Charity & Not-for-Profit Finance: SORP Skills & Hiring

Charity and not-for-profit finance looks, from the outside, like ordinary finance with tighter budgets. From the inside it is a distinct discipline with its own rulebook, its own reporting framework and its own scarce skill set — and hiring for it as though it were commercial finance is how charities end up with capable accountants who do not understand restricted funds. The rulebook has also just moved: a new Charities SORP applies to reporting periods beginning on or after 1 January 2026, and the audit and independent examination thresholds in England and Wales rose for financial years ending on or after 30 September 2026.

This guide covers what third-sector finance roles actually require: the SORP and what has changed, fund accounting, the trustees’ annual report and the annual return, audit versus independent examination, Gift Aid and VAT, the differences in Scotland and Northern Ireland, and then the practical side — the roles charities hire, the skills that matter, the pay reality and how to hire finance staff for a charity, social enterprise or not-for-profit. It is a practical orientation rather than technical guidance; for the authoritative detail, use the Charities SORP website and the Charity Commission.

Why charity finance is a specialism

The defining difference is the Charities SORP — the Statement of Recommended Practice that governs how charities prepare accounts — and the concepts that come with it, above all fund accounting. A charity does not have one pot of money; it has restricted funds (given for specific purposes and legally ring-fenced), unrestricted funds, and often designated and endowment funds, each accounted for and reported separately. Add the Statement of Financial Activities (the SoFA, the charity equivalent of a profit and loss account, analysed by fund), grant and donor reporting on funders’ terms, Gift Aid, the charity VAT rules and the governance overlay of trustees and the regulator, and the role diverges sharply from its commercial counterpart.

A commercial accountant can learn all of this — but arrives needing to, where a sector-experienced one is productive on day one. That gap is manageable in a supporting role and expensive in the seat that owns the year-end accounts, the trustee reporting and the relationship with the auditor or examiner. It is also why charity finance sits alongside public-sector work in our CIPFA accountant recruitment practice: the disciplines share a focus on stewardship and accountability rather than profit.

The Charities SORP 2026: what has changed

The Charities SORP sits on top of FRS 102, the UK and Ireland financial reporting standard, and adapts it for charities. It is issued jointly by the charity regulators of England and Wales, Scotland, Northern Ireland and the Republic of Ireland. The new edition, the Charities SORP 2026, was published in October 2025 and applies to reporting periods beginning on or after 1 January 2026, replacing the 2019 version. It follows the Financial Reporting Council’s periodic review of FRS 102, whose amendments take effect for periods from the same date. For a charity with a December year end, the year to 31 December 2026 is the first set of accounts under the new rules; for a March year end, it is the year to 31 March 2027.

Tiered reporting by income

The most visible change is a three-tier structure based on gross income, so that reporting requirements scale with the size of the charity:

Tier	Gross income	Main effects
Tier 1	Up to £500,000 (accruals accounts)	Lightest disclosures; no statement of cash flows
Tier 2	Over £500,000 up to £15 million	Fuller disclosures; no statement of cash flows
Tier 3	Over £15 million	Statement of cash flows; impact reporting and other enhanced disclosures required

Leases and income recognition

Two technical changes come directly from the FRS 102 review. First, leases: most operating leases now come onto the balance sheet as a right-of-use asset and a lease liability, broadly following the IFRS 16 approach, with simplifications for short-term and low-value leases. For charities with property leases — shops, offices, care settings — this grosses up the balance sheet and changes how lease costs appear in the SoFA, and it can affect reserves calculations and loan covenants. Second, income from exchange transactions, such as contracts for services, trading income and some membership subscriptions, now follows a five-step revenue recognition model similar to IFRS 15. Donations, legacies and most grants continue to follow the SORP’s existing approach for non-exchange income, but the boundary between the two needs judgement. Our guides to lease accounting under IFRS 16 and revenue recognition under IFRS 15 explain the underlying models.

