For many charity trustees, 2026 feels uncomfortably close.
Not because something is “wrong” —
but because expectations around reporting, systems, and transparency are quietly rising.
Charities are not being targeted.
But they are being expected to operate with the same digital clarity as everyone else.
And for charitable companies, the consequences of being unprepared land faster — and harder — than most people realise.
This isn’t about panic.
It’s about readiness.
First: What Hasn’t Changed (And Why That Matters)
Let’s start with reassurance.
Charitable companies are not suddenly becoming commercial businesses.
Key principles remain unchanged:
- Charities still exist for public benefit
- Surpluses must be reinvested
- Restricted funds must be respected
- Trustees remain accountable
What has changed is how clearly — and how digitally — this needs to be evidenced.
Why HMRC Expectations Are Rising
Across the board, HMRC is pushing for:
- Better digital records
- Timelier submissions
- Greater consistency
- Fewer “after-the-fact” corrections
This isn’t personal to charities.
It’s part of a wider shift towards:
- Real-time visibility
- Reduced error
- Fewer surprises
For charities, that means less tolerance for informal systems — even where intentions are good.
Digital Records: No Longer Optional
By 2026, HMRC increasingly expects:
- Digital bookkeeping records
- Clear audit trails
- Proper categorisation of income and costs
Spreadsheets alone are becoming:
- Harder to justify
- Easier to challenge
- Riskier to rely on
Especially where:
- Multiple funding streams exist
- Restricted income must be tracked
- Trustees rely on others for financial oversight
Digital records aren’t about convenience — they’re about credibility.
Making Tax Digital: Why Charities Can’t Ignore It
Many charities assume Making Tax Digital doesn’t apply to them.
That assumption can be dangerous.
Depending on activities, charities may still need to comply with:
- VAT MTD requirements
- Digital VAT submissions
- Software-linked reporting
Trading subsidiaries are almost always affected.
Even where exemptions apply, HMRC increasingly expects MTD-ready systems — not manual workarounds.
VAT Scrutiny Is Increasing, Not Decreasing
VAT remains one of the most common risk areas for charities.
Issues often arise from:
- Mixed taxable and exempt activities
- Partial exemption calculations
- Incorrect treatment of income
- Poor documentation
In 2026, HMRC expects:
- Clear digital records supporting VAT positions
- Consistency between bookkeeping and returns
- Fewer “adjustments at year end”
Charities relying on historical assumptions without review are most exposed.
Payroll, RTI, and Benefits in Kind
Payroll errors remain one of the quickest ways to attract HMRC attention.
By 2026, expectations include:
- Accurate Real Time Information (RTI) submissions
- Correct classification of staff and contractors
- Proper reporting of benefits and expenses
- Alignment between payroll, accounts, and bank movements
Charities often struggle here due to:
- Irregular pay
- Cashflow pressure
- Informal arrangements
Unfortunately, good intentions don’t soften compliance expectations.
Expense Claims and Trustee Payments Under the Microscope
Trustees and directors are not employees in the usual sense — and HMRC treats them carefully.
Common risk areas include:
- Poorly documented expenses
- Flat allowances instead of actual costs
- Payments that look like remuneration
- Inconsistent treatment across trustees
By 2026, HMRC expects:
- Clear policies
- Evidence-backed claims
- Consistent application
Anything else risks being reclassified — with tax consequences.
Trading Subsidiaries: Tighter Alignment Required
Charities with trading subsidiaries face dual scrutiny.
HMRC increasingly expects:
- Clear separation between entities
- Fair transfer pricing
- Proper gift aid documentation
- Consistent digital records
Weak boundaries between charity and trading company are a growing red flag — especially where systems are shared but controls are not.
Why “We’ve Always Done It This Way” Is Risky Now
Many charities haven’t changed systems in years.
That used to be fine.
By 2026, it creates problems because:
- Legacy processes lack audit trails
- Manual work increases error
- Knowledge sits with individuals, not systems
When trustees change or staff move on, weaknesses surface quickly.
Regulators don’t accept “historical practice” as justification.
What HMRC Really Wants to See
Behind all the technical language, HMRC’s expectations are surprisingly simple:
- Accurate records
- Clear logic
- Consistency
- Timeliness
Charities that can demonstrate:
- How figures were produced
- Why treatments were chosen
- Where decisions were approved
Rarely face serious issues.
Those that can’t — even with good intentions — are more exposed.
How Trustees Should Be Preparing Now
Preparation doesn’t mean massive change overnight.
It means incremental improvement.
Trustees should be asking:
- Are our records digital and reliable?
- Do we understand our VAT position?
- Are payroll and expenses clearly documented?
- Could we explain our figures confidently if asked?
If the answer to any of these is “not really”, now is the time to act.
What “Good Preparation” Looks Like in Practice
Charitable companies preparing well for 2026 are:
- Reviewing systems before problems arise
- Strengthening documentation
- Improving reporting clarity
- Training trustees where needed
- Seeking advice proactively, not defensively
They don’t wait for HMRC to highlight issues.
They reduce the chance of issues arising at all.
Why More Charities Are Turning to Hammond & Co
At Hammond & Co, we work with charitable companies that want clarity before compliance becomes a problem.
That means helping trustees and finance teams:
- Improve digital record-keeping
- Review VAT and payroll processes
- Strengthen governance and reporting
- Prepare confidently for HMRC scrutiny
- Build systems that are practical as well as compliant
The goal is never unnecessary complexity.
It’s creating financial systems trustees can rely on — and explain with confidence.
The Link Between HMRC Expectations and Trustee Protection
This is often overlooked.
Strong compliance:
- Protects the charity
- Protects trustees
- Builds funder confidence
- Reduces stress
Weak systems don’t just create admin problems —
they create personal risk for trustees who are legally responsible.
A Calm Truth
HMRC is not trying to trip charities up.
But it is expecting:
- Modern systems
- Clear records
- Responsible oversight
Charities that adapt early experience:
- Fewer surprises
- Better decision-making
- Stronger governance
Those that delay often feel forced into rushed changes later.
Final Thought
2026 is not about new rules —
it’s about higher expectations.
Charitable companies that prepare now won’t feel pressure later.
They’ll feel confidence.
And confidence, in the charity sector, is one of the most valuable assets you can have.