How Do Charities Record Donations Correctly?

Introduction

Accurate record keeping is one of the most important responsibilities for any charity. Every donation, whether large or small, must be recorded properly to ensure transparency, accountability, and compliance with Charity Commission and HMRC rules. Good records also make it easier to prepare annual accounts, claim Gift Aid, and maintain the trust of donors.

This article explains how charities should record donations, what information to collect, and the best systems and practices for managing donor income correctly.

Why Recording Donations Matters

Charities rely heavily on public confidence. Clear financial records show that funds are used responsibly and for their intended purpose. Keeping accurate donation records helps with:

• Preparing annual reports and financial statements

• Submitting Gift Aid claims to HMRC

• Responding to audits or independent examinations

• Avoiding fraud or mismanagement

• Demonstrating accountability to funders and regulators

Poor or incomplete records can lead to compliance issues, financial errors, and reputational damage.

Types of Donations Charities Receive

Charities can receive donations in several forms, and each type should be recorded appropriately:

1. Cash donations collected at events or in collection boxes.

2. Bank transfers and cheques from individual donors or corporate supporters.

3. Online donations through platforms such as JustGiving or PayPal.

4. Regular giving via direct debit or standing orders.

5. Gift Aid donations, where UK taxpayers allow the charity to reclaim 25p for every £1 donated.

6. In-kind donations, which include goods, equipment, or services rather than cash.

7. Legacies from wills or estates.

Each source requires slightly different records, but all must include enough detail to track the donor, the amount, and how the funds were received.

What Information to Record

To comply with accounting and legal requirements, charities should keep the following details for every donation:

• Date the donation was received

• Donor’s name and contact details (where available)

• Amount or value of the donation

• Method of payment (cash, card, transfer, cheque, or online)

• Any restrictions on how the money can be used (for example, if the donor specifies a particular project)

• Whether Gift Aid applies

• Receipt or reference number for reconciliation

This information ensures that the charity can verify all income, allocate funds correctly, and meet auditing standards.

Recording Cash Donations

Cash donations are particularly vulnerable to loss or mismanagement, so it is essential to have strong controls. Charities should:

• Use sealed collection boxes or numbered receipts at events

• Count cash in the presence of two people and record totals immediately

• Bank the funds as soon as possible, keeping deposit slips as evidence

• Record the income in a cash donations log or accounting system on the same day

Every cash entry should link to a bank deposit, ensuring transparency from collection to banking.

Recording Online and Bank Donations

Online donations often come through fundraising platforms, which provide automatic tracking and receipts. Charities should:

• Reconcile platform reports with bank statements regularly

• Record each transaction’s date, amount, and any associated fees

• Allocate funds to the correct income category (for example, general funds or restricted projects)

• Store electronic copies of reports for audit purposes

For bank transfers or standing orders, charities should record recurring donors separately, as this helps with relationship management and financial forecasting.

Recording Gift Aid Donations

Gift Aid provides valuable extra income for charities but comes with strict documentation rules. To claim Gift Aid correctly, charities must keep:

• A signed or electronic Gift Aid declaration from each donor

• Records of the amounts donated and the dates received

• A record of all claims made to HMRC

Declarations must confirm that the donor is a UK taxpayer and that they have paid enough tax to cover the claim. Donations from non-UK taxpayers, companies, or community groups are not eligible for Gift Aid.

Charities should retain these records for at least six years after making a claim, as HMRC may request to see them during inspections.

Recording In-Kind Donations

When donors provide goods or services instead of money, these are known as in-kind donations. Examples include donated furniture, office supplies, professional services, or venue hire.

Charities should record the fair market value of these donations and include them in their accounts as both income and expenditure (since they benefit the charity financially). Documentation should include:

• A description of the item or service

• Estimated value

• Date received

• Donor’s name or organisation

This ensures transparency and provides an accurate picture of the charity’s total income and support.

Recording Restricted and Unrestricted Donations

Some donors specify how their donation should be used, such as funding a specific project or buying equipment. These are called restricted funds and must be accounted for separately.

Charities should:

• Record the restriction clearly in their accounting software or ledger

• Track all income and spending related to that fund

• Report separately in the annual accounts how restricted funds were used

Unrestricted donations, on the other hand, can be used for general running costs or wherever the trustees believe they are needed most. Keeping these funds separate avoids confusion and ensures compliance with charity law.

Best Systems for Recording Donations

Charities can record donations using:

• Accounting software such as QuickBooks, Xero, or Sage, which allows tracking of individual donors and fund types.

• Spreadsheets, which may be sufficient for small charities but require careful version control and backups.

• Fundraising CRMs, such as Donorfy or Salesforce Nonprofit Cloud, which combine donation tracking with donor relationship management.

Whatever system is used, it should be secure, backed up regularly, and accessible only to authorised personnel.

Transparency and Reporting

Accurate donation records feed directly into a charity’s annual accounts and trustee report. These documents show how funds have been raised, how they have been used, and the impact they have achieved.

Trustees are responsible for ensuring that all records are complete, accurate, and retained for at least six years. This is especially important if the charity is audited or independently examined.

Example Scenario

Imagine a charity called Hope Together, which runs community support programmes. During the year, it receives:

• £8,000 in cash donations from local fundraising events

• £25,000 in online donations via JustGiving

• £12,000 in restricted donations for a food bank project

• £5,000 worth of donated office furniture

The charity records each donation with full details, including dates, donors, and restrictions. Gift Aid declarations are stored digitally, and bank statements are reconciled monthly. When preparing its annual accounts, all restricted income and in-kind donations are clearly identified. This level of transparency reassures funders, donors, and the Charity Commission that money is managed properly.

Common Mistakes to Avoid

• Failing to record small cash donations or one-off gifts

• Not keeping Gift Aid declarations or claiming incorrectly

• Mixing restricted and unrestricted funds

• Relying on one person to manage records without oversight

• Delaying reconciliation with bank statements

Strong record keeping systems prevent these problems and help maintain trust.

How an Accountant Can Help

An accountant experienced in charity finance can:

• Set up compliant accounting systems

• Train staff and volunteers in recording procedures

• Prepare Gift Aid claims and financial reports

• Conduct independent examinations or audits

• Ensure compliance with HMRC and Charity Commission requirements

Professional guidance helps charities save time, avoid mistakes, and focus more energy on delivering their charitable aims.

Conclusion

Recording donations correctly is vital for every charity, no matter its size. It ensures compliance with charity law, protects against fraud, and builds confidence among donors and regulators.

By keeping detailed records of every donation, using reliable systems, and following clear procedures for restricted funds and Gift Aid, charities can demonstrate transparency and integrity. For added assurance, working with an accountant can help set up systems that make record keeping smooth, accurate, and fully compliant.