Trustees’ report, impact reporting and other changes

The trustees’ annual report requirements have been strengthened across all tiers, with more detailed commentary expected on aims and objectives, achievements and performance, future plans, reserves and going concern. Larger charities in tier 3 must also report on their impact, on environmental, social and governance matters, and on areas such as volunteer contributions, social investments, legacies and pension positions; smaller charities are encouraged to do the same. Charities must explain material legacy income recognised before the cash arrives, and there are updated requirements on provisions and contingencies. The practical consequence for finance teams is more narrative work, more data gathering from operational colleagues, and in many charities a first-year transition project.

Fund accounting: the concept commercial accountants find hardest

If one idea separates charity finance from commercial finance, it is that money is not fungible. A restricted donation given for a specific programme cannot be spent on anything else, regardless of how urgent the charity’s other needs are — and the accounting has to track, report and prove that at all times. The main fund types are:

• Unrestricted funds — available for any of the charity’s purposes at the trustees’ discretion. These pay for core costs and form the basis of free reserves.
• Designated funds — unrestricted money the trustees have earmarked for a purpose. The designation can be reversed, so these remain unrestricted in law.
• Restricted funds — given for a specific purpose set by the donor or funder, or raised by an appeal for a stated purpose. They can only be used for that purpose.
• Endowment funds — capital that must be retained, either permanently or for a period, with only the income (or in some cases a total return) available to spend.

This drives a way of thinking that commercial accountants, trained on a single pooled set of resources, often find counter-intuitive at first. Every transaction has to know which fund it belongs to, the management accounts have to show performance by fund, cost allocation between funds has to be defensible to funders, and a charity can be solvent overall while unable to pay its bills because its cash is locked in restricted funds. A finance professional who has internalised fund accounting brings that awareness to everything from cash-flow planning to funder negotiations; one who has not can make decisions that are commercially sensible and legally impossible. It is the single most important competency to verify in any charity finance hire.

The trustees’ annual report and the annual return

Every registered charity in England and Wales prepares a trustees’ annual report alongside its accounts. It is a narrative-and-numbers document with its own content requirements: objectives and activities, achievements and performance, the financial review and reserves policy, structure and governance, and, for larger charities, risk management and plans for the future. Trustees sign it, but finance usually drafts the financial review and coordinates the rest, which makes clear writing a real part of the job.

Charities with income over £10,000 must also complete an annual return to the Charity Commission, and those with income over £25,000 must file their trustees’ report and accounts. Both are due within ten months of the financial year end, and late filing is visible on the public register. Charitable companies also file accounts at Companies House under company law, so a Financial Accountant in a charitable company works to two sets of requirements. Our guide to preparing statutory accounts covers the general disciplines, and the year-end statutory accounts timetable sets out a workable schedule.

Independent examination or audit: the new thresholds

Whether a charity’s accounts need an audit or an independent examination depends on its income and assets. The thresholds in England and Wales increased for financial years ending on or after 30 September 2026, so many charities that previously needed an audit now need only an examination. The Charity Commission’s threshold summary sets them out:

Requirement	Years ending before 30 Sep 2026	Years ending on or after 30 Sep 2026
Audit (income test)	Income over £1m	Income over £1.5m
Audit (income and assets test)	Income over £250k and assets over £3.26m	Income over £500k and assets over £5m
Independent examination required	Income over £25k	Income over £40k
Professionally qualified examiner	Income over £250k	Income over £500k
Accruals accounts required	Income over £250k	Income over £500k
Group accounts and audit	Group income over £1m	Group income over £1.5m

Two cautions apply. A charity’s governing document, a funder or a lender can still require an audit regardless of the statutory thresholds, so check before dropping one. And charitable companies must consider company law as well as charity law. For finance staff, the shift matters because an examination is a lighter-touch review than an audit, which puts more weight on the quality of the charity’s own controls and year-end work. Our guide to managing the year-end audit relationship applies to either route.

Gift Aid and VAT for charities

Gift Aid

Gift Aid lets a charity reclaim basic rate tax on donations from UK taxpayers, worth 25p for every £1 donated, provided the donor has made a valid Gift Aid declaration and has paid enough tax to cover it. Claims are made to HMRC online, and must be made within four years of the end of the charity’s accounting period in which the donation was received. The Gift Aid Small Donations Scheme allows charities to claim a top-up on small cash and contactless donations of £30 or less without a declaration, on up to £8,000 of donations a year. Finance owns the controls here: valid declarations, clean donor records, no claims on donations where the donor received a benefit above the permitted limits, and audit trails HMRC can test. Errors are common, and HMRC can recover over-claims.

