Charity audit thresholds are increasing: should your charity still have an audit?

From 30 September 2026, the charity income threshold requiring a statutory audit will increase from £1 million to £1.5 million, with consequential changes to the asset tests and independent examination thresholds.

For charities, the question is no longer simply ‘Do we need an audit?’ but rather ’Should we continue to have one?’. The answer’s different for every charity and will require careful consideration.

 

WHAT ARE THE CHANGES TO CHARITY THRESHOLDS?

The principal changes for charities in England and Wales include:

Current Threshold	New Threshold (financial years ending on or after from 30 September 2026)
Mandatory audit income threshold: £1m	£1.5m
Asset test: income over £250k and assets over £3.26m	Income over £500k and assets over £5m
Independent examination threshold: £25k	£40k
Qualified independent examiner threshold: £250k	£500k
Group accounts threshold: £1m	£1.5m

These changes are intended to reflect inflation and reduce administrative burdens on smaller and medium-sized charities.

 

WHAT DOES THIS MEAN FOR CHARITIES?

Many charities with incomes between £1 million and £1.5 million that currently require an audit will, for the first time, be able to opt for an independent examination instead. This would provide a review of the accounts rather than a full audit, offering assurance that financial records have been properly maintained and that the accounts appear consistent with those records.

For some organisations this could result in:

• Lower professional fees
• Less disruption to finance teams
• A shorter year-end process
• Reduced trustee administration

However, while the statutory requirement may disappear, the governance considerations often remain.

The key issue for trustees is whether moving away from an audit is genuinely in the best interests of the charity and its stakeholders.

 

THE ADVANTAGES OF GIVING UP THE AUDIT

Cost savings

Audit costs have risen significantly in recent years due to increased regulatory requirements, staffing shortages and enhanced audit quality standards.

For some charities, particularly where funding is under pressure, eliminating the audit requirement may release valuable funds for frontline services.

Reduced management time

An audit can demand significant input from management and finance teams. Moving to an independent examination may reduce:

• Information requests
• Audit testing requirements
• Trustee involvement
• Year-end timetable pressures

More proportionate regulation

Many charities caught by the £1 million threshold no longer feel like “large” charities. The increase to £1.5 million better reflects the impact of inflation since the previous threshold was introduced.

 

THE DISADVANTAGES OF LOSING AN AUDIT

Whilst there may be savings, trustees should think carefully before abandoning an audit for several reasons.

Reduced independent assurance

An audit provides a much higher level of assurance than an independent examination because auditors are required to:

• Assess risks of material misstatement
• Test transactions and balances
• Consider fraud risk
• Challenge accounting estimates
• Evaluate internal controls

An independent examination doesn’t provide the same depth of scrutiny.

For charities with complex operations, multiple income streams, trading subsidiaries or significant grant expenditure, trustees may still find the additional assurance valuable. It can provide added peace of mind by offering greater protection for trustees and enhancing credibility with stakeholders such as donors and funders.

Funder requirements

Some grant makers, lenders and local authorities continue to prefer or require audited accounts even where legislation does not.

Before dropping an audit, trustees should consider:

• Existing grant agreements
• Future funding applications
• Banking arrangements
• Stakeholder expectations

The perceived credibility of audited accounts can sometimes outweigh the cost savings achieved.

Governance and trustee protection

The audit process often identifies:

• Control weaknesses
• Governance issues
• Accounting errors
• Emerging financial risks

For trustees, an annual audit can act as an important governance safeguard, particularly where:

• There’s rapid growth
• Financial pressures exist
• There are concerns around fraud
• Finance functions are small

Audit findings frequently provide trustees with valuable reassurance and challenge.

Public confidence

Charities rely heavily on public trust. An audit can provide assurance to:

• Donors
• Beneficiaries
• Regulators
• Corporate supporters
• Major funders

Where a charity receives significant public donations, trustees may conclude that retaining an audit supports transparency and accountability.

 

WHAT QUESTIONS SHOULD TRUSTEES ASK?

Before deciding to move from an audit to an independent examination, trustees should consider:

How complex are our operations?

A charity with £1.3 million income generated from multiple contracts, restricted funds and trading activities may carry greater risks than a charity with £2 million income from a single grant source.

