The complete guide to charity accounting in the UK (2026)

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Strong charity accounting is a foundational element of how to run a charity. Whether you are in charge of the numbers or not, keeping a pulse on your organisation's finances is always a sound idea.

It is common for leaders to feel daunted by charity accounting, which has many nuances and regulatory requirements specific to the UK. This guide helps you introduce compliant and efficient practices that support your charity's growth.

This complete guide to charity accounting covers:

• A deep dive into the nuances of charity accounting

• The differences between charity and company accounting

• Guidance on UK charity accounting statements and reports

• HMRC and Charity Commission compliance requirements

• Accounting best practices for charity financial health

• Frequently asked questions about charity accounting

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In this article:

• What is charity accounting?

• Which UK charity regulator applies to you?

• Charity accounting vs bookkeeping

• How charity accounting differs from company accounting

• Key charity accounting statements and reports

• UK charity accounting requirements

• Handling Gift Aid in your accounts

• Fundraising regulation and reporting

• Charity accounting best practices

• Should you hire or outsource for charity accounting?

• Charity supporter management

• Frequently asked questions

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What is charity accounting?

Charity accounting is the practice of budgeting, allocating, recording, reporting, and making decisions about funds flowing in and out of your organisation. While every charity likely has some financial tracking in place, fund accounting offers more structure for keeping things in order.

HMRC regulates certain aspects of charity accounting, particularly Gift Aid claims and tax compliance. The Charity Commission for England and Wales sets the accounting and reporting framework for registered charities in England and Wales, requiring compliance with the Charities SORP.

Keeping clean and organised accounting procedures ensures every donation is accounted for and directed to the right place. They also provide accountability to donors, trustees, and community members who make your mission possible.

Sound accounting practices pay off at year-end when charities must file annual returns and accounts with their regulator. Managing finances throughout the year makes that process far smoother.

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Which UK charity regulator applies to you?

The UK has three separate charity-law jurisdictions. Knowing which applies to your organisation is the starting point for any accounting and reporting obligation.

England and Wales: Charity Commission for England and Wales (CCEW). Most charities with income above £5,000 must register. Charitable Incorporated Organisations (CIOs) must register regardless of income. The legal basis is the Charities Act 2011. All registered charities file an annual return and accounts with the Charity Commission.

Scotland: Office of the Scottish Charity Regulator (OSCR). All charities operating in Scotland must register with OSCR regardless of size or income. If your charity is registered in England and Wales and also operates in Scotland, you must register separately with OSCR.

Northern Ireland: Charity Commission for Northern Ireland (CCNI). NI charities register with CCNI. Registration has been phased in since 2013 and is ongoing.

If your organisation is a Community Interest Company (CIC) or an unincorporated association, you are not a registered charity. CICs file with Companies House; unincorporated groups have no statutory accounting regime unless they cross HMRC or bank-reporting thresholds. Registering as a charity (where eligible) unlocks Gift Aid, rate relief, and other benefits.

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Methods of charity accounting

The first step to understanding charity accounting is to know where you have options and where specific standards are already in place. Charities can choose between several accounting methods. The most common are the cash (receipts and payments) method and the accrual method, each with benefits depending on size and scale.

The cash method (receipts and payments):

• You record expenses when they occur, not when you plan them

• You record income when you receive it, not when a commitment is made

• Only one entry per transaction is required, with minimal calculations

• It can feel easier to manage day to day

• You cannot track non-monetary income such as gifts in kind

• You may lose sight of what lies ahead because it focuses only on current cash flow

• Only available to unincorporated charities in England and Wales with income of £250,000 or less

Cash method example: You rent tables and chairs in April for your annual fundraising raffle in September. If payment is due in September upon delivery, you record that expense in September rather than April.

