Charity finances under pressure: five risks trustees should be reviewing in 2026

Around two in five charities in England and Wales spent more than they received in 2024. The Charity Commission’s 2026 Charity Sector Risk Assessment found that 41% of charities had expenditure exceeding income, and that casework relating to insolvency and financial difficulties rose by 27.7% between October 2024 and September 2025 compared with the previous 12 months. That increase came from a low base (235 cases, up from 184, across a register of more than 170,000 charities), but it points in the same direction as the Commission’s wider finding that financial pressure persists in parts of the sector.

The picture is not uniformly bleak though. Sector income grew by 5.6% to £102 billion in 2024, slightly ahead of expenditure, and 57% of charities reported a surplus. Margins have still not recovered to pre-pandemic levels, and smaller charities are operating on the narrowest.

Reporting and scrutiny requirements are changing at the same time. Charities SORP 2026 applies to accounting periods beginning on or after 1 January 2026, and new thresholds for audit and independent examination took effect for financial years ending on or after 30 September 2026. For some charities, this means less mandatory external scrutiny. Less mandatory scrutiny does not mean less financial risk.

Five areas deserve trustees’ attention.

1. Going concern: look beyond the next set of accounts

Assessing whether a charity is a going concern should be more than a year-end exercise. SORP 2026 includes more guidance on the going concern basis of preparation, which makes it a point for trustees and finance teams to revisit now.

The question is not only whether the charity can meet its commitments today, but how it is likely to perform over the months ahead. That means regularly reviewing cash-flow forecasts, expected income, expenditure commitments and the assumptions behind them.

Warning signs include:

• declining unrestricted reserves
• heavy dependence on a single funding source
• uncertainty over contract renewals
• rising employment or property costs
• a persistent gap between income and expenditure

The Commission’s advice is for trustees to plan the year ahead with income forecasts aligned to operating costs, and to revisit those forecasts regularly so that changes in costs or income are spotted early. Its guidance on managing a charity’s finances and financial difficulties (CC12) and its Trustee Finance Toolkit are useful starting points. The earlier a problem is identified, the more options trustees generally have.

2. Reserves and financial resilience: is your policy still appropriate?

Reserves give a charity a buffer when income falls, costs rise or something unexpected happens. But having a policy is not enough: trustees should be able to explain why the charity holds the level it does and whether that still suits its circumstances.

The Commission’s reserves guidance, CC19, was updated on 16 September 2026 to reflect changes to its guidance on charity accounts. Its central message is unchanged: there is no single level, or even range, of reserves that is right for every charity. Any target, or any decision not to hold reserves, should reflect the charity’s own circumstances and be explained in the policy.

Useful questions for trustees include:

• How many months of operating expenditure could unrestricted reserves support?
• How quickly could the charity reduce costs if a major source of funding disappeared?
• How much apparently available cash is restricted for a particular purpose?
• Are designated funds actually needed for planned expenditure?
• Has the reserves target kept pace with rising operating costs?
• What would happen to beneficiaries if services had to be reduced unexpectedly?

A reserves policy carried forward unchanged from one Trustees’ Annual Report to the next may no longer reflect the charity’s risk profile. Financial resilience is about more than the balance in the bank; it is about how well the charity can respond when circumstances change.

3. Fraud and internal financial controls: could one person circumvent your systems?

The Commission’s fraud guidance says fraud can affect any charity and is one of the most common types of abuse in the sector, coming from both inside and outside an organisation. It identifies fundraising, banking, cyber crime, tax and Gift Aid, property and investments, and charities’ identities among the areas affected. In practice, payroll, expenses and procurement deserve the same scrutiny.

Cyber risk is part of this. The Risk Assessment notes that 30% of charities reported a cyber attack in the past year, with phishing the most common and disruptive type.

Smaller charities can face particular difficulty where finance teams are small and segregation of duties is hard to achieve. Trustees should consider the controls over payments, changes to supplier bank details, online banking access, payroll amendments, expenses and charity cards.

