised for a period that is not twelve months — a structural feature of Charities Act 2011 ss.144–145 and the Charities (Accounts and Reports) Regulations 2008 reg 3, neither of which contains any pro-rating provision — unlike the equivalent company-law turnover test, which is proportionately adjusted for a short or long period. And a trading subsidiary’s turnover is never the charity’s own gross income; only what the charity itself actually receives from it — the Gift Aid payment, a dividend, or a management charge — counts. The consolidated figure is used only for the separate group-accounts test.

Scotland and Northern Ireland: different ceilings, a different operator

Scotland’s receipts and payments ceiling is £250,000, with its own exclusions beyond the company one: registered social landlords, community benefit societies, and further and higher education institutions cannot use the option regardless of income. Scotland’s definition of gross income also diverges from the England and Wales wording in its own right — it excludes the receipt of any donated asset into a permanent or expendable endowment fund, and OSCR adds an express exclusion for income collected specifically for, and passed on to, a third party, which has no direct England and Wales equivalent — per the Charities Accounts (Scotland) Regulations 2006, reg 1(2), as substituted by SSI 2010/287 reg 3(d).

Northern Ireland’s ceiling is £250,000. Unlike Scotland’s indirect route to excluding companies, Northern Ireland’s statute excludes them expressly on the face of section 64(7) itself. Note the operator, not just the figure. In all three nations receipts and payments is an election — the trustees “may” choose it — but the boundary is drawn with different words: England and Wales and Northern Ireland say “does not exceed”, so a charity whose gross income lands exactly on the ceiling still qualifies; Scotland’s regulation says “less than”, so a Scottish charity exactly on its figure does not. A charity sitting on the boundary can therefore get a different answer depending on which nation’s wording applies to it.

The accruals side is the same mirror image in both nations as it is in England and Wales: a Scottish charity above £250,000 must prepare accruals accounts, and a Northern Irish charity above £250,000 must do the same — in each case the identical figure to that nation’s own receipts-and-payments ceiling, not a separately-set number.

The 2026 collision: which rules apply to which year end

★ Three different instruments took effect around the same period in 2026, on three different bases, and they do not all move together. The England and Wales accounting thresholds attach to when the financial year ends, on or after 30 September 2026. The Charities SORP 2026, and the Scottish threshold change (SSI 2025/341 reg 2), both attach instead to when the reporting period begins, on or after 1 January 2026. Because one basis runs off the year’s end and the other off its start, the two move independently — which is exactly what produces a collision window.

Worked against real financial years, all 12-month periods:

The marked row is the collision itself: an England and Wales charity whose year began before the SORP’s own start date but ends on or after the new statutory threshold date gets the new, higher statutory ceiling while still having to prepare its accounts under the outgoing 2019 SORP. The trigger for the accounting-basis choice is the year’s end, not the calendar year in which any of these rules changed — so the same charity can lawfully sit on different bases in two consecutive years, purely because of where its year end falls relative to these dates.

Scotland produces a separate, opposite-looking case from the same table. A Scottish charity with that identical 1 October 2025 – 30 September 2026 year stays on the old Scottish thresholds, because Scotland’s own change runs on the period-beginning basis and that year began before the change took effect — while an England and Wales charity with the same two dates already has the new thresholds, because its test runs off the year’s end instead. Same dates, opposite answers, because the two nations’ instruments use opposite bases.

Common mistake: using total income from the face of the statement of financial activities as gross income

The words look interchangeable and the figure is right there on the page. They are not the same: gross income strips out endowment received, adds back endowment converted to income, and excludes gains. A charity with endowment movements that uses the wrong figure will be wrong in one direction or the other on every threshold test that follows.

Common mistake: applying the England and Wales ceiling to a Scottish or Northern Irish charity

The 2026 change was widely reported as a UK-wide charity reform. It was not — the instrument extends to England and Wales only. A Scottish or Northern Irish charity that opts out of accruals accounting on the English figure is preparing the wrong accounts.

Common mistake: counting a trading subsidiary’s turnover as the charity’s own income

The subsidiary’s activity feels like the charity’s own activity, but only what the charity actually receives — the Gift Aid payment, a dividend, or a management charge — is its income. The consolidated figure is used only for the separate group-accounts test.

Worked example

An unincorporated England and Wales charity sits in the band between the old and new receipts-and-payments ceilings. For a financial year ending before 30 September 2026 it must prepare accruals accounts. For a year ending on or after that date, the same charity, with the same income, may elect receipts and payments instead. Nothing else about the charity has changed — only where its year end falls relative to the switch date. The outcome: two consecutive years lawfully prepared on two different bases.