The accrual method (fund accounting) for charity accounting:

• You record expenses when you incur them, not when you pay

• You record income when you have a commitment or pledge, not when you receive it

• It is helpful for accounting for outstanding obligations and pledges

• It requires two entries per transaction

• It can feel more time-consuming if transactions do not go as planned

• Required by the Charities SORP (FRS 102) for charities preparing accounts on an accruals basis

Accrual method example: If you rent the same tables and chairs for your autumn fundraising raffle, you record the expense in April when the commitment is made. Similarly, if you receive a pledge from a major donor in February and the payment arrives in March, you record that income in February.

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Charity accounting vs bookkeeping

Accounting and bookkeeping are often used interchangeably because both are critical to managing finances. When mapping out your process, it is helpful to understand how they work together and how they differ.

Bookkeepers organise financial records, while accountants interpret and further analyse that information. Your charity needs both to succeed.

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Within your charity, you might have an internal bookkeeper and choose to hire a separate accountant, or outsource the accounting function to a firm. We will cover options for hiring an accountant later in this article.

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How charity accounting differs from company accounting

Registered charities have a legal duty to act in the charity's best interest, not to generate profit for shareholders. That shapes how charity accounting works at every level.

While basic accounting principles remain consistent, a few key differences distinguish charity accounting from company accounting.

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Accounting system

Charities use a fund accounting system centred on accountability to donors, trustees, and beneficiaries. Companies focus on profitability as the primary measure of success.

Fund accounting under the Charities SORP recognises that not all donations are straightforward. Many restricted funds come with conditions set by the donor, specifying which project or purpose the money can be used for. Unrestricted funds can be spent at the trustees' discretion. Endowment funds (permanent or expendable) are held as capital; the Charities Act 2011 gives "permanent endowment" a specific statutory meaning, restricting the spending of the capital itself.

Charities are legally required to account for restricted funds separately and to honour the donor's conditions, whereas companies have no equivalent obligation.

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Accounting standards

UK charities apply the Charities SORP (Statement of Recommended Practice), which sits on top of FRS 102 (the UK financial reporting standard from the Financial Reporting Council (FRC)). SORP is the sector-specific rulebook. A revised edition of SORP (FRS 102) applies to accounting periods beginning on or after 1 January 2026.

Charities preparing accounts on an accruals basis must follow the Charities SORP. Smaller unincorporated charities in England and Wales with income of £250,000 or less may prepare receipts-and-payments accounts instead.

Never apply FASB or US GAAP rules to a UK charity. The two frameworks are entirely separate.

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Financial statements

A charity's financial statements focus on income, expenditure, and how restricted and unrestricted funds are applied. The goal is to demonstrate clearly that donations go to the right programmes and projects.

Charities have different financial reporting requirements from companies. Instead of a profit-and-loss account, they prepare a Statement of Financial Activities and a Trustees' Annual Report, which we cover in the next section.

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Key charity accounting statements and reports

The Charities SORP requires accruals-basis charities to maintain the following financial statements. These reports should be your top priority for a smooth accounting operation and a clear view of organisational health.

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Statement of Financial Activities (SoFA)

The Statement of Financial Activities is the flagship UK charity accounting statement. It shows all income and expenditure for the year, analysed by fund type: unrestricted, restricted, and endowment. There is no direct US equivalent.

Your SoFA cheat sheet:

• Income is categorised by source: donations and legacies, charitable activities, investments, and other income.

• Expenditure is categorised by activity: raising funds, charitable activities, and governance costs.

• Each income and expenditure line is shown across unrestricted, restricted, and endowment columns.

• The bottom line shows the net movement in funds for the year.

• Reviewing the SoFA monthly, quarterly, and annually is standard practice.

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Balance sheet

The balance sheet for a charity shows assets, liabilities, and the funds held at the end of the accounting period. It is the equivalent of a company balance sheet, adapted for the charity fund-accounting framework.

Your balance sheet cheat sheet:

• Assets may include vehicles, office premises, equipment, technology, or cash.

• Liabilities include creditors, loans, and deferred income.

• Net assets equal total assets minus total liabilities.

• Net assets are analysed across unrestricted, restricted, and endowment funds.

• A positive net assets position reflects a healthy financial position.

