Charities & Not-for-Profit Update: February 2026
Awards
In the most recently published Charity Finance Magazine Audit Survey (2025), Azets was once again ranked as one of the leading charity audit firms in the UK.
We received particular commendation for the strong volume of client responses and the overall quality of service delivered. Azets achieved 100% positive feedback for:
- Charity expertise
- Technical competence
- Overall service
This is a result we are proud to have maintained consistently year on year, and we are grateful to our clients and the wider sector for their continued trust and support.
Launching our 2026 Charity and NFP webinars
Join us for our first webinar in our 2026 Charity and NFP series on 28 April 2026 at 10:00am.
This free webinar will be a practical and insightful session designed to keep charities and their trustees up to date with the latest developments shaping the sector. We’ll be welcoming sector experts to discuss the wider strategic issues facing charities today, focusing on:
- Achieving more resilient investment performance, and
- Embedding environmental sustainability at the heart of your organisation.
Register your interest here.
Guidance on using artificial intelligence in fundraising
The Fundraising Regulator has released guidance on using artificial intelligence (AI) in fundraising.
Charities remain responsible for all AI‑generated fundraising content, so outputs must be checked for accuracy, fairness and compliance. Trustees should be involved in strategic decisions, with knowledge shared across the organisation. Before adopting any AI tool, carry out a proportionate risk assessment and understand how data is processed. Even if you don’t use AI, consider how partners or bad actors might use it and protect your content. Maintain an AI policy, train staff, and pilot tools in controlled settings with strong data and privacy safeguards. In live fundraising, be transparent, apply human oversight, keep records, avoid sharing non‑public data, and seek legal advice when needed.
Overall, AI can support fundraising, but trust, transparency and responsible governance must guide every step.
Engaging donors in vulnerable circumstances
The Fundraising Regulator has published guidance to help charities engage appropriately with donors who may be in vulnerable circumstances. It should be used alongside the full code and other good‑practice resources, with specialist advice sought where situations are complex. The guide highlights related materials on due diligence, record‑keeping and events. Fundraising must always be legal, open, honest and respectful, with safe treatment of all donors, particularly those who are vulnerable. Charities must follow direct‑marketing rules, respect opt‑outs via FPS, TPS, MPS or individual requests, and comply with data protection. They should learn from complaints and have clear internal processes. Larger charities must report annually on how they protect vulnerable people, while smaller charities are encouraged to do the same.
Charity fundraising appeals
Earlier this month, the Charity Commission released guidance on charity fundraising and what to do when you have raised more donations than you need.
Charities running appeals for a specific purpose must use funds solely for that purpose. If an appeal raises more than required (such as surplus funds after refurbishing a café or buying equipment), the charity cannot automatically redirect the extra money. The first step is to check whether the appeal wording includes a secondary purpose explaining how any surplus should be used. If it does, trustees must follow that wording.
If not, trustees must formally agree new charitable purposes for the surplus, ensuring they are reasonably similar to the original intent and suitable in current circumstances. This resolution must be recorded and supported with evidence. Surpluses under £1,000 take effect immediately; those over £1,000 require Charity Commission authorisation. Clear appeal wording and good records help avoid complications.
Raising funds to start a new Charity
The Charity Commission has issued guidance for people raising funds to set up a new charity.
A Charitable Incorporated Organisation (CIO) must register with the Charity Commission regardless of income, while other charity types must show they will earn over £5,000 annually to register. Fundraising can begin once the charity has a governing document and trustees, and it is acceptable to raise money before registration as long as donors are told the charity is not yet registered. Charities can raise funds from the public through events or campaigns, but must follow fundraising laws, the Code of Fundraising Practice, and relevant regulatory guidance.
Government does not fund charities directly, though some receive grants or contracts from public bodies. Additional funding may come from grant‑making organisations, including the National Lottery Community Fund. Charities can also increase eligible donations through Gift Aid, and organisations earning under £5,000 can apply to HMRC for charitable recognition to claim tax reliefs.