VAT

Charities are not automatically exempt from VAT, and charity VAT is one of the most technical areas a finance team handles. A charity that makes taxable business supplies above the registration threshold (£90,000 since April 2024) must register. Many charity activities are non-business, such as free services funded by donations and grants, and VAT incurred on those costs is generally not recoverable, so a charity with mixed activities must apportion input tax between business and non-business use, and often apply partial exemption too. There are specific VAT reliefs for charities, including zero-rating on certain advertising and some goods for disabled people, a reduced rate on fuel and power for non-business use, and an exemption for qualifying fundraising events. Charity shops selling donated goods also benefit from zero-rating. Larger charities often employ or contract a VAT specialist; for everyone else, a finance lead who can recognise when to take advice is essential. Our guide to VAT for finance teams covers the general principles.

Scotland and Northern Ireland

Charity law is devolved, so the rules above apply to England and Wales. Scottish charities are regulated by the Office of the Scottish Charity Regulator (OSCR) under the Charities and Trustee Investment (Scotland) Act 2005 and its accounts regulations. Scotland has its own audit and examination thresholds and its own annual return; its audit income threshold rose from £500,000 to £1 million for financial years beginning from January 2026. Charities registered in England and Wales that also operate significantly in Scotland may need to register with OSCR too. Northern Ireland charities are regulated by the Charity Commission for Northern Ireland under the Charities Act (Northern Ireland) 2008, with a separate reporting regime and an annual monitoring return. The Charities SORP itself applies across the UK, so the core accounting is the same; the thresholds, filings and deadlines differ, and a finance lead moving between jurisdictions should check the relevant regulator’s guidance.

The roles charities hire

The structure mirrors commercial finance with sector-specific weighting. Smaller charities often need a single Finance Manager or Head of Finance who owns everything from bookkeeping oversight to SORP accounts and trustee reporting, frequently part-time. Mid-sized organisations add a Management Accountant producing fund-aware management information and a Financial Accountant owning the statutory accounts and the audit or examination. Larger charities run full functions with FP&A, grants and income accounting, payroll and a Director of Finance or CFO at leadership level — often with a broader remit spanning operations, HR, IT or property that smaller organisations bundle into the finance seat. CIPFA-qualified accountants feature more heavily than in commercial finance, given the overlap with public funding, alongside ACA, ACCA and CIMA members. See our pages on Head of Finance recruitment, Finance Manager recruitment and Financial Accountant recruitment, and how to structure a finance team for the wider design question. Trustee and treasurer appointments are a governance matter: our sister firm NED Capital handles board-level searches, and Director of Finance roles in larger charities may run with FD Capital.

The skills that actually matter

When specifying and testing a charity finance hire, the sector-specific competencies matter as much as the qualification:

• SORP and fund accounting — can the candidate explain restricted versus unrestricted funds, prepare a SoFA, and account for a multi-year restricted grant? Do they know what SORP 2026 changes for this charity’s tier?
• Grant and funder reporting — charities depend on funder relationships, and finance owns the reporting those relationships rely on, often to each funder’s own format, timetable and cost rules.
• Gift Aid and VAT — enough knowledge to run compliant claims and spot VAT issues before they become liabilities.
• Governance fluency — reporting to trustees, who are volunteers, often non-financial and always accountable, is a distinct skill. Strong candidates explain reserves, restricted cash and going concern in plain English.
• Budgeting under constraint — full cost recovery, overhead allocation and multi-year income uncertainty.
• Values alignment — less measurable but real. The strongest third-sector finance professionals are there partly by choice, and mission fit predicts retention in a sector that rarely competes on salary.

