Xero for Charities: Cloud Accounting Software for UK Non-Profits

Charities run their books to a different rulebook to commercial businesses. The income comes in restricted and unrestricted streams, fund accounting matters more than profit, the Charities SORP sets the format of the year-end accounts, and the trustees have to sign off on it all. Xero accounting software handles UK charity bookkeeping well once you’ve set it up properly. This page is a working guide to using Xero for charities, written by a Xero Gold Partner that runs the books for charitable organisations across Greater Manchester.

We’ll cover what fund accounting looks like in Xero, how to track restricted and unrestricted income, how Gift Aid claims work through the platform, what the Charity Commission expects in the trustees’ annual report, and where the audit thresholds sit in 2026. If you’d rather have us run it, our Xero accountants handle charity books across the North West, and we’ve published a separate write-up on Xero for non-profits with case study detail.

Why charities pick Xero accounting software

Three reasons charity finance officers and trustees pick Xero over Sage or QuickBooks: live bank feeds save the volunteer treasurer hours of data entry each week; tracking categories handle the fund accounting requirement without a bolt-on; and Xero supports HMRC submissions for Gift Aid and any trading subsidiary VAT in one platform. The cloud-based accounting model also means trustees, auditors, the bookkeeper and the chair of the finance committee all log into the same set of books from wherever they happen to be.

Xero has a discount programme for registered charities. As Xero partners we can put eligible charities on a 25% reduction off the standard subscription. That makes the typical charity Grow plan roughly £25 a month rather than £33. Worth doing before you sign up directly.

Fund accounting in Xero: restricted vs unrestricted income

The single most important thing the Charity Commission and the SORP (Statement of Recommended Practice) ask for is that you can show how restricted funds were spent on the activities the donor specified. A grant from the National Lottery for a youth programme can’t be used to pay the rent on the head office. So your accounting system needs to keep restricted, unrestricted and (where relevant) endowment funds separate.

Xero doesn’t have native fund accounting like a dedicated charity package. What it has are tracking categories, and used properly they do the same job. We set up a tracking category called “Fund” with options for “Unrestricted – General”, “Restricted – Youth Project”, “Restricted – Building Fund”, “Endowment” and so on. Every transaction (income and expense) gets tagged with the relevant fund. The Profit and Loss by Tracking Category report then becomes a Statement of Financial Activities (SoFA) by fund, which is the SORP-required format.

For multi-year restricted grants, the carried-forward balance on each fund needs to be visible. Xero’s Balance Sheet by Tracking Category gives you that. A capital grant for new equipment that’s released to income over the asset’s useful life is the trickier one – your accountant journals the release each year-end so the Restricted column drops by the right amount and Unrestricted picks it up.

Gift Aid claims through Xero

UK charities can claim Gift Aid at 25p for every £1 donated by a UK taxpayer, plus an extra 25% if you’re a small charity using the Gift Aid Small Donations Scheme on cash and contactless gifts under £30. The mechanic is straightforward: you collect a Gift Aid declaration from the donor, you record the donation, you file an R68 return to HMRC, the cash arrives a few weeks later.

Xero doesn’t file Gift Aid claims directly to HMRC, but it tracks the donations cleanly. The pattern most charity clients use is: a Stripe or GoCardless integration captures online donations into Xero with a “Gift Aid eligible” flag, the cash and cheque donations get entered manually with the same flag, and a report each quarter pulls the Gift Aid eligible totals for the HMRC submission. If you’re processing more than a few thousand pounds a quarter, a Xero add-on like Donorfy, Beacon CRM or Salesforce Nonprofit Cloud handles the donor records and pushes a clean Gift Aid file to HMRC. They sync with Xero on a daily basis.

For one-off in-memory donations, sponsored events and donor-advised giving, the donor records sit in the CRM, the cash sits in Xero, and the two reconcile at month-end. Don’t try to use Xero as your donor database – the contact records aren’t built for the relationship management piece.

The trustees’ annual report and the SORP accounts

Charities with income above £25,000 file a trustees’ annual report and accounts to the Charity Commission within ten months of year-end. The format follows the Charities SORP (FRS 102 version, currently 2019 edition with the FRS 102 2026 amendments due to flow through). It’s structured as: Reference and administrative details, Structure governance and management, Objectives and activities, Achievements and performance, Financial review, Plans for future periods, Statement of Financial Activities, Balance Sheet, and the notes.

The financial review and the SoFA come out of Xero if you’ve used tracking categories properly. The narrative sections (objectives, achievements, plans) are the trustees’ job and don’t live in any accounting system. Most small charities draft the narrative in Word and we, as accountants, lay it out as a single trustees’ annual report PDF that gets uploaded to the Charity Commission’s online register and to Companies House if the charity is also a CIO or limited by guarantee.

Independent examination vs audit thresholds in 2026

Whether your charity needs an audit or just an independent examination depends on income and assets. The 2026 thresholds for unincorporated charities and CIOs registered with the Charity Commission for England and Wales:

Below £25,000 income: no external scrutiny is mandatory, though your governing document may require it.
£25,000 to £1m income: independent examination is sufficient (a chartered accountant signs the report).
Above £1m income or above £3.26m gross assets and £250,000 income: a full statutory audit is required.

For charitable companies (limited by guarantee), the Companies Act audit thresholds also apply: turnover above £10.2m, balance sheet above £5.1m, more than 50 employees – meet two and you’re a “non-small” charity company and need an audit even if the Charity Commission threshold doesn’t catch you. The audit is a different cost level to an independent exam: budget around £4,000-£8,000 for a small charity audit; an independent examination is typically £900-£2,500.