Trustees' duties for Charity fundraising
The Charity Commission has updated its guidance on fundraising, emphasising trustees’ legal duties. Effective fundraising not only generates income but also builds a charity’s profile, demonstrates impact, and strengthens supporter relationships. Trustees must ensure all fundraising complies with the law, that money is raised only for the charity’s purposes, and that donations are used strictly for the reasons given. They are responsible for managing resources responsibly, acting with reasonable care and skill, and ensuring transparency. Charities are encouraged to register with the Fundraising Regulator and follow the Code of Fundraising Practice, helping protect reputation, maintain public trust, and support ongoing donor engagement.
Campaigning ahead of the Holyrood or Senedd Elections
New rules for non‑party campaigners apply ahead of the May 2026 Scottish Parliament and Senedd Cymru elections, with the regulated period beginning on 7 January 2026.
Organisations involved in public‑facing campaigning must follow strict spending, donation and reporting requirements under both general and local campaigning rules. General rules apply to activity that could reasonably be seen as promoting or opposing parties or categories of candidates, even without naming them. Spending is capped unless the organisation registers with the Electoral Commission, while non‑eligible bodies face very low limits. Local rules apply to campaigning for or against individual candidates.
Charities must avoid any activity that appears party political and ensure campaigning aligns strictly with their charitable purposes.
Scotland – 2025 voluntary workforce survey
New findings from the 2025 Voluntary Workforce Survey show rising pressure on Scotland’s third sector, largely due to insecure and inadequate funding.
Responses from over 1,300 staff reveal that short‑term contracts, funding uncertainty and resource shortages are harming workforce stability. A quarter of workers, and one‑third of frontline staff, are on temporary contracts, far above national levels. Job insecurity is significant, with 27% fearing job loss within a year. Work‑life balance has also declined, driven by heavier workloads linked to recruitment and retention challenges.
Sector bodies are calling for Fair Funding principles, while overall job satisfaction has fallen despite strong commitment to purpose.
Care Quality Commission: Plans for improvement
At the end of 2025, the Care Quality Commission (CQC) published its 2026–2028 improvement plan, setting out how it will rebuild effective regulation of health and adult social care.
The plan includes redesigning the entire regulatory process, simplifying registration through a new form and clearer online guidance, and operating through four sector‑specific inspectorates. Immediate priorities focus on reducing registration backlogs and improving provider support, while progress continues towards delivering 9,000 assessments by September 2026.
Longer‑term changes reflect external review recommendations on assessment frameworks, digital platforms and data use. Stakeholders can engage through consultations, workshops, and input into technology and data strategy development.
Employment law changes in 2026
2026 introduces one of the most significant waves of UK employment‑law reform in decades, with major changes taking effect in February, April and October. The scale and pace of these updates, combined with routine April tax‑year changes, are expected to increase tribunal claims and extend waiting times for employers navigating the new framework.
- From February, industrial‑action reforms will extend mandate validity, shorten notice periods, simplify ballots and relax picketing rules, making union mobilisation easier and more sustained.
- From 6 April, key reforms include day‑one rights to paternity leave and unpaid parental leave, expanded Statutory Sick Pay from the first day of sickness, and removal of the Lower Earnings Limit. April also strengthens whistleblowing protection relating to sexual harassment, simplifies union‑recognition processes, introduces electronic and workplace balloting, increases statutory payments and doubles the protective award for collective‑redundancy failures to 180 days’ pay.
- October will add new restrictions on fire‑and‑rehire, expanded union access rights, enhanced harassment‑prevention duties, limits on NDAs and an extension of most tribunal time limits to six months.
With such wide‑ranging change, many organisations may need additional support. Our HR consultancy services can help you interpret the new requirements, update policies, train managers and ensure your business stays compliant and protected throughout 2026 and beyond.
Gambling Commission regulation updates
The Gambling Commission has announced regulatory updates to strengthen oversight of operators and modernise the Licence Conditions and Codes of Practice (LCCP). From 19 March 2026, revised financial key event reporting rules will apply, reflecting increasingly complex global structures, mergers and cross‑border financing. Amendments to the LCCP are also being made following the Digital Markets, Competition and Consumers Act 2024, which replaces previous consumer protection and ADR regulations. These changes aim to improve transparency and align the LCCP with current consumer legislation.
