The government has confirmed a significant package of changes to charity financial reporting thresholds in England and Wales, and the headline change is one that many in the sector have been waiting years to see.

The audit threshold is increasing to £1.5 million

Following a DCMS consultation, the gross annual income threshold for a statutory audit will rise by 50%, from £1 million to £1.5 million. The asset threshold for a mandatory audit is also increasing – from £3.26 million to £5 million, which is relevant for charities with assets above that level and income over £500,000.

These changes are expected to come into force for accounting periods ending on or after 30 September 2026, with legislation to be laid before Parliament during 2026.

The last time this threshold was reviewed was 2015, when it rose from £500,000 to £1 million. In the decade since, inflation has quietly drawn hundreds of charities into audit scope that were never intended to be there. ICAEW, which actively lobbied for this change, noted that sustained inflation was dragging smaller charities into statutory audit requirements disproportionately – and the estimated annual saving for the sector as a whole is £47 million.

A word on income management

I want to say something directly, because it is a conversation I have had with more than one charity over the years.

Some organisations have – perhaps understandably – made financial decisions with an eye on staying below the £1 million threshold. Independent examination (for which fees are typically in the region of £1,500–£2,500) to a Statutory audit (often costing £10,000, depending on complexity) is a significant one, and for a small charity, it can feel very difficult to justify.

But suppressing income to avoid an audit – whether by deferring grant claims, declining funding, or structuring receipts carefully – carries its own risks. It can distort your financial picture, create governance complications, and ultimately limit what your charity can do for its beneficiaries. The Charity Commission is clear that trustees have a duty to act in the best interests of the charity, and that decisions that constrain income to manage regulatory costs deserve scrutiny.

The good news is that the new threshold should ease this pressure considerably for many charities. If your income sits between £1 million and £1.5 million, and you have been carrying the cost and burden of a statutory audit, you may well be in scope for an independent examination once these changes take effect.

Other threshold changes worth knowing about

The audit change is the headline, but it is not the only one. The full package of changes includes:

• Independent examination threshold: rising from £25,000 to £40,000 – easing the burden on the very smallest charities
• Receipts and payments accounts option: rising from £250,000 to £500,000 – more non-company charities will be able to use the simpler accounts format
• Qualified examiner threshold: rising from £250,000 to £500,000 – below this level, your independent examiner does not need to hold a professional qualification (though good judgement and experience still matter greatly)

The new Charities SORP is also now in effect

Alongside the threshold changes, the new Charities SORP 2026 was published in October 2025 and applies to accounting periods starting on or after 1 January 2026. This is the framework that governs how charities with income over £500,000 (or all charitable companies) prepare their accruals accounts.

The headline change is the introduction of a three-tier reporting structure, designed to make requirements more proportionate to the size and complexity of the organisation. Two significant updates – on lease accounting and income recognition from contracts – have also been introduced, reflecting changes in the underlying accounting standard (FRS 102). If your charity holds property leases or receives income under contracts, these are areas to look at carefully.

If you prepare accruals accounts and your financial year started on or after 1 January 2026, the new SORP already applies to you.

What should you do now?

If your income is approaching or has recently crossed the £1 million mark, now is a good time to talk to your adviser about what the new threshold means for your charity specifically – including when it will take effect for your accounting period and whether any current audit arrangements need to be reviewed.

For those preparing accounts under the new SORP, it is worth ensuring your trustees understand the key changes, particularly around lease accounting, income recognition, and the updated Trustees’ Annual Report requirements.

As the Charity Commission noted in their April 2026 blog on financial health: good financial governance isn’t just about compliance – it’s about ensuring your charity has the information and oversight it needs to keep doing its vital work.

If you would like to discuss any of these changes and what they mean for your charity, please do get in touch.