What records should a small charity keep to distinguish donations from trading income?

Record why the money was paid

A charity’s bank account can receive gifts, event takings, fees, loans and refunds on the same day. Recording every deposit as a donation loses the information needed to explain those transactions. Begin with the agreement or circumstances that caused the payment.

Ask what the payer was entitled to receive, whether the money was restricted to a project, whether any amount could be repayable and which legal entity received it. Keep the answer with the supporting document. A short contemporaneous note can help explain an unusual transaction when the people involved are no longer available.

The SARS PBO guidance distinguishes approval from the treatment of particular income. Using money for a worthwhile purpose does not remove the need to examine how it was earned or received.

Confirm the organisation’s actual approval before applying PBO-specific rules. An NPC incorporation certificate or NPO registration alone does not establish tax exemption. Keep the SARS decision in the permanent file so the bookkeeper is working from the correct status.

Create an income record with useful categories

Use categories that reflect the charity’s operations. The table is an organising aid, not a ruling that every grant or event receipt receives the same tax treatment. Leave uncertain items identifiable for review instead of forcing them into a convenient category.

Keep promises made by the fundraising team

Finance needs the proposal and final agreement, including email changes. A sponsor may pay for recognition, advertising or another benefit. A donor may impose a project restriction without purchasing a service. Those different terms are difficult to reconstruct from a deposit description alone.

Ask staff to send the accepted version, not just the original proposal. If the arrangement changed after payment, keep the change and the reason. Connect the documents to the ledger entry using a reference that another person can follow.

For a fictional community event, separate ticket sales, unrestricted gifts and the sponsor’s advertising package. Do not put the entire bank settlement into a donations account because the event raised funds for charity. The separate records allow the adviser to assess each stream and any genuinely mixed arrangement.

Where a payer asks for a section 18A receipt, flag the request before issuing one. The section 18A approval guide explains why both organisational authority and the actual donation matter.

Reconcile gross transactions to bank settlements

A payment platform may transfer a net amount after fees or refunds. Preserve the platform report showing the underlying transactions, deductions and settlement reference. Booking only the net bank amount can hide the number and character of receipts.

Match the ledger to each settlement and record fees separately where appropriate. If a single settlement contains ticket purchases and donations, retain the itemised report that supports the split. Do not create a percentage allocation merely because the detailed report is inconvenient to retrieve.

Cash collections need similar care. Use a collection record, count confirmation, deposit evidence and a link to the event or campaign. Preserve any difference and investigate it. The aim is to explain the amount collected and deposited, not to force the records to match by changing an unsupported figure.

Keep unidentified receipts in a controlled query list. Note who is investigating, what information is missing and when it was resolved. A later classification should be supported by evidence and a traceable adjustment.

Give the adviser the facts needed for trading treatment

The SARS PBO guide explains partial taxation and the categories of permissible trading activity. PBO approval does not mean that all business income is exempt, while the existence of trading does not itself settle the amount taxable.

Describe the nature, frequency and scale of the activity, its connection to the charity’s objects and how it operates. Keep pricing records, customer terms, staff involvement and relevant costs. An annual fundraiser and an ongoing shop may require different analysis.

Do not assume that spending the shop’s surplus on charitable work makes the shop directly related to the public benefit activity. Present the actual facts and ask which provision applies. Avoid calculating an exemption from an old article without checking the current rules and the organisation’s total receipts.

Keep the adviser’s conclusion with the period’s working papers, including assumptions and items requiring later review. Revisit that conclusion if the activity changes materially rather than carrying a historic treatment forward automatically.

Track expenses and restricted funds as well

Income classification is more useful when related expenses can also be traced. Retain supplier invoices, payment evidence and the purpose of each cost. Use project or activity codes where they help explain how resources were used.

Keep donated goods identifiable even when no money passes through the bank. Record the item, transfer evidence, restrictions and subsequent use or disposal. If the charity later sells an item, link the sale record to the original receipt so the accountant can distinguish the donated property from the later trading transaction. Obtain advice on valuation and receipt treatment where needed.

For shared costs, document a reasonable allocation basis and keep the calculation. An unsupported split can distort both programme reporting and a tax review. If the basis changes, explain why and preserve the earlier version for comparison.

Track restricted grants against their terms and approved budget. A bank balance alone does not show how much remains available for unrestricted use. Keep reporting obligations, permitted spending and any return-of-funds conditions visible to those authorising payments.

Section 18A-related fund-use requirements may also need specific records or further evidence. Establish what applies to the organisation’s mix of activities instead of assuming an ordinary project spreadsheet satisfies every condition.

Keep donation receipts connected to donor reporting

For approved organisations, maintain a receipt register linked to donor and transaction evidence. Distinguish ordinary acknowledgements from section 18A receipts and record corrections or cancellations. The current SARS guidance identifies receipt-information requirements effective from 1 March 2026 and the IT3(d) reporting process.

Reconcile the register to the donation ledger before reporting. A donor-management export and an accounting total can differ because of cancelled receipts, refunds, timing or missing records. Investigate the reason rather than selecting whichever total is easier to submit.

Keep personal donor information accessible only to those who need it. Give trustees an appropriate financial view without distributing sensitive records unnecessarily. Ensure the organisation can still recover the supporting documents if a volunteer or service provider leaves.

Use a repeatable review before the year end

1. Collect agreements and source records for new receipts.
2. Classify transactions using the facts and identify queries.
3. Reconcile bank and platform settlements to the ledger.
4. Review restricted project balances and related spending.
5. Check donation receipts and reporting records.
6. Resolve uncertain treatment with the adviser.
7. Save the approved records and adjustment explanations.

The SARS compliance guidance confirms continuing obligations for exempt institutions. Apply the relevant retention rules, including longer retention where unresolved proceedings or other circumstances require it.

For monthly bookkeeping support, provide the income categories, agreements and reconciliations. For uncertainty about the underlying approval, use PBO registration support with the SARS letters and activity description. These records help answer the specific tax question without treating every receipt alike.