CFG launches The Transformation Collaborative
Charity Finance Group has launched The Transformation Collaborative (TTC) to help charity finance leaders strengthen their leadership and drive sector‑wide change. Developed through extensive consultation, TTC responds to the sector’s call for safe, collaborative spaces to address shared challenges. It features two strands: Transforming You, a member‑only action‑learning programme for senior leaders, and Transforming Our Sector, an open forum focused on long‑term financial sustainability. Leaders describe TTC as a practical, bold and innovative response to current pressures.
Finance leaders can register their interest here and find out more about the TTC on the CFG’s website.
Charity Commission to update risk guidance
At the 2025 Charity Finance Group (CFG) Annual Conference, Charity Commission CEO David Holdsworth announced that the Commission will update its long‑standing CC26 risk management guidance, which was first issued in 2010. The revised guidance is expected in 2026.
Holdsworth noted that the Commission is collaborating with CFG chief executive Caron Bradshaw and other sector leaders to modernise the guidance, make it more practical, and ensure it remains proportionate for charities of all sizes. He acknowledged that some Commission guidance has become outdated due to resource constraints and welcomed the sector’s involvement in shaping the new version.
To support this work, CFG has launched a sector‑wide survey to gather insights and experiences from charity leaders, with their feedback set to play a central role in informing the refreshed CC26 guidance.
Companies House: Electronic filing update
In line with the Economic Crime and Corporate Transparency Act, Companies House has confirmed that the planned changes to accounts filing will not take effect in April 2027. The proposed reforms remain under review, and a final decision is expected soon. Companies will be given at least 21 months’ notice before any changes are implemented.
Navigating HMRC’s increasing focus on charities
HMRC has increased its scrutiny of the charity and not‑for‑profit sector, undertaking broad reviews that assess not only tax compliance but also governance, financial controls, and the management of charitable funds. Many organisations are now receiving Structured Risk Review (SRR) letters without prior contact, making it vital to understand HMRC’s expectations and how best to respond.
Where HMRC identifies errors, penalties may be charged depending on the behaviour that led to the mistake, how promptly the organisation notified HMRC, and the level of cooperation shown during the review. Penalties can arise for late filing, inaccuracies, failures to notify, or not providing information, and for UK‑related inaccuracies can reach up to 100% of the tax due.
Azets supports charities and not‑for‑profits facing HMRC enquiries. Please get in touch if you would like to discuss this further.
VAT common themes across the sector
Across our recent work with charities and not‑for‑profit organisations, several common tax themes continue to emerge:
- VAT recovery – Many not‑for‑profit organisations continue to face challenges with VAT recovery calculations, often due to unfamiliarity with partial exemption and business/non‑business rules. This can lead to both over‑ and under‑claims.
- Capital projects – Similar issues arise in capital projects, where organisations may not be fully aware of when zero‑rating could apply or how VAT should be monitored under the Capital Goods Scheme.
- VAT savings – Certain supplies, such as advertising, some property rentals, and fuel and power, may qualify for reduced or zero‑rated VAT, though these reliefs are often overlooked.
- Fundraising and membership – VAT treatment for fundraising activities, sponsorship, and membership structures remains an area where not‑for‑profits frequently encounter uncertainty.
If you need support on your VAT calculations, please get in touch with one of our VAT sector specialists.
We’re here to help
If you have any questions about the topics covered above, or if your organisation needs support navigating compliance obligations or emerging challenges, our team is ready to assist. Get in touch with us today.
King’s Trust Walk
This month at Azets, we’re taking on the challenge of walking 10,000 steps a day to raise money for The King’s Trust, supporting their work with young people from disadvantaged backgrounds across the UK. This cause is especially important to us, aligning with our commitment to social inclusion and our purpose of improving the lives of our colleagues, clients and communities.
With 900,000 young people currently out of work in the UK, we’re proud to support an organisation creating life-changing opportunities and brighter futures.
