Charity Financial Thresholds in Charity Law - consultation 2025

1: Do you have any views on the government’s commitment to review financial thresholds at least every 10 years?

We consider a periodic review of financial thresholds is entirely appropriate and is common across many regulatory regimes.  A balance needs to exist between reviews being sufficiently regular and timely, particularly during high inflation periods, and the regulatory burden, cost and confusion that could arise from insufficient periods between changes. We consider every 10 years provides an appropriate balance, but an option to reduce to 5 years should exist for periods of excessively high inflation.

2: Do you have any comments about the principles or options considered in this consultation?

The Law Commission review acknowledges that financial thresholds are not necessary the most ideal manner in which to determine regulatory requirements but remains the most practical and consistent.  We reluctantly accept this but consider further research should be undertaken to consider if the increase in digital records, data analytics and artificial intelligence if used by the Charity Commission would improve regulation. We note they are already starting to use more digital methods within their work, and consider we cannot wait 10 years before this is re-examined due to the pace of change in these areas. 

The consultation contains little evidence, empirical or otherwise, to support the conclusions reached.  Unless there is evidence that a threshold has not been effective in determining an appropriate regulatory framework for charities then the default position should be to increase each threshold in accordance with inflationary factors.  To do otherwise would represent an increase in regulation that would need strong justification. Regulatory burdens on charities can be a barrier to charity impact and the public benefit provided, so there should be an encouragement for proportionate deregulation. 

The majority of the public have little awareness of the existing strong regulation of charities nor the role of charity regulators and public accountability.  Public trust and confidence would be positively impacted if such awareness was increased.  The Government should consider what measures could be adopted to achieve this. Also the Charity Commission could improve its website by reflecting the need to inform and reassure the public more about the strong regulation of charities that exists, promoting the “brand” of being a registered charity, whilst retaining the excellent guidance that it provides.

We consider that it is reasonable to presume that when thresholds were set that these were based on a fair analysis of what was required to achieve an appropriately robust regulatory regime for charities, hence in the absence of evidence that indicates that the level applicable since adoption has failed to meet their regulatory aims then the threshold should be Increased by inflation.  However, for clarity there may be an argument to align certain thresholds with other regulatory requirements to save confusion and increase understanding and compliance - see below.

3A: Should these thresholds (Thresholds 1-3) be maintained at this time?

• Yes (Option A) For Thresholds 2 and 3
• No (Option B) For Threshold 1
   

See below for response.

3B: Please explain why this is your preferred option

The consultation does not state where the anecdotal evidence for Threshold 1 (Registration) that charities often prefer to be register is taken from.  If taken from those charities that choose to register that is a self-selecting group. We there support an increase if there is no evidence of other regulatory concern. However, we would accept alignment with other regulatory requirements - see below. Also we recognise that charities formed as CIOs all are registered with the Commission regardless of size, so we can see an argument that the size threshold should be removed entirely as it seems anomalous that the form a charity takes determines its registration requirement.

For Threshold 2 (Excepted charity registration) we consider the level should be dependent on evidence concerning how effective the regulatory body in each instance has been in adequately supervising those below the threshold to date e.g. Scouts and CofE diocese. Option A is probably reasonable - but we recommend DCMS ensures this aligns with other thresholds. Since we understand the Threshold cannot change under current legislation the Government need to consider if that is required. Charity Commission resources would need a major increase should all 30k/ 80k charities become registered in 2031 – If the Government cannot commit to that funding increase we consider the regulation of existing registered charities may be impaired.

For Threshold 3 (Statement in official publications) we recommend Option A as in our view this seems a reasonably easy requirement hence little regulatory burden. In fact we see little concern in requiring such statements for all charities regardless of size. 

4A: Should the threshold remain at £10,000?

• Yes, it should remain at £10,000 (Option A)
• No, increase the threshold in line with inflation to £20,000 (Option B)
• None of the above

4B: Please explain why this is your preferred option

This seems a relatively simple compliance requirement and will assist the Commission to regulate the very large number of smaller charities.  Whilst the information is not subject to external scrutiny this should not be a significant concern and will certainly increase the data held by the Commission.  We consider it would be appropriate to align with the registration threshold above.  Also as noted above the regulations would enable more useful data to be collected such as balance sheet information noted below.

5A: Should the threshold remain at £25,000?

• Yes, it should remain at £25,000 (Option A)
• No, increase the threshold in line with inflation to £40,000 (Option B)
• No, increase the threshold to £30,000 (Option C)
• None of the above

5B: Please explain why this is your preferred option

Unless evidence of a increase causing regulatory restriction it would be reasonable to keep roughly the same proportion of charities within scope. However, since charities will be preparing their report and accounts we accept the argument that it does not seem likely that it is a great burden to submit them to the Commission and that will mean more data on small charities will be available and also can be published on the register.  But consider if this can be aligned with other thresholds better.

6A: Which option do you think the threshold should be set at?