What it costs — and the pay-gap reality

Charity finance salaries typically run below commercial equivalents, which is the sector’s central hiring challenge and its most important planning fact. The gap varies widely: large national charities and those with substantial trading or contract income can come close to commercial rates for senior roles, while smaller regional charities pay noticeably less. The commercial benchmarks from our salary guides give the reference point a charity is competing against for the same candidates:

Role (London, commercial benchmark)	Typical commercial range	Where charity pay usually sits
Financial Accountant (newly qualified)	£52k–£60k	Below the commercial range
Management Accountant	£50k–£85k (mid £58k–£73k)	Lower end of the range or below
Finance Manager (qualified)	£55k–£70k	Below the commercial range
Head of Finance	c.£68k–£120k	Lower half; large charities nearer commercial
Interim Head of Finance (day rate)	£500–£750 London / £450–£650 elsewhere	Often negotiated towards the lower end

Outside London, commercial benchmarks are lower and charity pay follows. The discount is real but not the whole picture: charities compete on mission, flexibility, pension, often genuinely better work-life balance, and the chance to do broad, visible work early in a career. The candidates who choose the sector weigh those deliberately. The planning implication is to lead with the whole proposition rather than the salary line, to be realistic about the market for SORP-experienced senior people, and to consider the interim and fractional routes described below. Our Head of Finance salary guide and Finance Manager salary guide have the regional detail.

Hiring well for the sector

Three practical principles. First, decide honestly whether you need sector experience or sector trainability. For the senior SORP-owning roles, prior charity experience is close to essential, especially in the first year of SORP 2026; for supporting roles, a strong commercial accountant with a genuine interest in the sector can convert well and widens a thin pool. Second, test the sector knowledge concretely rather than assuming it. Ask a candidate how they would account for a two-year restricted grant received up front, what the SoFA tells a trustee that a profit and loss account would not, or how they would explain a restricted cash balance to a board worried about liquidity. The answers separate real experience from claimed familiarity fast. Third, involve the treasurer or chair of the finance committee early: they will work closely with the hire, and their view of what the board needs shapes the brief. Our guide for the chair of the finance committee covers that relationship.

The pool is smaller and less mobile than the commercial market, which rewards a specialist search and patience. Our recruitment team works third-sector mandates alongside commercial ones, with qualification-verified shortlists and honest advice on where sector experience is worth holding out for and where a commercial candidate will do the job well.

The interim and fractional route for smaller charities

Many charities are too small to justify a full-time senior finance hire but too complex to manage without one, and the fractional and interim routes have become a genuine third-sector solution. A SORP-experienced Head of Finance working one or two days a week gives a smaller charity access to senior, sector-fluent finance leadership — trustee reporting, SORP accounts, funder relationships, reserves policy and financial strategy — at a fraction of a full-time senior salary. For a mission-driven organisation watching every pound of unrestricted funding, that is often the difference between having senior finance capability and going without. See our pages on the fractional Finance Manager and the part-time Financial Controller.

Interim specialists also suit the sector’s project needs: a first set of accounts under SORP 2026, bringing leases onto the balance sheet, a merger between charities, a move from audit to independent examination, a finance system change, or cover for a departure. Given the sector’s salary discount and thin senior pool, these flexible routes frequently give a charity better finance leadership than it could afford to employ full-time, and our interim accountancy recruitment practice places sector-experienced finance professionals on exactly that basis.

Frequently asked questions

When does the Charities SORP 2026 apply?

To reporting periods beginning on or after 1 January 2026. A December year-end charity applies it first to the year ending 31 December 2026; a March year-end charity to the year ending 31 March 2027.

Does my charity still need an audit?

In England and Wales, for financial years ending on or after 30 September 2026, a statutory audit is required if income exceeds £1.5m, or income exceeds £500k and gross assets exceed £5m. Your governing document, funders or lenders may still require one, and Scotland and Northern Ireland have their own thresholds.

Can a commercial accountant move into charity finance?

Yes, especially into supporting roles. Fund accounting, the SoFA, Gift Aid and charity VAT are learnable; the move is hardest straight into a senior seat that owns the SORP accounts and trustee reporting.

Are charities exempt from VAT?

No. Charities register if taxable business supplies exceed the threshold, and must apportion VAT on mixed business and non-business activity. There are specific reliefs, but no blanket exemption.

What qualifications do charity finance roles ask for?

ACA, ACCA, CIMA and CIPFA are all common. Sector experience and SORP knowledge usually matter more than which body a candidate qualified with.