How to Use Xero for Non-Profits and Charity Accounting

Why Charities and Non-Profits Use Xero

Managing a charity’s finances comes with requirements that general accounting software doesn’t always handle well. You need to separate restricted and unrestricted funds, report to the Charity Commission (or OSCR in Scotland), track Gift Aid claims, and produce trustee reports that meet SORP standards. Xero can handle all of this for your charity or non-profit organisation, though it takes some configuration.

Xero isn’t specifically designed for charities – it’s general-purpose cloud-based accounting software – but its flexibility means it works well for small and medium charitable organisations when set up correctly. And at a fraction of the cost of specialist charity accounting system packages like Sage Intacct or Blackbaud.

Xero Pricing for Charities

Xero offers a 25% discount for registered charities in the UK. You need to apply through Xero’s charity programme with your Charity Commission registration number. With the discount, the plans work out as:

• Xero Ignite – £12/month (normally £16)
• Xero Grow – £27.75/month (normally £37)
• Xero Comprehensive – £37.50/month (normally £50)

For most small charities, the Ignite plan covers everything needed: bank feeds, invoicing, bill payments, and reporting. You’d only need the Grow plan if you handle multiple currencies (e.g. international aid work) or need project tracking.

Setting Up Xero for a Charity

The key difference between a charity Xero setup and a standard business setup is fund accounting. Charities must separate restricted funds (money given for a specific purpose) from unrestricted funds (general donations the charity can use however it wishes).

Xero doesn’t have a built-in “fund” feature, but you can achieve fund accounting using tracking categories:

1. Create a tracking category called “Fund”
2. Add options for each fund: “Unrestricted”, “Restricted – Building Fund”, “Restricted – Youth Programme”, etc.
3. Assign every transaction to the appropriate fund
4. Run your P&L by tracking category to see income and expenditure per fund

This gives you the fund-level reporting the Charity Commission requires in your annual return, and it maps directly to the Statement of Financial Activities (SOFA) that charities must produce.

Charity Commission Reporting Requirements

UK charities registered with the Charity Commission must file annual accounts. The format depends on your income level:

• Under £250,000 income – receipts and payments accounts (simpler format)
• Over £250,000 income – accruals accounts prepared under the Charities SORP (FRS 102)
• Over £1,000,000 income – accounts must be independently examined or audited

Xero produces standard reports (P&L, balance sheet, trial balance) that your accountant uses as the basis for preparing charity accounts. If you use tracking categories for fund accounting, the data is already split by fund, which speeds up the year-end process significantly.

For charities in Scotland, OSCR has slightly different thresholds but the same basic requirement for annual accounts.

Gift Aid and Xero

Gift Aid lets charities claim an extra 25p for every £1 donated by a UK taxpayer. Managing Gift Aid claims is one of the most time-consuming admin tasks for small charities.

Xero doesn’t have a native Gift Aid module, but there are two ways to handle it:

Option 1: Use a Gift Aid integration

Apps like Beacon, Donorfy, and Charity CRM connect to Xero and manage your donor database, Gift Aid declarations, and HMRC claims in one place. Donations sync to Xero for accounting, and the Gift Aid claim is submitted separately through the integration. This is the best option if you process more than a handful of donations per month.

Option 2: Manual tracking in Xero

For smaller charities with few donors, you can record donations as income in Xero, track Gift Aid eligible amounts using a custom field or separate account code, and submit claims to HMRC through their online portal. Not automated, but workable for charities with low donation volumes.

Connecting Xero to Donation Platforms

Many charities receive donations through online platforms. Xero integrates with several:

• GoCardless – direct debit collection for regular giving. Payments reconcile automatically in Xero.
• Stripe – online card payments. Connects to Xero for automatic transaction matching.
• PayPal – Xero imports PayPal transactions via bank feed. Useful for smaller charities accepting one-off donations.
• JustGiving / GoFundMe – these platforms don’t connect directly to Xero, but payouts to your bank account appear via your bank feed and can be matched with a bank rule.

Trustee Reporting and Financial Transparency

Charity trustees need clear, timely financial information to make good decisions. Xero’s dashboard and reporting tools help with this:

• Dashboard – gives trustees an at-a-glance view of cash position, outstanding invoices, and recent transactions
• Budget vs Actual reports – set annual budgets in Xero and track spending against them throughout the year
• Fund-level P&L – using tracking categories, produce separate income and expenditure statements for each restricted fund
• Read-only access – invite trustees as read-only Xero users so they can view reports without risking accidental changes

The Charity Governance Code recommends that trustees receive financial reports at least quarterly. With Xero, you can generate these in minutes rather than spending days compiling spreadsheets.

SORP Compliance: What Xero Can and Can’t Do

The Charities SORP (Statement of Recommended Practice) sets out how charity accounts should be prepared and presented. Xero doesn’t produce SORP-compliant accounts directly – no general accounting software does. But it provides the underlying data your accountant needs:

• Trial balance with fund-level breakdown (via tracking categories)
• Income categorised by source (donations, grants, trading, investments)
• Expenditure categorised by activity (charitable activities, fundraising, governance)
• Fixed asset register for tangible assets

Your accountant then reformats this into the required SOFA, balance sheet, and notes to the accounts. The better your Xero chart of accounts maps to SORP categories, the less work (and lower fees) at year-end.

Worked Example: A Small Charity on Xero

Manchester Youth Trust has annual income of £180,000 – mostly grants and donations. They have two restricted funds (a building renovation project and a youth mentoring programme) plus their general unrestricted fund.

Their Xero setup:

• Xero Ignite plan at £12/month (charity discount)
• Tracking category: “Fund” with options: Unrestricted, Building Renovation, Youth Mentoring
• Bank feed connected to their Barclays current account
• GoCardless for regular giving by direct debit
• Beacon CRM for donor management and Gift Aid claims

Total cost: roughly £60/month for Xero, GoCardless, and Beacon. Significantly less than a dedicated charity accounting package, and the trustees get real-time access to financial reports and cash flow visibility through Xero’s read-only user feature.

VAT for Charities

Many charities are VAT-registered, especially those with trading subsidiaries or significant commercial income. Xero handles VAT returns for charities the same way it does for any business – but charity VAT is complex because some activities are exempt, others are zero-rated, and partial exemption calculations may apply. If your charity is VAT-registered, make sure your Xero chart of accounts separates VATable and exempt income streams.

Getting Started

Xero offers a 30-day free trial and a 25% charity discount on all plans. You can test whether it suits your charitable organisation before committing. If you need help with the setup, we handle Xero configuration for charities as part of our onboarding service.

Is Xero the Best Accounting Software for Charities?

For small charities with income under £500,000, Xero is arguably the best accounting software available at this price point. It handles fund accounting through tracking categories, integrates with donation platforms, and gives trustees real-time financial visibility. Larger charities or those needing full SORP-native reporting may want to consider Sage Intacct or Blackbaud, but these cost significantly more. Most small charities that register with the Charity Commission find Xero covers everything they need.

How JacRox Can Help Charities

We work with several charities across Greater Manchester, setting up Xero for fund accounting, connecting donation platforms, and preparing year-end accounts for the Charity Commission. If you’re a charity still using spreadsheets or an outdated desktop package, get in touch and we’ll show you what Xero can do.

Related guides: Tracking categories in Xero | Xero reporting guide | User permissions in Xero

Our specialist Xero accountants can help you get set up and running on Xero.