New charity financial thresholds: what accountants need to know

These changes, intended to come into force on or after 1 October 2026, are estimated to generate annual savings of £47 million for charities, marking a significant change for smaller and mid-sized charities and the finance professionals who advise them.

The most anticipated change was the increase to the charity audit threshold, which ICAEW had actively called for. The gross annual income threshold for a statutory audit will rise by 50%, from £1 million to £1.5 million. This change reflects an adjustment broadly in line with compounded inflation since the threshold was last set in 2015. We highlighted in our consultation response that sustained inflation was disproportionately dragging hundreds of smaller charities into the scope of mandatory audits, often against a backdrop of financial challenges and rising audit costs. By raising the threshold, the government is delivering a proportionate response that significantly reduces administrative burdens on approximately 2,000 charities.

Alongside the income test, the asset threshold for mandatory audit where income is £500k+ (currently: £250k+) will rise from £3.26 million to £5 million. We supported this increase, noting that asset-rich, income-poor charities often misunderstand the threshold, and that the new SORP requirements for lease accounting would have otherwise drawn more charities into scope.

The income threshold over which charity accounts must be subjected to an independent examination (IE) will rise from £25,000 to £40,000. This increase was supported across the sector, including by ICAEW, as it directly addresses the administrative burdens on the smallest charities. DCMS estimates this rise will benefit approximately 11,000 charities, generating annual savings of £7.8 million. It is noteworthy that the government chose to raise this threshold despite acknowledging that it will decouple from the threshold for submitting annual reports and accounts to the Charity Commission, which remains at £25,000.

The government made a decisive move by significantly raising two related thresholds above the rate suggested by inflation (which suggested £400,000), to £500,000. This was done explicitly to align these requirements with the top of the new lowest tier in the Charities SORP 2026:

• Accruals accounting (receipts and payments option): the threshold over which non-company charities must prepare full accruals accounts (instead of the simpler receipts and payments accounts) will double from £250,000 to £500,000. We advocated for this specific £500,000 figure, suggesting that the complexity of SORP requirements for accruals accounts should be considered, and emphasising that adopting the SORP Tier 1 level would simplify the regime and keep the number of separate thresholds to a minimum. The government agreed that the benefits of alignment and reducing the burden of preparing full SORP-compliant accounts justified this above-inflation increase.
• Independent examiner qualification requirements: the threshold over which certain professional qualification requirements must be met by an independent examiner will also rise from £250,000 to £500,000. This is where DCMS departed most notably from our preference of retaining the £250,000 threshold (due to quality concerns). We had argued that before expanding the number of charities relying on non-qualified examiners, the framework and process for IE should be reviewed generally. DCMS chose the £500,000 increase, citing the overwhelming need for alignment and simplification across the reporting landscape. The government estimates this change will result in a substantial annual saving of £23 million for the sector, as roughly 9,000 charities will no longer need to hire a qualified examiner. DCMS and the Charity Commission have also committed to review the sufficiency of guidance on independent examination.

The government’s overall response reflects the push for simplification repeatedly highlighted by ICAEW. Our broader suggestions for future reform remain important, including the recommendation to amend the Charities Act 2011 so that audit thresholds are only applied if met for two out of three consecutive years, aligning charity law with the Companies Act approach, especially given the income fluctuations caused by large, one-off legacies.