One question can be revealing: could one person initiate, approve and conceal a financial transaction without anyone else noticing? The Commission’s own advice is that no single individual should be able to access charity funds or assets without appropriate checks and oversight. If the answer is yes, controls need strengthening.

Technology adds to the risk. An email apparently from a senior colleague requesting an urgent payment, or a supplier announcing new bank details, should never be taken at face value. Sensible controls include:

• dual authorisation of payments
• independent verification of changes to payment details
• regular bank reconciliations
• appropriate access restrictions
• periodic review of transactions by someone independent of their preparation

The Commission’s Internal financial controls for charities (CC8) and its guidance on protecting your charity from cyber crime set out what it expects. Responsibility sits with the trustees collectively under their duties as trustees, not solely with the finance director, treasurer or finance committee.

4. Income concentration: what happens if a major funding stream disappears?

Headline income does not show how resilient a charity is. Two charities with identical income can have very different risk profiles if one draws on dozens of sources and the other depends on a single contract, grant or donor.

The Commission’s Risk Assessment shows why this matters. Larger charities are more likely to win government contracts and grants, and the Commission continues to hear sector concerns about delivering services within fixed budgets that do not allow full cost recovery. It also reports that donor behaviour is shifting, with some data suggesting reduced disposable income is leading to more one-off giving and less sustained giving.

Trustees should therefore understand not only how much income to expect, but where it comes from and how secure it is. Scenario planning helps:

• What if a significant contract were not renewed?
• What if grant funding fell by 10% or 20%?
• What if fundraising income dropped while employment costs kept rising?

Modelling these scenarios in advance shows where action may be needed, whether through diversifying income, reducing costs, reconsidering commitments or building reserves. It also stops a charity discovering too late that healthy-looking income has been masking concentration risk.

5. Audit and independent examination: don’t confuse the threshold with the risk

For financial years ending on or after 30 September 2026, the thresholds changed as follows:

• The statutory audit income threshold in England and Wales rose from £1 million to £1.5 million.
• The asset-based audit test rose: audit is now required where income exceeds £500,000 and assets exceed £5 million (previously £250,000 and £3.26 million).
• The threshold for independent examination rose from £25,000 to £40,000.
• The income level above which an independent examiner must hold a professional qualification rose from £250,000 to £500,000.

According to ICAEW’s analysis, DCMS estimates the audit change will ease the burden on around 2,000 charities and the independent examination change will benefit around 11,000. Charities with income between £25,000 and £40,000 may no longer need an independent examination, but they must still file their annual report and accounts with the Commission.

Some charities that previously required an audit may now be below the threshold. That is a chance to reconsider the right form of assurance, but falling below it does not mean an audit has no value.

Trustees should first establish whether an audit is required for another reason. A governing document, funding agreement, lender or other stakeholder may impose a requirement regardless of the statutory threshold. Even where an audit is voluntary, trustees should weigh the expectations of funders, donors and other stakeholders, and the complexity and risk of the organisation.

For some charities, independent examination will provide an appropriate level of scrutiny. Others will decide that the assurance of an audit remains valuable, particularly with significant contracts, complex funding arrangements or ambitious growth plans. The decision should rest on the charity’s circumstances and risks, not the threshold alone.

Financial governance is about more than compliance

SORP 2026 and the new thresholds have attracted considerable attention, but compliance is only one part of good financial governance.

The strongest boards will use these changes to look more widely at resilience: challenging forecasts, understanding reserves, examining funding dependencies and checking that internal controls still fit how the charity operates today. The Commission’s assessment is clear that while the sector has shown considerable resilience, financial pressure remains significant and smaller organisations are working on tight margins. Asking difficult questions before pressure becomes acute can make a real difference.

At UHY Williamson & Croft, our specialist charities and not-for-profit team works with trustees and senior management teams on audit and assurance, independent examination, accounting and wider financial reporting. If you would like to discuss how the changes affect your organisation, or the right level of assurance for your charity, please get in touch or contact Taylor Rogers as below.