The Department for Digital, Culture, Media and Sport (DCMS) has launched a public consultation to review the financial thresholds in charity law. This review aims to ensure that the regulatory landscape for charities remains proportionate and effective, balancing the need for transparency and accountability with the goal of reducing red tape to foster growth within the sector.

This consultation for England and Wales followed announcements that the charity audit income threshold in Scotland will rise from £0.5m to £1 million, a change that forms part of the revised Charities Accounts (Scotland) Regulations, and that was welcomed by the Scottish Charity Regulator and other stakeholders.

DCMS’s review aligns with the Law Commission’s 2017 report, ‘Technical Issues in Charity Law,’ which recommended periodic reviews of all financial thresholds in the Charities Act 2011 to adjust them in line with inflation. The government has committed to conducting these reviews at least every ten years, resources permitting. The consultation covers thresholds in the Charities Act 2011 and related secondary legislation, as well as those related to professional fundraising in the Charities Act 1992. However, Gift Aid thresholds, which fall under tax law, are not included in this consultation.

There are over twenty financial thresholds under consideration, including the threshold for independent examination requirements, which could rise to £40,000 (from £25,000), the charity audit requirements, where income-based thresholds could rise from £1m to £1.5m, and asset-based thresholds from £3.26m to £5m.

The review of the charity audit threshold is a significant element of this consultation. We have long urged for a review of the audit threshold, including in our letter to then Charities Minister Stuart Andrew MP. Key points raised in our letter included the impact of inflation since 2015, which has pushed many smaller charities towards the current audit threshold, creating disproportionate burdens, especially during times of financial pressure.

We further highlighted that the audit profession is also facing increased demands in other sectors, and it cannot be assumed that market pressures will lead to an increase in the supply of suitably skilled auditors for the charity sector or a reduction in audit costs in the short term. The letter also expressed ICAEW’s interest in commenting on more imaginative or radical approaches for reform and ways to simplify and “future proof” regulation of this nature.

We often hear from members in the charity sector that the static threshold is only one of the problems that charities face with audit requirements. For charities that are close to the threshold, the requirement to have an audit in the first year of breaching the threshold can be just as difficult. While charities can apply to the Commission for an audit exemption in certain circumstances, this takes time and the outcome is uncertain, making it difficult for charities to find a suitable auditor and meet their filing requirements if they have unknowingly crossed the threshold.

Additionally, some members have suggested that the asset-based audit threshold should be abolished, while others highlighted the growing discrepancy between the audit thresholds for charities and private companies. It is well understood that charities face greater public scrutiny and that a higher level of accountability is necessary, but opinions vary on how reasonable this growing discrepancy is.

While DCMS’s consultation is only considering inflationary or partial increases to thresholds, the consultation is timely. Overlapping somewhat with the consultation on the next Charities Statement of Recommended Practice (Charities SORP 2026), smaller charities may benefit from potential increases to the Account and Statement option, which allows certain small charities to prepare their accounts on the simpler Receipts and Payments (cash) basis. This threshold, currently set at £250,000 gross annual income, may increase to £400,000, which would offer greater choice to more small charities. However, this choice is not available to all small charities. Charities registered with Companies House must always prepare accruals accounts and charities are advised to check for audit requirements in the charity’s governing document, or those imposed by funders.

The consultation, which began on 3 April, will be open for ten weeks until Thursday 12 June. Annex B of the consultation summarises the thresholds and options for increases in a handy table.

We encourage ICAEW members to participate in this consultation and share their views. ICAEW’s response to the consultation will be informed by our Charity Committee and we are keen to hear from you too. If you would like to have a conversation with me or want to share your view on specific consultation questions, please contact me by email.

• Respond to DCMS’s consultation