Scotland’s charity sector received a boost this month with the Scottish Government’s decision to double the audit threshold for charities from £500,000 to £1 million.
The change, welcomed across the sector, is set to benefit thousands of smaller organisations which struggle with the financial and administrative burden of audits at a time of continued resource pressure.
Why the change matters
The audit threshold determines whether a charity must have its annual accounts subject to a full statutory audit.
Until now, any charity registered in Scotland with income over £500,000 was required to do so, regardless of other risk factors. This threshold has been constant since the introduction of the Charities and Trustee Investment (Scotland) Act 2005.
Rising costs, inflation, and increased regulatory demands made that figure increasingly outdated. Many smaller and mid-sized charities found themselves incurring growing audit costs where funds could be directed to delivering services. The decision to raise the threshold brings Scotland in line with England and Wales and introduces a more proportionate framework.
Sector support and campaigning wins
The change follows a public consultation in which a large number of respondents including small charities and sector bodies called for reform. Leading voices in the sector such as the Institute of Chartered Accountants Scotland (ICAS) and the Scottish Council for Voluntary Organisations (SCVO) strongly advocated for the increase.
ICAS believes that the change will introduce more proportionate scrutiny and allows charities to target their resources where they are most needed while the SCVO welcomed the move as aligning the scope of regulations with their original intent and helps alleviate difficulties in securing auditors for charities with modest growth or one-off windfalls.
The win highlights the importance of sector consultation and policy engagement – demonstrating how charities engaging in advocacy can effect change.
Further reform required?
While the increased threshold has been widely welcomed, there are calls for further reform. ICAS advocates for a one-year grace period for charities that temporarily breach the threshold due to one-off legacies or donations. Currently, any breach of the threshold triggers audit obligations where the cost has been argued to outweigh the public benefit.
Additionally, there are proposals to align the preparation of group accounts with the audit threshold. As it stands, the administrative burden for parent charities preparing consolidated accounts may remain high even if they fall below the new threshold.
Actions to take
For Scottish charities sitting just above or below the former threshold, now is a time to reassess. With audit requirements lifting for many, finance teams should explore whether an independent examination offers sufficient scrutiny and value and reallocate savings to core delivery or investment in systems and training.
That said, the change shouldn’t bring about a laissez-faire attitude to financial discipline – trustees must uphold their fiduciary duties as public confidence depends on clear, transparent reporting.
Charities may also still elect to voluntarily undergo a full statutory audit. Reasons for doing so include maintaining confidence among funders, securing credibility with major donors, satisfying grant conditions, or presenting greater assurance to banks, suppliers, and international partners. For some, the benefits of enhanced transparency will outweigh the costs.
However, for many, this policy shift marks not just relief from the burden of compliance, but an opportunity to strengthen financial strategy and sustainability.
Charities SORP consultation
On the 28th of March the Exposure Draft of the SORP 2026 was released and the consultation process was launched.
The SORP has been updated to reflect changes to FRS102, which were introduced by the Financial Reporting Council (FRC). Whilst we have previously detailed the significant changes regarding revenue recognition (specifically contract income) and leases, there have been some wholesale changes to the SORP.
In making these changes the aim of the SORP-making body was to make the SORP more straightforward to navigate for charities, and to improve information for beneficiaries, donors and the public about how charity resources are stewarded. These proposed changes, in additional to the ones mentioned above, include:
- The introduction of three tiers of reporting
- Advancing reporting in important areas such as impact, reserves, going concern and volunteers
- The introduction of proportionate reporting for ESG issues
The consultation process runs to the 20th of June 2025. There are 42 consultation questions to be answered which range from discussions over the three-tier approach to proposed changes in sustainability reporting.
MHA will be running a webinar in May to go through these proposed changes in detail. We will also be working with the Charity Finance Group who have a number of workshops on the subject. Further details to follow!