What do our stakeholders expect?

Consider the expectations of:

• funders
• banks
• members
• regulators
• major donors

Do we rely on a small finance team?

Where there are limited opportunities to separate duties, or where one person has to handle multiple responsibilities, an audit can help provide additional confidence in controls and processes.

Are we facing financial challenges?

The discipline provided by an annual audit may be particularly valuable if there are concerns around:

• Going concern (future viability of the charity)
• Reserves
• Cash flow
• Covenant compliance

Could an audit support future growth?

Some charities retain an audit voluntarily because they anticipate future expansion, funding applications or borrowing requirements.

What if our governing document states we require an audit each year?

Trustees must normally continue to obtain an audit even if the charity falls below the statutory audit threshold. However, the trustees could consider amending the document to remove or relax the audit requirement.

Are audit thresholds for charities changing in Scotland?

Scotland has also introduced changes to its charity audit regime. Under the Charities Accounts (Scotland) Amendment Regulations 2025, the income threshold at which a Scottish charity must obtain a statutory audit has increased from £500,000 to £1 million for financial years beginning on or after 1 January 2026. The threshold requiring the preparation of consolidated accounts has similarly increased from £500,000 to £1 million. However, charities with gross income exceeding £250,000 and gross assets exceeding £3.26 million will still require an audit.

 

CHARITIES SHOULD TAKE A BALANCED APPROACH

The new thresholds are a welcome recognition that regulatory requirements should remain proportionate. Many smaller charities will benefit from reduced compliance costs and administrative burdens.

However, trustees should avoid viewing the change as a simple opportunity to save money. The decision should be based on the charity’s:

• risk profile
• governance arrangements
• stakeholder expectations
• funding requirements
• long-term strategy

For many charities, an independent examination will be entirely appropriate.

For others, particularly those with complex activities, significant public funding, substantial assets or ambitious growth plans, a voluntary audit may continue to provide benefits that outweigh the additional cost.

In summary, an independent audit is particularly valuable for charities because it provides a higher level of assurance that the charity’s financial statements are accurate, its funds are being managed appropriately, and any significant risks or control weaknesses are identified and reported. This provides independent verification and demonstrates strong financial governance to mitigate risks and means trustees can place greater reliance on audited financial information.

 

HOW CAN TC GROUP HELP?

The regulations may no longer require an audit, but trustees still have a duty to safeguard charity assets, manage risk and maintain public trust. The question is therefore not simply, “Can we stop having an audit?” but: “Will the charity be better governed if we do?”

The answer will be different for every charity, and it’s a decision that merits careful consideration rather than an automatic response to the new thresholds.

TC Group specialises in the provision of audit, accountancy, taxation, and governance-related advice to the charity and not-for-profit sector. As experienced third sector accountants, we work with a diverse range of organisations, from small charities to large organisations.

What sets us apart is our breadth of expertise, tailored approach, and commitment to achieving best practice. We work in partnership with our clients, gaining a deep understanding of their organisation, enabling us to develop strategic solutions that enhance operational efficiency. We help you unravel the complexities of statutory compliance, enabling you to concentrate on your core activities.

For more information, contact us today.

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FAQS

What is the new charity audit threshold from 2026?

From 30 September 2026, the income threshold requiring a statutory audit rises from £1 million to £1.5 million. The asset test changes to income over £500,000 and assets over £5 million.

Do all charities need an independent examination instead of an audit?

No. Charities below the new thresholds may opt for an independent examination, but many choose to retain a voluntary audit based on complexity, funder requirements, or governance needs.

Is an independent examination as thorough as an audit?

No. An independent examination provides a lower level of assurance than a statutory audit and doesn’t involve the same depth of testing, fraud risk assessment, or control evaluation.

Are the charity audit threshold changes the same in Scotland?

No. Scotland’s threshold rises from £500,000 to £1 million from 1 January 2026 under separate regulations, and the asset-based audit trigger (income over £250,00 and assets over £3.26m) is unchanged.

Should my charity still choose a voluntary audit even if it’s no longer required?

Many charities with complex income streams, trading subsidiaries, significant public funding, or growth plans continue to benefit from a voluntary audit for the added assurance and credibility it provides.