Do I need accruals accounts, or can I use receipts and payments?

England and Wales: This page sets out the position in full. Scotland: the same duty, but with a lower ceiling, a stricter operator and extra exclusions — see below. Northern Ireland: the same duty, but with a lower ceiling, and the company exclusion is written directly into the statute rather than reached indirectly.

What accounts does a small charity have to prepare?

Charity accounts come in two types: receipts and payments accounts and accruals accounts. Two conditions decide which a charity may prepare: its gross income and whether it is a company.

The trustees apply both conditions in England and Wales, Scotland and Northern Ireland alike. Each jurisdiction sets its own ceiling. What counts as gross income is settled mostly by regulator guidance: the Charity Commission’s in England and Wales and OSCR’s in Scotland.

This page assumes the legal structure is chosen and the year end is set. If not, choose your legal structure and set your financial year end first.

The income test is the one everybody checks. The structural test is the one that decides it. The basis the trustees minuted when they opened the books is tested here against a real year’s figures.

Charities Act 2011 s.135 says 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.

Company law reaches the same place on its own. A company must give a true and fair view through a balance sheet and profit and loss account. And a charity’s individual accounts must be Companies Act accounts.

People often get this backwards. For its Companies Act audit exemption, a charitable company’s turnover is tested against the small-companies regime. The test uses ordinary company-law “turnover”, not “gross income” put in its place.

No source supports treating the two as interchangeable for that test. In fact, “gross income” and “turnover” are separate ideas that serve separate thresholds. A charitable company relies on the ordinary small-companies exemption like any other small company.

The two ceilings are mirror images of the same line, not two separate rules. For a non-company England and Wales charity, receipts and payments accounts are an option up to the England and Wales ceiling. Accruals accounts are required above £250,000 for financial years ending before 30 September 2026; £500,000 for financial years ending on or after 30 September 2026.

From that date, this ceiling also equals the Charities SORP‘s own Tier 1 boundary, £500,000. A non-company charity at or below it sits outside the SORP altogether, unless it stays on accruals by choice. If it does, it is by definition a Tier 1 charity. That match holds only in England and Wales, not in Scotland or Northern Ireland.

What counts as gross income?

Gross income for these tests is not the total income shown on the face of the Statement of Financial Activities. The Act’s own definition settles little.

The statutory definition is nine words long. It reads: “‘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. Each practical question is answered by regulator guidance, not by the Act. Treat the guidance, not the statute, as doing the real work here.

The most common technical error is to read “total income” straight off the face of the Statement of Financial Activities. Charities then use 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 (the fund types are explained in restricted and designated funds)
• plus any amount transferred to income funds from endowment during the year

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 apply. First, gross income is not annualised for a period that is not twelve months. That follows from Charities Act 2011 ss.144–145 and the Charities (Accounts and Reports) Regulations 2008 reg 3. Neither contains any pro-rating provision. The company-law turnover test is different: it is scaled for a short or long period.

Second, a trading subsidiary‘s turnover is never the charity’s own gross income. Only what the charity itself receives from it counts. That means the Gift Aid payment, a dividend, or a management charge. The consolidated figure is used only for the separate group-accounts test.

Scotland and Northern Ireland: different ceilings, a different operator

Scotland and Northern Ireland each set their own ceiling. Scotland also draws the boundary with different words. The table shows each nation’s receipts and payments ceiling and the income above which a charity must prepare accruals accounts.

The accruals side is the same mirror image in both nations as in England and Wales. In each, the accruals figure equals that nation’s own receipts-and-payments ceiling. It is not a separately set number.

Scotland’s receipts and payments option has its own exclusions beyond the company one. Registered social landlords, community benefit societies, and further and higher education institutions cannot use the option whatever their income. Scotland’s definition of gross income also differs 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.

OSCR adds an express exclusion for income collected specifically for, and passed on to, a third party. The gross income definition itself is in the Charities Accounts (Scotland) Regulations 2006, reg 1(2), as substituted by SSI 2010/287 reg 3(d); the pass-through exclusion is OSCR’s, not that wording’s. That exclusion has no direct England and Wales match.

Scotland excludes companies by an indirect route. Northern Ireland’s statute excludes them expressly, in 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. So a charity exactly on the boundary can get a different answer depending on which nation’s wording applies.

The 2026 collision: which rules apply to which year end

Which rules apply to a financial year depends on whether each instrument runs off the year’s end or its start. Three instruments took effect around the same time in 2026, 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) work the other way. Both attach to when the reporting period begins, on or after 1 January 2026. One basis runs off the year’s end and the other off its start, so the two move separately. That is what produces a collision window.

The year-by-year table is in set your financial year end. Each change is set out in what changes on 30 September 2026.

For the accounts decision, the collision is this. Take an England and Wales charity whose year began before the SORP’s own start date. If that year ends on or after the new statutory threshold date, the charity gets the new, higher statutory ceiling. But it prepares its accounts under the outgoing 2019 SORP unless it adopts the 2026 SORP early.

The SORP permits early adoption, but not where a nation’s regulations name the SORP to be followed, until those regulations allow it.

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 use different bases in two consecutive years. The only reason is where its year end falls against these dates.

Scotland gives the opposite answer for the same dates. A Scottish charity whose year began before the change stays on the old Scottish thresholds. Scotland’s change runs on the period-beginning basis.

Once the type of accounts is settled, the next step is to determine your external scrutiny requirement, which runs on the same gross income figure.

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 each 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. But only what the charity itself receives is its income: the Gift Aid payment, a dividend, or a management charge. 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 against the switch date. The result: two consecutive years lawfully prepared on two different bases.