ICAEW says simplicity must be at the heart of a current government review of legal thresholds that apply to charities, as it calls for increases at least by the amount of inflation to most thresholds to mitigate growing costs and ongoing financial challenges across the third sector.

Responding to the Financial Thresholds in Charity Law consultation published by the Department for Culture Media and Sport (DCMS) on 3 April 2025, ICAEW says current thresholds are a blunt tool and are due review for inflation.

Smaller charities complain they face a disproportionate regulatory burden, and the numerous thresholds add to the complexity of the regime. “As a result, we believe that a priority for setting thresholds should be to make them simple to understand and apply,” ICAEW says in its consultation response. “Using round figures for the adjusted thresholds is a minor example of good practice in that context, which we are pleased to see being adopted in the consultation.

“Adjusting thresholds periodically for inflation in essence maintains the practical impact of the thresholds over time and we believe that there would need to be a good policy reason not to do this as a minimum,” ICAEW says. 

Reducing regulatory burdens

Increasing some thresholds above inflation would align with the government’s stated ambition to reduce regulatory burdens and increase economic growth, ICAEW says, particularly where this would simplify the regime by consolidating thresholds or in anticipation of inflation over the next few years. ICAEW is concerned that current thresholds continue to present challenges to the sector in terms of cost and availability.

Charity audit thresholds were last updated nine years ago, following a consultation in 2015. Currently, audits are required by charities with a gross annual income exceeding £1m, or gross annual income exceeding £250,000 and year end aggregate value of assets exceeding £3.26m. 

Most charities in England and Wales fall way below the current charity audit thresholds; according to the Charity Commission, out of a total of about 170,000 charities, around 156,000 had annual income below £500,000 and around 5,500 were in the £500,000-£1m income band. 

Removing charities from audit requirement

Nevertheless, around 6,000 charities fall into the £1m-£5m band. And ICAEW argues that if the current thresholds were to be increased by inflation on a compounded basis from 2015, a significant percentage of these – several hundred charities at least – would be removed from the requirement to have an audit. 

Daniel Chan, Partner and Charities Leader at PwC, says: "This consultation is a welcome opportunity to review the financial thresholds in charity law. It's important these are set in a proportionate way and that they can be easily understood and applied in a practical manner by charities."

Following recommendations made in the Law Commission’s 2017 report ‘Technical Issues in Charity Law’, the government committed to conducting a review of all financial thresholds in the Charities Act 2011 with a view to increasing them in line with inflation at least every 10 years, subject to resources.

However, alternatives to the proposed 10-year review of the thresholds include having automatic inflationary increases or reviews in a shorter timeframe. “Each has its attractions and potential disadvantages and, on balance, we do not think 10 years is unreasonable on the assumption that government would review sooner if there was a pressing need to do so,” ICAEW says.

Charities Act 2011/Companies Act inconsistencies

ICAEW says an important consideration for government not raised in the consultation is that under the Charities Act 2011, the thresholds for audit and independent examination are to be determined by reference to a single financial period of a charity. This is inconsistent with the approach adopted for statutory audit in the Companies Act, where the relevant thresholds need to be met in two out of three consecutive years. 

The requirement causes considerable practical problems and costs for charities, particularly in the case of usually large on-off legacies, multi-year grants and certain gifts in kind. “We recommend that government consider changing the requirements on this, even if primary legislation would be required to do so,” ICAEW’s consultation response urges. 

Back in March 2024, ICAEW called for a review of thresholds, particularly of the threshold for audit, following concerns that inflation could drag many smaller charities into scope against a backdrop of harsh financial challenges across the third sector.

More wide-reaching review 

ICAEW also argues that there is a case for a more wide-reaching review on how the regulatory regime for charities could be simplified and regulatory burdens reduced, especially for small charities. “We hope that government will consider this as part of its longer-term regulatory reform initiatives and we would be happy to participate in relevant discussions,” ICAEW says. 

Charles Worth, ICAEW’s Head of Business Law, says: “The complexity in this sector is illustrative of complexity experienced much more widely in the UK economy and ICAEW strongly supports government initiatives for a new approach to regulation in the UK.”

Fiona Condron, National Head of Charities at BDO and Vice Chair of ICAEW’s Charity Committee, says: “It was interesting to be involved in both this consultation and concurrently the consultation on the Charities SORP issued by the SORP-Making Body. There is clearly common ground between the two and therefore it would have been better if the issues could have been considered together.

“By way of example, a single consultation covering all the thresholds or with options in each taking into account options in the other, would have supported the overall simplification of reporting for smaller charities,” Condron adds.

Charity Consultant and ICAEW Charity Committee member Jen Richardson, who is also an independent examiner and trustee, reiterated Condron’s concerns. “I welcome the DCMS consultation, particularly the proposed increases in the charity audit threshold and that a greater number of non-company charities will be able to prepare receipts and payments accounts.

“However, I have significant concerns that the current SORP consultation and the DCMS consultation have not been considered in tandem. One of the key drivers behind both consultations is to reduce the burden on smaller charities and it is likely that we will actually increase the number of thresholds and have further points of differentiation on reporting requirements, particularly around the £500k income threshold.”

Chan adds: “This consultation is only a piece of the jigsaw in the overall charity regulatory landscape. A broader and more holistic view would help to support greater consistency and alignment across the range of requirements for different charities.” 

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ICAEW pushes for charity audit threshold consultation | ICAEW.