The Scottish Government will raise the audit threshold for charities in the country from £500,000 to £1m, it has announced.
In a letter from Shirley-Anne Somerville to the Social Justice and Social Security Committee this week, the cabinet secretary for social justice said her government would introduce new regulations in the autumn to raise the threshold, “ensuring that the regulation and monitoring of charity accounts is proportionate”.
This increase, which will mean charities with lower incomes will no longer need to have their financial statements audited, comes after respondents to a public consultation suggested that the current threshold “was set too low and was a disproportionate burden for smaller charities”.
The Scottish Council for Voluntary Organisations (SCVO) welcomed the increased audit threshold while the Office of the Scottish Charity Regulator (OSCR) said other proposed changes would improve charity regulation.
‘Great news for Scottish charities’
Kirsten Hogg, head of policy and research at SCVO, said the umbrella body supports an increase in the audit threshold for Scottish charities.
“Since the original legislation was passed, the value of the current £500,000 threshold has declined significantly, bringing organisations into the scope of this regulation that was never intended to be, and putting significant pressure on the system,” she said.
“Raising the threshold will bring the scope of the regulations closer to where they were intended to be, and help to solve some of the issues that organisations have faced in securing an auditor.”
Christine Scott, head of charities and reporting at the Institute of Chartered Accountants of Scotland (ICAS), said: “This is great news for Scottish charities. ICAS has been pushing for this change in the audit threshold for several years.
“With charitable organisations continuing to face considerable financial pressures, particularly those close to the audit threshold, this change will help them target their resources to where they’re most needed.”
Scott added that “this change delivers more proportionate scrutiny of Scottish charities and closely aligns with the audit threshold in England and Wales”.
“This is a great start. We’re also calling for the introduction of a year’s grace for a one-off breach of the threshold, which can happen when a charity receives a singular income or donation such as a legacy. We believe the costs of having an audit in a single year outweigh the benefits.”
Further changes
Somerville said the Scottish Government will “bring forward two further sets of commencement regulations to fully implement the Charities (Regulation and Administration) (Scotland) Act 2023, one in the summer and one at the end of 2025”.
“This will enhance accountability and transparency in charities, which is a key finding from the consultation analysis,” she wrote in her letter.
The Scottish Government will consult on draft regulations to improve the Scottish Charitable Incorporated Organisations (SCIO) (Removal from Register and Dissolution) Regulations 2011 and introduce amendment regulations before the end of the parliament.
It will also convene a working group to look at the challenges some charities face when looking to incorporate into a SCIO.
The proposed changes come on top of the Scottish Government’s Fairer Funding pilot, which will see over £60m per year in 2025-26 and 2026-27 for third-sector organisations delivering front-line services and tackling child poverty.
SCVO: ‘Disappointing’ not to proceed with wider review yet
Hogg welcomed some other measures in the letter but said “it’s disappointing that the Scottish Government doesn’t feel that its recent consultation process on a wider review of charity legislation gave a clear enough steer to proceed with this wider review”.
“Voluntary organisations have been calling for a wider review for several years, and we were hopeful that the work would finally be done to take this forward.
“Our charity legislation in Scotland dates from 2005, and we need the opportunity to assess whether it has kept pace with changes over the last 20 years.”
OSCR: Government’s plans will ‘improve charity regulation’
Katriona Carmichael, chief executive of OSCR, said changes announced by Somerville would “improve charity regulation and help to maintain public trust in the sector and its individual charities”.
Carmichael said OSCR has already implemented some provisions of the Charities (Regulation and Administration) (Scotland) Act 2023, and its work to deliver the remaining elements is “well underway”.
“We’re on track to fully implement the legislation, including collecting and publishing the names of charity trustees on the Scottish charity register and making five years of financial accounts publicly available for each charity when these provisions come into force in the summer and at the end of 2025,” she said.
“We also welcome the announcement that the government will consult on plans to help address challenges faced by some charities when they’re looking to close or become a SCIO.
“We’re aware of these issues and are particularly keen to be able to deal with the issue of SCIOs that are breaching their duty to submit accounts and to engage with us, as we’ve been able to do successfully with other kinds of charity following the 2023 Act.”
On the threshold rising to £1m, she said this “will ensure that the regulation and monitoring of charity accounts is proportionate and achievable”.
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