A parent charity must prepare consolidated group accounts when the group’s gross income, after stripping out transactions between group members, exceeds the legal threshold: £1 million for financial years ending before 30 September 2026 and £1.5 million for years ending on or after that date. The trading subsidiary is then combined with the charity line by line under FRS 102 Section 9 and the Charities SORP, with all intra group trading, recharges and Gift Aid payments eliminated.

When does a charity have to prepare group accounts?

The duty sits in section 138 of the Charities Act 2011. It applies where a charity is a parent charity at the end of its financial year and, if it is a charitable company, it is not already required to prepare consolidated accounts under section 399 of the Companies Act 2006. A charity is a parent charity if it is a parent undertaking under section 1162 of, and Schedule 7 to, the Companies Act 2006, so the company law tests of control decide the question, not the charity’s own view of its trading arm.

The Charity Commission’s guidance sets out the size test in practical terms. For financial years ending before 30 September 2026, group accounts are required where the gross income of the group exceeds £1 million after removing transactions between the organisations in the group. For years ending on or after 30 September 2026, the figure is £1.5 million. Where the test is met, the parent must prepare accruals accounts that comply with the SORP, and the group accounts must be audited by a registered auditor. Below the threshold, trustees may still choose to prepare group accounts, which the Commission describes as non statutory accounts.

Charitable companies that are not a small group under the Companies Act fall under the company law duty instead, with its own exemptions. The company law route is covered in when a parent company must prepare group accounts.

Are there exceptions?

Section 139 of the Charities Act 2011 removes the requirement in three situations:

  • the parent charity is itself a subsidiary undertaking of another charity at its year end;
  • the aggregate gross income of the group does not exceed the sum set by regulations, which is the threshold described above; or
  • every subsidiary is permitted or required to be excluded from the group accounts under regulations.

FRS 102 sets out when an individual subsidiary is left out. Paragraph 9.9 requires exclusion where severe long term restrictions substantially hinder the parent’s rights over the subsidiary’s assets or management, or where the interest is held exclusively for resale and the subsidiary has not previously been consolidated. Paragraph 9.9A permits exclusion where inclusion is not material for a true and fair view, but two or more subsidiaries can be excluded only if they are not material taken together. A dormant or tiny trading company may therefore fall out, but three small ones together may not.

Section 141(4) also makes clear that special trusts of a charity, and institutions treated as part of the charity by a Commission direction, are not subsidiary undertakings. They are accounted for within the charity’s own accounts rather than consolidated.

What counts as the trading subsidiary being controlled?

Under FRS 102 paragraph 9.4 a subsidiary is an entity controlled by the parent, and control is the power to govern its financial and operating policies so as to obtain benefits from its activities. Paragraph 9.5 presumes control where the parent owns more than half the voting power, and also finds control with a smaller holding where the parent can appoint or remove a majority of the board, or govern policies under a statute or agreement. Joint ventures with another charity or a commercial partner need the full test.

How is the subsidiary consolidated?

The Charities SORP 2026, which applies to reporting periods starting on or after 1 January 2026, deals with groups in module 24. ICAEW’s summary notes that the module now links directly to FRS 102 Section 9 and refers to the charity law thresholds. The mechanics therefore follow paragraph 9.13 of FRS 102:

  1. combine the accounts of the charity and the subsidiary line by line, adding together like items of assets, liabilities, funds, income and expenditure;
  2. eliminate the charity’s investment in the subsidiary against the subsidiary’s share capital and reserves at acquisition;
  3. eliminate intra group balances and transactions in full, including income, expenses and distributions, as paragraph 9.15 requires;
  4. adjust the subsidiary’s figures to the group’s accounting policies, as paragraph 9.17 requires; and
  5. use accounts drawn up to the same date, or a date no more than three months before the parent’s year end adjusted for significant events, or interim accounts, under paragraph 9.16.

In practice the eliminations for a charity group are predictable: management charges and staff recharges from the charity, rent for shared premises, interest on any loan from the charity, sales between the two, and the Gift Aid payment. The consolidated statement of financial activities then shows the subsidiary’s commercial income and costs as if the charity had earned and spent them directly.

How is the Gift Aid payment from the subsidiary treated?

For corporation tax, section 199 of the Corporation Tax Act 2010 lets a company wholly owned by a charity claim that a payment made within nine months after the end of an accounting period is treated as made in that earlier period. The claim must be made within two years after the end of the accounting period in which the payment is made. How that relief works for the company is covered in company donations to charity.

The accounting is different from the tax. The FRC’s basis for conclusions to FRS 102 explains that a Gift Aid payment to a parent charity is a distribution to owners for company law purposes, so it is recognised in equity and is not accrued unless a legal obligation to pay exists at the reporting date. A board decision taken before the year end is not enough. To avoid a misleading tax charge, paragraph 29.14A lets a wholly owned subsidiary recognise the tax effect at the reporting date where it is probable the payment will be made to a member of the same charitable group within nine months and will qualify for relief.

The Commission’s guidance in CC35 adds a company law limit: a subsidiary cannot pay more than its distributable profits, so it may still owe some corporation tax. On consolidation the payment disappears entirely, because it is income in the charity and a distribution in the subsidiary. The trading and tax background is in charity trading and trading subsidiaries.

What does the threshold test look like in practice?

Illustration only. A charity’s year ends on 31 March. In its year to 31 March 2027 the charity’s gross income is £1,150,000, which includes a £70,000 Gift Aid payment from its trading company and a £40,000 management charge to that company. The trading company’s turnover is £480,000, including £30,000 of goods sold to the charity.

Item £
Charity gross income 1,150,000
Subsidiary turnover 480,000
Less Gift Aid from subsidiary (70,000)
Less management charge to subsidiary (40,000)
Less sales by subsidiary to charity (30,000)
Aggregate group income 1,490,000

Because the year ends after 30 September 2026, the £1.5 million test applies and group accounts are not legally required. Had the same figures arisen in the year to 31 March 2026, the £1 million test would have applied and audited group accounts would have been needed. If the trustees prepare group accounts anyway, the same three items are eliminated in the consolidated statement of financial activities, and the £40,000 charge is removed from both charitable income and the subsidiary’s costs.

What goes in the parent charity’s own accounts?

The Commission is clear that all charities in a group must prepare individual accounts. Section 138(3) adds that a non company parent caught by the requirement cannot use receipts and payments accounts for that year, whatever its own income, and section 138(4) keeps a charitable company’s individual accounts duty under section 394 of the Companies Act 2006. In its own balance sheet the charity carries the investment in the subsidiary under a policy chosen under FRS 102 paragraph 9.26: cost less impairment, or fair value. Any loans to the subsidiary appear as debtors, tested for recoverability. The SORP 2026 also now requires the relationship between a parent and its subsidiaries to be disclosed whether or not there were related party transactions. The wider rules are in the Charities SORP explained and FRS 102 Section 9.

What mistakes come up most often?

  • Testing gross rather than aggregate income. Adding the two sets of turnover together without removing recharges and Gift Aid can trigger an audit that was not required.
  • Using the wrong threshold. The new £1.5 million limit depends on the financial year end, not the date the accounts are prepared.
  • Accruing the Gift Aid payment. Without a legal obligation at the year end it is a distribution in the following period, even if the board has resolved to pay.
  • Weak recharges. CC35 expects the charity to charge the subsidiary at fair value for services and facilities, and to be paid within a reasonable time. Unpaid recharges distort both sets of accounts and the elimination.
  • Treating loans as automatic. CC35 says trustees must be able to justify financial support for a trading subsidiary as an appropriate investment, and an unrecoverable loan will need impairing.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.