• Keep the threshold at £25,000 (Option A)
• Raise the threshold in line with inflation to £40,000 (Option B)
• Raise the threshold to £30,000 (Option C)
• None of the above

6B: Please explain why this is your preferred option

We so noreason to increase the proportion of charities subject to IE.  We note that studies undertaken by the Charity Commission in the past have indicated that the standard of examinations undertaken by examiners is poor. Also, trustees of such charities will often have a poor understanding of what an independent examination comprises and as a result will not necessarily have the knowledge and skills to select an examiner with the requisite expertise and experience.

These Charity Commission studies mean evidence exists of poor standards in both IEs and audits, and there is clear data of very limited reporting of Matters of Material Significance even amongst auditors and probably much less for IE, even though this is a statutory duty.  So, the statement that raising the threshold will impair the Charity Commission’s ability to regulate the sector effective would seem illusionary.  What would be much more important is the raising of the quality of both IEs and audits, by both improving the guidance on the IE directions issued by the Charity Commission, greater enforcement that they are then followed, and increased scrutiny of professional independent examiner by their relevant professional bodies. Ideally research should be undertaken to provide evidence of what could be done to improve standards.  We applaud the efforts of organisations such as the ICAEW to provide continuing professional development for members and others, as this should aid the competency of examiners who undertake this training. 

6C: Do you have any specific comments or evidence about the cost and availability of independent examiners?

Examinations of small charities by ordinary examiners are often undertaken either pro-bono or for a nominal fee.  For small IEs done by professional accountants the cost will be much higher and will depend on the area of the country where they are based - circa £2,000 to £4,000, but the figure used of £700 is probably reasonable for impact assessment.

7A: Which option do you think the threshold should be set at?

• Keep the threshold at £250,000 (Option A)
• Raise the threshold in line with inflation to £400,000 (Option B)
• Raise the threshold to £300,000 (Option C)
• None of the above

7B: Please explain why this is your preferred option

We have considerable concerns about the quality and availability of both independent examiners and auditors, and we would encourage a separate and more in-depth review of the whole scrutiny regime.  We highlight past research by the Charity Commission also noted above that identified this was a reality not just anecdotal observation. Also, this review should consider the potential for a linkage to the Charity SORP consultation and the revision to FRS 102 that is bringing in a three tier framework and increasingly complex and difficult to understand financial statements. All accruals based financial statements are now highly technical documents which require scrutiny by professionals with a high level of technical understanding in order to undertake their work to a high quality standard. So it would make sense to align the accruals accounting threshold with the requirement for professionally qualified examiners.

7C: Do you have any specific comments or evidence about the cost or availability of qualified independent examiners who meet the criteria laid out in the 2011 Act?

The stated fee of £3,300 seems a reasonable estimation – our experience is that fee swill vary across the country – between roughly £2-4k so the figure used is a reasonable value for assessing financial impact.

8A: Which option do you think the threshold should be set at?

• Keep the threshold at £250,000 (Option A)
• Raise the threshold in line with inflation to £400,000 (Option B)
• Raise the threshold to £300,000 (Option C)
• None of the above

8B: Please explain why this is your preferred option

We agree it is appropriate to align accruals accounts threshold with professional IE for the reasons noted above.  Generally aligning financial reporting and scrutiny thresholds would be beneficial and aid clarity regarding regulatory levels.

9A: Which option do you think the threshold should be set at?

• Keep the threshold at £1,000,000 (Option A)
• Raise the threshold in line with inflation to £1,500,000 (Option B)
• Raise the threshold to £1,200,000 (Option C)
• None of the above

9B: Please explain why this is your preferred option

We would reluctantly support Option B as the least bad option as a significant increase greater than to £1.5m is certainly necessary in our view.

Whilst it is reasonable to expect a higher level of public accountability for charities than commercial organisations, the gap between the company and charity thresholds has now become excessive. Auditing Standards and the quality of auditing expected by audit regulators are now focussed on organisations that in the charity sector would be consider very large. Charities with income of £1.5m are still relatively small organisations and have difficulty in responding to the scrutiny required by an audit.  Whereas a professional independent examination undertaken to high quality standards is more manageable for small charities whilst still providing a high level of assurance which would still instil public confidence.

It is worth noting that in Scotland it would appear they were not worried that there would be a denuding of confidence through a significant increase in the audit threshold. 

We would note that an audit for these smaller charities is likely to cost three or four times the cost of an IE.  This could be considered disproportionate for the difference in assurance an audit provides.

In our experience some charities will only exceed the audit threshold for one year due to a one-off factor such as receipt of a major legacy, and then will revert to a lower income level.  We therefore consider there is merit in requiring the threshold to be exceed for at least two consecutive years to avoid this cliff-edge jeopardy.

Our conclusion is that much more research and analysis should be undertaken into the scrutiny needs of the sector.  The issues are much wider than mere consideration of these thresholds and it would be precipitous for the DCMS to simply act on the results of this consultation without such wider analysis.  At a minimum formal consultation should be undertaken with the audit regulator bodies, including ICAEW and FRC and consideration of observations arising from their regulatory supervision of members.

