Annual Accounts & Reports

A PCC (and any other Church of England connected charity e.g. BMO, NWC etc) must have a financial year of 1^st January to 31^st December. This is not optional and churches must not run “tax-year” accounts.

From this there are several fixed deadlines for completing and submitting the Annual Report and Accounts which are listed in chronological order below:

* NB It is the PCC which approves the Annual Report and Accounts, the APCM only receives them

^‡ This may have a different name for non-PCC bodies, e.g. AGM for BMOs

The accounting rules and guidelines for PCCs (and all other charities) are set down in the official Statement of Recommended Practice known as Charities SORP (Financial Reporting Standards 102). You can read more about this on the ICAEW website.

The information contained in Charities SORP has been collected into a book by the National Church – PCC Accountability 5th edition– which specifically explains how the recommended practice applies to PCCs. A free online copy and links to where to purchase hard copies are available here.

All PCC treasurers and Independent Examiners/Auditors should have a copy of the PCC Accountability book or access to it.

Charity finances are subject to a different form of accounting to business accounts. This is sometimes known as charity accounting or fund accounting. See the section below for more on fund accounting.

For other advice and guidance you may want to look at these external agencies:

• ACAT (the Association of Church Accountants and Treasurers)
• Charity Commission
• Parish Resources
• Stewardship

Advice on writing the Annual Report, also called the Trustee Report, can be found on the Parish Resources website and in the PCC Accountability handbook.

Charity finances are subject to a different form of accounting to business accounts. This is sometimes known as charity accounting or fund accounting. This is based on the principle that a donor can decide how the recipient charity can spend the donation and subsequently requires that all income be recorded against one of four different types of funds.

The four types of funds against which income must be recorded are:

• General – money that can be used for any purpose that furthers the aims of the charity. This money is a type of Unrestricted Fund;
• Designated – money that has been set aside by the PCC, from the general fund, to cover any predicted future costs. This money can be transferred back into the general fund by the PCC and is therefore another type of Unrestricted Fund;
• Restricted Fund – money that has been given for a specific purpose (e.g. roof repairs) and can only be used for that purpose;
• Endowment – an amount of money that has been given to the church and that cannot be spent. Generally endowments come with an agreement that the income can be spent on the church or for a specific [restricted] purpose. These funds are relatively rare. It is usually necessary for the endowment capital to be held in the name of the London Diocesan Fund and administered by it however the PCC would remain responsible for investment decisions and receive all income.

Further notes:

1. Whether a donation is Unrestricted or Restricted is decided by the donor. If a donor makes it clear that their donation is for a specific purpose or if a reasonable person would assume their donation were going towards a specific purpose* then the donation is Restricted. If not it is Unrestricted.*This principle of assumption applies, for instance, if the church were running an event where they had announced all donations would be going towards X purpose. The donor need not state any restriction as a reasonable person would assume all money at that event would be going towards X.
2. A church can have an unlimited number of Designated and Restricted funds (although too many of these can cause issues). For example, the church may have a Designated Fund for youth work and one for boiler replacement. They may also have Restricted Funds for youth work, building repair and a new sound system.
3. As Restricted Funds can only be spent on the purpose for which they were given, it is not uncommon for churches to have money reserved to a project that is no longer happening meaning the money is essentially unusable. To avoid this you can:
   a) Make it clear when collected Restricted donations that should the relevant activity end, any unused money can be spent on general purposes
   b) Include a clear, easily visible notice on church noticeboards that states that all Restricted donations can be moved to the general fund if it no longer becomes possible to spend them on the specified purpose.
4. Income from room or hall hire is Unrestricted (General).
5. Restricted funds can also arise from a bequest in a will where the funds are left for a specific purpose. If you are not able to use the funds for that purpose (e.g. they are left for organ repairs but the church no longer has an organ) they you can apply to the charity commission to amend the purpose. They will generally want to see the funds being used for something with a broadly similar purpose (e.g. in this case for music)

All PCC annual accounts must be scrutinised through an independent examination or professional audit. The Church Representation Rules (II 9.3a) require all PCCs to have their accounts audited or independently examined.

Whether the accounts must be audited or independently examined is determined by the income and/or gross assets of the PCC, as shown in the table below. These thresholds apply for accounting periods ending on or after 31 March 2015.

*Income is defined as the total income recorded in all unrestricted and restricted funds, but not endowed (capital) funds

A PCC’s requirement for an independent examination or audit is determined based on the income and/or assets of the PCC (see ‘Examination Thresholds’ above).

An independent examination is a “light touch” approach with a limited scope of work. The examiner will check you have properly kept the books and put the accounts into the correct format but will not express an opinion on whether the accounts are correct.

An audit covers a wide variety of matters set by detailed auditing standards. An auditor will give an opinion on whether the accounts as a whole show a true and fair view of the finances of the PCC. The Charity Commission provides useful guidance – links below.

1. Independent Examiners – See here for guidance on who can be an independent examiner
2. Auditors – An audit is a highly regulated service that must be provided by a registered auditor, who must themselves be a member of one of the bodies recognised for this purpose.
3. Charity Commission Guidance
   CC31 Independent examination of charity accounts: Guidance for trustees
   CC32 Independent examination of charity accounts: Direction and guidance for examiners

The form and content of a church’s statutory annual financial reports are determined by the size of a church’s income.

Accounts may be prepared on a “Receipts and Payments” basis, summarising all amounts received and paid during the year. In this case, the reports comprise a Receipts and Payments Account, and a Statement of Assets and Liabilities. Accounts may instead be produced on an “Accruals” basis, as for churches with income over £250,000.

For Receipts and Payments, income for the threshold is defined as total receipts from all sources except the receipt of any endowment, loans and proceeds from the sale of investments or fixed assets.

See here for an example of a Receipts and Payments account.

Accounts MUST be prepared on an “Accruals” basis, taking account of income due but not received and liabilities for expenditure due but unpaid in the year. In this case, the reports comprise a Statement of Financial Activities and a Balance Sheet. If income exceeds £500,000, a Statement of Cash Flows must also be prepared.

Where accounts are prepared on an Accruals basis, significant additional detail must be included in the annual report.

For Accruals, gross income is the total income in the Statement of Financial Activities, excluding the receipt of any endowment and including any amount transferred from endowment funds to income funds to be available for spending.

See here for an example of an Accruals account.

If Gross Income exceeds £100,000 in any financial year, the church must register with the Charity Commission. The church may de-register if income falls below that level.