Organising your finances for closure

You’ll need to have an accurate understanding of the cash you have available to pay for the costs of closure.

Identify known future income and expenditure

You should get an accurate and up to date list of which organisations, suppliers or individuals you owe money to (known as a creditor) and anyone who owes you money (known as a debtor).

These will need to be resolved before you close any bank accounts in your organisation's name. You should consider how likely it is that you will receive all money owed to you before your closure date.

Trustees should be cautious of ‘writing off’ any funds owed to the charity.

Decide what to do with any designated funds

Trustees can designate part of their unrestricted funds for a particular project or use, without restricting or committing the funds legally.

For example, funds might be used to create a ‘pot’ for a future project. This ‘pot’ will be presented in your year-end accounts as a transfer from general funds to designated funds during the period.

As you’re closing, a decision can be made by trustees to change the use of these funds back to general funds again, or they might seek to transfer the funds to another organisation for a connected purpose (see below). These decisions should be clearly recorded.

Consider previous years’ income recognition

There are accounting rules about when charities can recognise the income they have been pledged by donors.

You may have recorded income in your annual accounts which you will now not receive as you're closing.

Confirm the status of any restricted funds

Restricted funds can only be used for a particular purpose. You can’t fundraise for a specific cause and decide to use the money in another way. Examples of restricted funds could include:

• beneficiary gifts
• emergency appeals
• legacies or grants given for a particular project.

Charities in receipt of restricted funds are subject to liabilities if they don’t follow the funding restrictions imposed.

When closing, you should check you have an accurate record of the status of any restricted funds held by the organisation.

You should confirm they’re truly restricted rather than simply recorded as restricted. Sometimes it may have been a request from a donor that they are spent in a particular way rather than a legal requirement.

The Chartered Institute of Fundraising (CIOF) has more information on the difference between restricted, unrestricted and designated funds.

Consider the use of restricted funds during the closure period

Many charities will use restricted funds to pay towards its staffing or activities.

You’ll need to demonstrate that funds used in this way will be spent during the closure period. You’ll also need to be able to justify to the donor how the use of funds meets any restrictions imposed.

Assess what funds can meet the costs of closure

Reserves are the part of a charity’s unrestricted funds that are freely available to spend on any of the charity’s purposes.

You should consider what reserves you hold, whether these will be used to fund the closure process and what you plan to do with any remaining funds.

There will be costs involved in the closure of the organisation. You’ll need to consider how your income and expenditure will change from the point of deciding to close and the final closure date.

You may have little or no more income as donors stop giving. At the same time, you may also have continuing recurring fixed costs such as salaries, rent or utilities. You may decide to sell assets such as computers or furniture to cover some of your costs.

One off costs which you may incur include:

• being liable for redundancy costs
• additional legal support
• paying for disposal of waste and recycling or to destroy data
• ‘make do’ costs associated with any property or land you rent (this may be a contractual obligation)
• penalties for finishing contracts and leases early
• a final audit
• stock held by the organisation may be written off or disposed of at a lower value than recorded.

It’s good practice to have a final set of accounts showing where the organisation's assets have gone and that there’s a nil balance upon closure. This provides public accountability to your supporters and donors.

• Check your organisation’s governing document on whether there is an obligation to produce a final set of annual accounts.
• Depending on your activities, you may need to produce final accounts to provide to HMRC.
• The Charity Commission generally does not require final accounts but may request these if it is a requirement of the charity's governing document or if they have other concerns.
• Companies House does not require final accounts to strike off a limited company from the Companies Register.

Beyond this, requirements to produce a final set of annual accounts can depend on the legal form of your organisation, its turnover and whether you are insolvent. If you’re unsure, always seek professional advice.

When you stop trading or making VAT taxable supplies, you’ll no longer be eligible to be VAT registered.

You must inform HMRC and cancel your registration. If you’re closing over a long period of time and your VAT taxable turnover falls below the registration threshold, you may also seek earlier deregistration.

You may need to account for VAT on any held stock and submit a final return. From the date of cancellation you must stop charging VAT and keep your VAT records for six years.

Learn more about deregistering for VAT.

Your organisation may have some remaining assets which you'll need to dispose of. This includes money held in your bank accounts or investments.

There are rules that you may need to follow to pass these assets on to another organisation. This will depend on your legal form and turnover.

In addition, your governing documents may include provisions about when and how you can transfer assets. You may also need the permission of a regulator to undertake the transfer.

• See the Charity Commission guidance on how to transfer assets.
• Learn about transferring physical and intellectual assets.

You need to ensure signatories on any bank accounts remain employed in the organisation or additional signatories are added if they leave. Make sure there are enough people who can safely and easily access your funds.

If you’re a charitable company, it’s the responsibility of the trustees (acting as directors) to deal with the property and assets of the company before it’s dissolved.

You should ensure all bank accounts are empty before you seek removal from Companies House. Property, cash and any other assets owned by a charitable company when it’s dissolved automatically pass to the Crown. This is a process known as ‘bona vacantia’.

Unused organisations’ materials can be used by others to commit crimes like fraud.

While you may need to keep some financial records, make sure that you identify, collect and destroy any cheque and paying-in books, credit and debit cards and other banking information.