9C: Do you have any specific comments or evidence about the cost or availability of statutory auditors?

Surveys undertaken in the charity sector by journals such as Charity Finance demonstrate that the cost of charity auditing has increased by significantly greater than inflation for several years.  This is in line with the experience of commercial audits and reflects the demands by audit regulators for audit firms to increase the quality of their work, which has also been embedded in changes to International Standards of Auditing and Financial Reporting Council quality standards. 

Some firms have focussed their resources in recent years on more profitable commercial clients.  Anecdotal evidence is that some smaller charities have found it difficult to find an experienced charity auditor to appoint. We have been informed that audit tendering exercises have resulted in few if any firms willing to submit tenders. We observe the significant difficuilties in the Local Audit market and have concerns that a similar situation could arise in the charity sector.

10A: Which option do you think the threshold should be set at?

• Keep the threshold at £3,260,000 (Option A)
• Raise the threshold in line with inflation to £5,000,000 (Option B)
• Raise the threshold to £4,000,000 (Option C)
• None of the above

10B: Please explain why this is your preferred option.

Whilst we accept the statement in the consultation that  it is possible in some limited circumstances for charities with significant assets to have income below the IE threshold, our experience is that this is very rare, perhaps where the assets held are not income-generating such as heritage assets. Our experience is that in almost all cases such charities are likely to have income above IE threshold, so subject to scrutiny.  We consider the DCMS needs to consider what types of assets are its concern – if cash, investments, or property these will typically generate income.  

The DCMS state there could be an increased risk but have not provide any evidence that real risks do exist. In line with our comment for the income threshold, the gap between charities and companies is becoming increasingly great in value terms, so at least an inflationary increase is appropriate.

As an alternative we suggest that regulations could require asset disclosure in future Charity Commission Annual Returns as these requirements under their regulations can be amended fairly regularly and will enable the Commission to capture relevant information by which to exercise their regulatory obligations.

11A: Which option do you think the threshold should be set at?

• Keep the threshold at £1,000,000 (Option A)
• Raise the threshold in line with inflation to £1,500,000 (Option B)
• Raise the threshold to £1,200,000 (Option C)
• None of the above

11B: Please explain why this is your preferred option.

We consider that group accounts result in financial statements that are very complex and arguably hard to understand.  As long as the Charity SORP continues to require that detailed disclosures be made concerning the income, expenditure and balance sheet of non-consolidated subsidiaries there could be an alternative view that sufficient accountability is still achieved without the preparation and audit costs of having group accounts.

The consultation notes that the Charity Commission does not at present capture in the annual return whether a charity has any non-charitable subsidiaries. This will be the most common reason for group accounts so a question in the return could be used as an estimate of the impact of this threshold change.

12A: Which option do you think the threshold should be set at?

• Keep the threshold at £1,000,000 (Option A)
• Raise the threshold in line with inflation to £1,500,000 (Option B)
• Raise the threshold to £1,200,000 (Option C)
• None of the above

12B: Please explain why this is your preferred option.

We consider the factors noted above regarding the audit of entity financial statements are equally applicable to group audit requirements. 

13A: Should the threshold increase to £15/£1,500?

• Yes, it should increase to £15/£1,500 (Option B)
• No, it should remain at £10/£1,000 (Option A)
• None of the above

13B: Please explain why this is your preferred option.

This is in line with our support of the general principle of increasing thresholds by inflation other than where there is evidence that this would cause disproportionate regulatory impairment.

14A: Should the threshold increase to £15/£1,500?

• Yes, it should increase to £15/£15,00 (Option B)
• No, it should remain at £10/£1,000 (Option A)
• None of the above

14B: Please explain why this is your preferred option.

We consider £15 can hardly be considered any form of remuneration, including by comparison with living wage etc. Following the general principles we set out above inflationary increases appear appropriate. 

15A) Should the threshold increase to £150?

• Yes, it should increase to £150 (Option B)
• No, it should remain at £100 (Option A)
• None of the above

15B) Please explain why this is your preferred option.

Not an area where we have any experience, so following general principles set out above our recommendation is to increase in line with inflation.

16A Should the threshold be raised to £1,000?

• Yes, it should be raised to £1,000 (Option B)
• No, it should remain at £500 (Option A)
• None of the above

16B: Please explain why this is your preferred option.

These powers could be helpful to the Charity Commission in some instances to help small charities which would otherwise be in a difficult position which may only be able to be resolved by means of costly legal advice.

17A Should the maximum payment threshold remain at £1,000?

• Yes, it should remain at £1,000 (Option A)
• No, increase the threshold in line with inflation to £1,500 (Option B)
• None of the above

17B: Please explain why this is your preferred option.

Not an area where we have any experience, so following general principles set out above our recommendation is to increase in line with inflation.

18A: Should these thresholds(Thresholds 18-21) be maintained at this time?

• Yes
• No

18B: Please explain why this is your preferred option

Not an area where we have any experience, so following general principles set out above our recommendation is to increase in line with inflation, but since not an option we accept this would not be a material change.