Small charity sector

Introduction

Small Charities Data (a website founded by academics and a coalition of voluntary sector organisations) defines a small charity as a voluntary or community organisation with an annual income of less than £1m. It states that there are 165,758 voluntary organisations in the UK, of which 96% are small charities. Scotland is reported as having the highest proportion of small charities with 367 small charities per 100,000 people, while Wales has the lowest with 215 per 100,000 people.

Small Charities Data notes that small charities are “considerably more likely” to operate locally, with over three-quarters (77%) of small charities operating locally in 2018/19 compared to 58% of charities with an income over £1m. They were also less likely to deliver public sector contracts or be working with government to influence policy.

Recent issues and challenges

A 2025 report by the National Council for Voluntary Organisations (NCVO), The Power of Small, examined the structural barriers that limit the sustainability and effectiveness of small voluntary organisations (referred to as “smalls”). The report, based on a survey of over 400 respondents, identified the following “primary challenges and opportunities”:

• Broken Funding Systems – A lack of unrestricted, multi-year funding, disproportionate application processes, and funder-driven models hinder Smalls’ sustainability.
• Culture and Power – Smalls feel underrepresented, excluded from decision- making, and struggle to navigate infrastructure that they felt sometimes appeared to prioritise larger organisations.
• Practical Support – Despite the availability of support, many Smalls require assistance with navigating governance, digital tools, operations, and training to build resilience and capacity.
• Policy and Advocacy – The need for a stronger voice in policy development, representation in funder decisions, and advocacy for systemic changes to funding structures.

The report made the following recommendations aimed at sector support organisations, umbrella bodies and local infrastructure organisations (pages 18-22):

• Strengthen the representation and voice of small charities
• Expand tailored capacity building support
• Develop a digital solution to improve access to support
• Facilitate peer support and networking
• Champion funding reform for smalls

Employer national insurance contributions

In October 2024, the NCVO and the Association of Chief Executives of Voluntary Organisations (ACEVO) wrote a joint open letter to the chancellor stating that changes to employers’ national insurance rates in the 2024 autumn budget “could have a devastating impact on the charity and voluntary sectors” with an additional financial strain of £1.4 billion. The letter called for urgent action, including further support to the sector by exempting or reimbursing it for the increase in NI contributions.

Access to funds

The general public is the largest contributor to the charity sector, providing 48% of the sector’s total income. However, NCVO has noted in an April 2025 publication, that “trends on individual giving are changing” owing to the “current economic climate and pressure on household incomes”. According to the Charities Aid Foundation UK Giving Report 2025, “charities are now relying on donations from only 50% of people, down from 58% in 2019 — equivalent to approximately four million fewer donors”.

The NCVO publication also highlighted “a significant reduction” in the proportion of income from government—the sector’s second main source of income. It further highlighted a change in the funder landscape with “many funders … winding down their grant-making activities” and other funders “closed to applications and/or … changing their strategy”.

Banking

Banking challenges have been described “as often one of the greatest day-to-day challenges faced by charities”. In 2022, the Civil Social Group identified four challenges (PDF) following a sector survey:

• Services that charities need are increasingly unavailable.
• Services that are available are not suited to the way that charities operate.
• Charities often encounter poor customer service.
• Online banking is not designed for or accessible to charities.

Government response Employer national insurance contributions

In her response to the open letter by the NCVO and ACEVO, the chancellor stated that the government was delivering a number of grant and support programmes to support the sector, such as the Community Organisations Cost of Living Fund and the Social Enterprise Boost Fund. The response also noted the contribution of the National Lottery Community Fund which it stated had “made grant awards totalling over £900 million, 84% of which were under £10,000, with the majority supporting grassroots organisations.”

In response to a question tabled in the House of Commons in March 2025 on the potential impact of changes to national insurance, the government stated:

DCMS Ministers have met with representatives from the Voluntary, Community and Social Enterprise sector to discuss this issue and are aware of their concerns about the impacts of the increase to employer National Insurance Contributions (NICs). The government recognises the need to protect the smallest businesses and charities, which is why we have more than doubled the Employment Allowance to £10,500. This means that more than half of businesses (including charities) with NICs liabilities will either gain or see no change next year.

We are also expanding eligibility of the Employment Allowance by removing the £100,000 eligibility threshold, to simplify and reform employer NICs so that all eligible employers now benefit. Businesses and charities will still be able to claim employer NICs reliefs including those for under 21s and under 25 apprentices, where eligible.

Within the tax system, we provide support to charities through a range of reliefs and exemptions, including reliefs for charitable giving. More than £6 billion in charitable reliefs was provided to charities, Community Amateur Sports Clubs and their donors in 2023 to 2024. The biggest individual reliefs provided are Gift Aid at £1.6 billion and business rates relief at nearly £2.4 billion.

Access to funds

During a debate in December 2025 on government support for membership-based charity organisations, the Minister for Sport, Tourism, Civil Society and Youth, Stephanie Peacock stated that the government was committed to supporting the sector in a number of ways including direct funding. The minister noted government sector funding such as the £270 million arts everywhere fund and £500 million for the better futures fund “to support 200,000 struggling children, young people and their families through innovative impact funding projects”. The minister also highlighted continued government support through tax reliefs and exemptions, and £15 billion of public donation to charities in the previous year. On the government’s plans, the minister stated:

We are going even further to promote investment in civil society. The recently launched Office for the Impact Economy provides a front door for investors and purpose-driven business to partner with Government to extend their social impact across the nation. DCMS will be working closely with the office to build capacity and capability, driving cross-Government strategy at all levels of government to make every pound of public funding go further.

As well as providing funding to the voluntary, community and social enterprise sector, the Government have committed to reducing administrative burdens on businesses, including charities, by 25% by the end of this Parliament. That is why in October I set out a series of changes that we will make next year to the financial thresholds for charities. Updating the financial thresholds will save charities an average of £47 million each year, while ensuring that the regulation of the sector remains proportionate and effective.

Banking

According to the government guidance on charity banking, the “Charity Commission continues to press the matter” of improving charity banking following an open letter to all UK high street banks, issued alongside sister regulators in Scotland and Northern Ireland, which highlighted the substandard service charities receive.

In response to a question in the House of Commons on steps by the government to ensure that charities are able to deposit cash into bank accounts via the post office without the need for trustees and volunteers to hold debit cards on the organisation's account, the Economic Secretary to the Treasury, Lucy Rigby stated:

The Government recognises the importance of cash, understanding that it continues to be used by millions of people across the UK, including charities, churches, voluntary organisations and community groups to support communities across the UK, and is committed to protecting access to cash for individuals and businesses

The Post Office plays a key role in supporting access to banking services. Under the Banking Framework, a commercial agreement between the Post Office and 30 banking firms, personal and business customers can withdraw and deposit cash, check their balance, pay bills and cash cheques at 11,500 Post Office branches across the UK.

The FCA has previously worked with the Post Office, banks, and the National Economic Crime Center to improve controls on cash deposits at the Post Office, in order to minimise financial crime risks. The FCA set out its expectations for transaction verification when making cash deposits, including use of cards, whilst seeking to limit the unintended consequences and ensuring additional measures did not disproportionately impact legitimate customers. This is a matter for the FCA as an independent regulator.

Further resources

• Youth Services, HC 15 May 2025 c578
• Community and Voluntary Sector, HL Deb 31 October 2024 c1228