The 2025 Charity Digital Skills Report was published recently, and its findings highlight the challenge many charitable organisations are experiencing in balancing significant financial pressures alongside a need to adapt to accelerating technological change with 69% of the surveyed charities noting that strained finances remain the biggest barrier to digital progre
ss. Financial concerns are also impacting bandwidth, with just 44% of charities operating with a digital strategy in place compared to 50% in the 2024 survey, although the number of surveyed charities making digital progress in the year and prioritizing digital in their organisations remains positive. There is also a substantial growth in AI adoption, with 76% of surveyed charities now using AI tools, up from 61% in 2024, although many also reported their AI governance is lacking, an area that may improve going forward, with 48% of charities (68% large charities) currently developing an AI policy.
However, there remains a clear digital divide between large and small charities, with 68% of surveyed smaller charities noting that they are still at early stages with digital. Given the resources available to some of these organisations, this raises questions around digital equity, particularly with the developments in AI and their adoption by larger charities, which is likely to see the gap widen further.
The survey’s findings provide much for both charities and their funders and advisors to reflect on, concluding:
“Without addressing the fundamental gaps in digital skills, leadership and funding, the charity sector risks implementing emerging technologies without proper governance and strategic foundations. Now more than ever, the sector needs coordinated support from funders and support organisations to ensure responsible and impactful digital
transformation.”
Further information: Click here
On 1 October 2025, the Department for Culture, Media and Sport (DCMS) announced the following changes to Charity reporting thresholds for England and Wales:
• Independent examination threshold: Raised from £25,000 to £40,000 income
• Receipts and Payments accounts option (non-company charities): Increased from £250,000 to £500,000 income
• Audit threshold: Increased from £1 million to £1.5 million income
• Asset threshold for audit: Increased from £3.26 million to £5 million (associated income threshold increased from £250,000 to £500,000)
• Group accounts preparation threshold: Increased from £1 million to £1.5 million income
These changes are expected to come into force for accounting periods ending on or after 30
September 2026.
The thresholds had remained unchanged for a number of years. The audit thresholds for corporate entities had increased significantly within the same timeframe. The planned changes will therefore help to ease the regulatory burden on smaller charities. Many had been drawn into audit requirements that felt disproportionate to their size and complexity.
However, some organisations which may now fall outside the regulatory requirement for an audit may still need an audit if it is a requirement of their governing document or requested by donors or funders. Where this may apply, trustees and management are advised to start having conversations now as to whether these arrangements continue to be
appropriate and of benefit to the Charity or whether changes need to be made.
Several thresholds related to transparency and regulatory permissions will remain unchanged, including:
• Registration threshold: £5,000
• Annual return threshold: £10,000
Filing accounts with the Charity Commission: £25,000
Overall, the proposals seek to balance regulatory efficiency with public trust, ensuring that financial scrutiny remains appropriate to charity size and resources.
Further information: Click here
The Finance Bill 2025-26 has now been published, with the following changes to Charity Compliance rules.
Previously, legacies received by Charities or CASCs were not treated as ‘attributable income’ and therefore benefited from generous inheritance tax relief without associated spending restrictions. Under the new legislation, legacies will be classified within the ‘attributable income definition’, meaning that the funds must be spent on the Charity’s charitable purposes. Failure to do so may result in a tax charge.
There are 12 investment types that the government recognises for charitable tax reliefs. Previously, one category was subject to a statutory anti-avoidance requirement (that the investment must not be made for anti-avoidance purposes). The requirements will now apply to all 12 investment categories.
The revised tainted donations rules previously considered solely the motivation or intent of the donor when determining whether a donation was tainted. The rules have now broadened to also consider the outcome of the transaction, has the donor received a financial benefit regardless of their stated or subjective motivation. The bar for establishing whether a transaction is tainted has also been lowered, with the test of ‘financial advantage’ being replaced by ‘financial assistance.’
HMRC is also updating its guidance to bolster its enforcement powers. Whilst the majority of charities meet their tax obligations, there is a minority that persistently fail to comply but still claim tax relief, such as Gift Aid. HMRC are working on changes to guidance that will improve HMRC’s powers to compel compliance through sanctioning trustees and charity managers.
The new measures will take effect for transactions that occur on or after 6 April 2026.
Further information: Legislation to introduce changes to charity tax rules – GOV.UK
Following the Upper Tribunal ruling on the Yorkshire Agricultural Society case, HMRC has broadened the scope of VAT relief for fundraising events. Whilst fundraising still needs to be a ‘primary purpose,’ it no longer needs to be just the ‘primary purpose.’ Where an organisation has two primary purposes that cannot be separated in importance, the exemption can still apply. This is provided that one of those purposes is fundraising, as in the case of the Yorkshire Agricultural Society, where the aims were to fundraise and to educate.
Looking forward, this will provide charities with greater flexibility when planning events. In particular where events may also look to serve other goals of the charity. However, charities should note HMRC’s comments on the primary purpose following the ruling:
“If a charity or other qualifying body considers that an event has more than one primary purpose, they must be able to evidence this and provide a clear explanation as to why they cannot be separated in terms of importance.”
“To demonstrate a primary purpose, charities and other qualifying bodies must be able to provide objective documentary evidence that the event was organised as a fundraising event, and not that there was simply an intention to obtain income from the event.”
The event must still therefore be promoted as a fundraising event. HMRC acknowledge this may not be its sole purpose.
Following the ruling, there may be scope to claim a refund for events held in the last 4 years. Where applicable, charities should apply the court decision. Then review HMRC’s guidance to determine if there have been any overpayments of VAT.
