The Charity Commission has released its latest Charity Sector Risk Assessment, offering a timely overview of the key challenges currently affecting charities across England and Wales.
Drawing from a combination of annual return data, serious incident reports, and regulatory casework, the Commission outlines a number of financial and operational pressures that are increasingly impacting the sector.
What Are the Main Risks?
Several important trends and areas of concern have been identified:
- Growing Financial Deficits
42.6% of charities reported expenditure that exceeded income in their 2023 Annual Return, up from 38.3% in 2022. Collectively, charities with an income under £500,000 saw their outgoings exceed income. While this does not necessarily indicate insolvency – and may, in some cases, be part of a planned use of reserves for specific projects – it highlights a continuing upward trend.
Over the past five years, more charities have been reporting in-year deficits, often relying on reserves to make up the shortfall between income and expenditure.
- Increased Demand, Rising Costs
Many charities are being called on to provide more support than ever, while simultaneously facing inflation and rising operating costs. This combination puts serious pressure on already stretched budgets. The Commission’s latest research shows that in the last year 9% of the public received food, medical or financial support from charitable organisations, compared to just 3% five years ago. - Heavy Use of Reserves
While dipping into reserves can help charities manage shortfalls in the short term, consistent reliance on them could leave organisations vulnerable. Reserves are a financial safety net and using them too heavily may compromise long-term sustainability. - Maintaining Public Trust
Although incidents such as fraud, misuse of funds, or unauthorised payments are relatively uncommon, their potential to damage public confidence in the sector remains high. The Commission flagged these issues as significant reputational risks. Larger charities are now subject to changes in the law, including a new offence of ‘failure to prevent fraud,’ which came into effect in September 2025. The Commission issued a regulatory alert on this issue earlier this year. - Other Ongoing Risks
Charities are also facing persistent challenges in areas such as governance, safeguarding, emerging technology, cybersecurity, and the wider impact of global and political instability.
What Can Trustees Do?
The Charity Commission stresses the importance of proactive financial management, including regular forecasting, scenario planning, and monitoring for early warning signs of financial distress.
Charities should plan ahead with income forecasts aligned to operating costs, and ensure financial reporting is timely, accurate, and detailed enough to support trustee decision-making. Regularly reviewing forecasts helps identify variances early and enables prompt action. Organisations might also consider ways to improve efficiency – such as joint ventures, collaborative bids, mergers, or sharing back-office functions with other charities.
How M+A Partners can help
Our specialists provide professional accounting and tax advice, tailored to meet both the immediate needs and long-term goals of your charity. We regularly undertake independent audits and examinations for charities and not-for-profits to deliver assurance that their money has been properly accounted for.
Get in touch with our team today to discuss how we can support your organisation.