If your charity is approaching the £1m income line, the planning conversation with the trustees ideally starts a year early. Audit-quality bookkeeping in Xero (clean reconciliations, proper fund tracking, supporting documents in Hubdoc) is the cheapest version of audit-readiness.

Setting up Xero for a UK charity

The setup steps that pay off year after year:

Create the tracking category “Fund” with options matching your funds (general, restricted by purpose, endowment).
Set up a chart of accounts that mirrors the SoFA categories: Income from donations and legacies, Income from charitable activities, Income from other trading activities, Investments, Other income; on the cost side: Expenditure on raising funds, Expenditure on charitable activities, Other expenditure.
Connect your business bank feed (Lloyds Treasurers’ Account, Unity Trust, CAF Bank and Reliance Bank all have direct Xero feeds; building society accounts often don’t and need manual statement uploads).
Add the trustees as Read-Only users so they can see the live finances any time without changing anything.
Add your independent examiner or auditor as an Adviser user when year-end approaches.
Use Hubdoc to capture supporting paperwork – SORP-compliant audit trails need every receipt, invoice and grant agreement stored against the transaction.

For a small charity with one bookkeeper and three trustees, this whole setup takes about half a day. We do it as a fixed-fee onboarding for charity clients.

Reporting from Xero for trustees and funders

The reports that matter for charity governance, all available in Xero:

Statement of Financial Activities (SoFA): Profit and Loss by Tracking Category, set to the Fund category.
Balance Sheet by fund: Balance Sheet by Tracking Category.
Restricted fund movement schedule: built from the SoFA columns; some accountants use a custom report layout in Xero’s Report Templates module.
Cashflow forecast: Xero’s built-in cash summary, plus a sub-tab for restricted cash if a major grant has restrictions on timing.
Funder report: most large funders want a project-level P&L. Filter the SoFA report by the relevant restricted fund tracking option.

The trustees’ meeting pack typically pulls a SoFA, a Balance Sheet, a cashflow projection and a list of significant variances against budget. All of that comes out of Xero in a couple of clicks once the fund tracking is set up.

Xero charity pricing in 2026

Standard Xero plans, before the 25% charity discount:

Ignite: £15/month – up to 20 invoices and 5 bills per month, fine for very small charities or community groups.
Grow: £33/month – unlimited invoices and bills, the typical small charity plan.
Comprehensive: £47/month – adds projects, expenses and analytics; useful if you’re tracking restricted grants by project.
Ultimate: £59/month – adds payroll for up to five people; relevant once you’ve got paid staff.

With the Xero charity discount applied (25% off, available through us as a Xero partner), Grow becomes around £25 a month and Comprehensive around £35. The cost of an integrated donor CRM (Donorfy starts at £79/month, Beacon at £80) is on top of the Xero subscription.

Our fixed monthly fee for charity clients on Xero starts at £200/month and covers Xero subscription, monthly bookkeeping, quarterly trustees’ management accounts, year-end SORP accounts and either an independent examination or audit liaison. Request a quote for your charity’s books.

Frequently asked questions

Is Xero good for charities?

Yes, for UK charities up to roughly £5m turnover. Tracking categories handle the fund accounting requirement, the bank feeds save volunteer time, and the audit trail is clean enough for an independent examination or a small-charity audit. Above £5m or where you’ve got complex multi-currency international grant flows, dedicated charity software (Pegasus, Liberty Accounts, Iplicit) starts to make sense.

How much does Xero cost for charities?

Standard Xero plans run £15 to £59 a month. Xero offers a 25% charity discount through partners like us, so a charity Grow plan typically lands around £25 a month. Add a Gift Aid CRM if you process more than a couple of thousand pounds of online donations a month.

Can Xero handle Gift Aid claims?

Xero tracks Gift Aid eligible donations through tracking flags and contact tags but doesn’t file the R68 directly. For low volumes, your accountant prepares the quarterly Gift Aid claim from a Xero report. For higher volumes (above about £5,000 a quarter) integrate a donor CRM like Donorfy, Beacon or Salesforce Nonprofit Cloud which files the claim and syncs the donation back to Xero.

How do I track restricted funds in Xero?

Set up a tracking category called “Fund” with options for each restricted purpose (Youth Project, Building Fund, Hardship Grants) plus Unrestricted General. Tag every transaction with the right fund. Run Profit and Loss by Tracking Category for a SoFA-style report and Balance Sheet by Tracking Category for fund balances. Carry forward balances are visible at year-end.

Does my charity need an audit?

From 2026 in England and Wales, a charity needs an audit if income exceeds £1m, or if gross assets are above £3.26m and income above £250,000. Below that, an independent examination is sufficient down to £25,000 income. Below £25,000 the Charity Commission doesn’t require external scrutiny, though your governing document might. Charitable companies also follow Companies Act audit rules.

What is the Charities SORP?

The Statement of Recommended Practice for charities, published by the Charity Commission and OSCR. It sets the format of charity accounts, the SoFA structure, the trustees’ annual report content, and the disclosure rules. Most charities follow the FRS 102 SORP; very small charities can use the FRSSE SORP variant. New SORP guidance for FRS 102’s 2026 amendments is being rolled out for accounting periods beginning on or after 1 January 2026.

Talk to a Xero accountant for your charity

We’re a Xero Gold Partner and the cloud accounting arm of Jack Ross Chartered Accountants (est. 1948). We set Xero up for UK charities, configure fund tracking, run monthly bookkeeping, prepare SORP accounts, file Gift Aid claims and act as independent examiner or audit-liaison accountant as needed. Fixed monthly fees from £200. Request a callback or call 0161 832 4451. For a deeper case study on charity sector work, see our Xero for non-profits write-up.

Xero for Charities