Further information: Click here and here
The Charity Commission has published its first-ever Charity Sector Risk Assessment. Designed to provide an overview of potential risks to the sector, the survey is based on information drawn from accounts and annual returns, compliance concern investigations, serious incident reports and related casework. The survey found two key risks to the sector: financial resilience and risks to public benefit.
The survey noted over 42% of charities reporting expenditure exceeding income, with challenges around securing sustainable public funding, increased employment costs, an increased tax burden (particularly the recent changes in employers’ national insurance) and increased demand for charity services. It is important that Trustees understand and provide effective financial stewardship and look to plan and act on any ‘early warning indicators.’ Key actions highlighted by the report to help Trustees mitigate risk include:
• Taking time to plan ahead to ensure income forecasts align with operating costs
• Ensuring financial reporting is fit for purpose, regular and sufficiently detailed to inform trustee decision making
• Regularly review financial forecasting to allow for early intervention in cost or revenue variations
• Consider opportunities to deliver your charitable purpose more efficiently – e.g. collaborative bids, combining back office functions with other charities
Charities must act for the public benefit. The survey noted that compliance cases opened by the Commission based on alleged abuse of charities for private benefit had risen 23% over the last financial year, though they still represent a very small percentage of charities. The Commission’s work noted three broad areas in which concerns about private benefit can arise:
• Deliberate abuse of charitable status, such as by criminal enterprises, to diversify and legitimise other activities
• A dominant individual in a charity can affect proper oversight or challenge from the trustee board and leave the charity vulnerable to the dominant individual seeking to derive some personal benefit
• A lack of knowledge or understanding of the rules by charity personnel can leave them open to abuse, particularly for those operating in a complex regulatory framework
Key actions trustees can take to mitigate the risk include:
• Certify financial controls are fit for purpose, and no single individual can access charity funds or assets without appropriate checks and oversight
• Regular review of financial and asset transactions and remain vigilant to protect and safeguard your charity’s assets
• Confirm any payments to trustees are lawful and that any decision has been made following Commission guidance on conflicts of interest
• Make sure you are aware of your key duties and responsibilities as a trustee and follow the Commission’s guidance on good practice
• Ensure you know your charity’s purposes and understand how each purpose is for the public benefit
• Report issues or concerns to the Commission using their serious incident reporting and whistleblowing systems
The report also examines further risks associated with poor governance, safeguarding, fraud, social tensions, emerging technologies and overseas
influences.
Further information: Click here
The new Charity SORP was released on 31 October 2025. This will apply for financial periods beginning on or after 1 January 2026. The SORP introduces a number of changes aimed at improving transparency, proportionality and relevance in charity financial reporting. When drafting the new SORP, the SORP Committee also sought to think small first. They have taken into consideration the additional burden some reporting requirements can bring for smaller charities.
This thinking is visible in the new three tier structure for reporting, which looks to ensure that reporting requirements are proportionate to a charity’s size.
• Tier 1: Income up to £500,000
• Tier 2: Income between £500,000 and £15 million
• Tier 3: Income over £15 million
Charities must comply with the requirements of their own tier and all tiers below. Each SORP module clearly states which tiers it applies to. Combined with the modular layout, this should make the SORP easier for users to navigate. The tiered approach will also help ensure smaller charities are not overburdened while larger organisations provide the level of transparency stakeholders expect.
In other changes, the trustees’ annual report has been refreshed to place greater emphasis on:
• Impact reporting (within the ‘Achievements and Performance’ section)
• Sustainability (a new section required for Tier 3 charities; encouraged for others)
• Future plans, now required for all tiers
Within the Trustees’ Report, the SORP also encourages charities to explain the long-term effect of their work on beneficiaries and society.
Additional guidance is provided on reporting reserves. Where a charity is not holding reserves or has a negative net assets on its balance sheet, it must explain why it is still operating as a going concern. Charities must also explain further details of the role of volunteers within the organisation.
The changes introduced by FRS102 are also reflected in the new SORP with the modules on revenue and lease accounting. For income, there is a distinction between exchange transactions were there is an exchange of good and services (contract income) and non-exchange income (voluntary income). Exchange transactions being subject in line with FRS102 to the new 5 step revenue model for recognising income. Recognition of voluntary income is also modified, with charities needing to assess the conditions attached to determine the correct recognition basis. Income will be recognised either on receipt or when it is receivable. unless there are future performance-related conditions, in which case the income is recognised once these performance related conditions have been met. The module also clarifies treatment for subscriptions, dividends, and legacy income.
For lease accounting, there is a new module which introduces right-of-use asset accounting for operating leases. This means most leases will now appear on the balance sheet, increasing both assets and liabilities, with exemptions applying for low-value or short term leases. The SORP also provides guidance on peppercorn rents, which do not meet the definition of a lease under FRS102.
In other changes, the requirement to produce a cashflow statement will now only apply to Tier 3 charities. Those charities that do not qualify as small under FRS102, exempting the majority of charities with income below £15m from needing to produce a cashflow statement.
There is also a new module covering provisions, contingent liabilities and assets. This includes
accounting for funding commitments, clarified guidance on measuring the value of donated heritage assets and the simplification of social investments into one new category where previously such investments were split between programme related investments and mixed motive investments.
It is important that all charities review the new SORP requirements to understand how the changes will impact their organisations, Particularly the changes to accounting for income and leases, to determine any action they need to take now, including consulting with their accountant/auditor. Similarly, the changes to the Trustees Report provide an opportunity to refresh how the information is presented, what message you want to convey with the narrative reporting, and thinking about the impact of your work and how this can be best reflected in your report. This will likely require additional time to plan and collate the required information.
Further information – Home – SORP