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Statement of cash flows

The statement of cash flows shows how money comes in and out of your charity over the accounting period. It is required for larger charities; smaller charities may be exempt under FRS 102.

Your statement of cash flows cheat sheet:

• Operating activities cover cash used for day-to-day charitable operations.

• Investing activities include cash spent on or received from long-term assets.

• Financing activities relate to loans, grants, and any debt repayment.

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Notes to the accounts

The notes to the accounts are a required part of SORP-compliant accounts. They include an analysis of expenditure by activity, which is the UK equivalent of the US "functional expenses" concept. SORP requires activity-based analysis showing programme costs, support costs, and governance costs.

Notes cheat sheet:

• Programme (charitable activity) costs include delivery of services, outreach, and volunteer expenses.

• Support costs include payroll, premises, and technology shared across activities.

• Governance costs include trustee expenses, audit or independent examination fees, and legal costs.

• Fundraising costs include direct mail, digital campaigns, and event costs.

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Trustees' Annual Report (TAR)

The Trustees' Annual Report accompanies the accounts and is a legal requirement for all registered charities. It is filed with the annual return to your regulator.

A TAR must include: a public benefit statement confirming how the charity has advanced its charitable purposes; a review of the year's activities and achievements; a financial review covering reserves policy and any going-concern issues; a description of principal risks and how they are managed; and plans for the coming year.

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UK charity accounting requirements

Filing with your charity regulator

Charity Commission for England and Wales (CCEW): Registered charities with income above £10,000 must submit an annual return. Charities with income above £25,000 must also submit their accounts and TAR. Charities with income above £1 million (or income above £250,000 and gross assets above £3.26 million) require a full statutory audit. Charities with income between £25,000 and £1 million require at least an independent examination. Verify current thresholds against CCEW guidance (CC15d and CC31) before relying on these figures, as they are subject to revision.

OSCR (Scotland): All Scottish charities file an annual return with OSCR regardless of income. Scottish charities also follow the income-based audit and examination thresholds, with slight differences under Scottish charity law.

CCNI (Northern Ireland): NI-registered charities submit an annual monitoring return to CCNI.

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Independent examination vs statutory audit

Many small charities are surprised to learn they do not automatically need a full audit. The UK has a tiered system:

• Receipts-and-payments accounts with an independent examination: for smaller unincorporated charities with income up to £250,000.

• Accruals accounts with an independent examination: for charities with income between £25,000 and £1 million (subject to the exceptions above).

• Full statutory audit: required for charities with income above £1 million, or income above £250,000 combined with gross assets above £3.26 million.

An independent examiner must be independent of the charity and have the relevant financial skills. A statutory audit must be conducted by a registered auditor. Knowing which applies to your charity saves unnecessary cost.

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HMRC and Gift Aid

HMRC handles Gift Aid claims via Charities Online. Charities must be HMRC-recognised (a separate process from registering with the Charity Commission) and hold a Charities Reference Number to make claims.

A Corporation Tax return is only required if HMRC issues a notice or the charity has non-exempt trading income.

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Companies House

Charitable companies limited by guarantee must file annual accounts with Companies House in addition to the Charity Commission (or OSCR/CCNI). Both sets of filings must be consistent.

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Handling Gift Aid in your accounts

Gift Aid is the central UK donation-tax mechanism and has no equivalent in US or international accounting frameworks. Getting it right in your bookkeeping is one of the highest-value tasks a small UK charity can do.

The charity reclaims 25p from HMRC for every £1 donated by a UK taxpayer who has signed a valid Gift Aid declaration. A £1,000 donation becomes £1,250 to your charity at no extra cost to the donor. Source: HMRC Gift Aid guidance.

Bookkeeping implications of Gift Aid:

• Track Gift Aid-eligible donations separately from non-eligible income.

• Keep every Gift Aid declaration (paper, digital, or oral) for at least six years after the last donation it covers.

• Submit claims through HMRC Charities Online (or a ChR1 form). The claim window is four years from the end of the financial period in which donations were received.

• Record the Gift Aid top-up as income when the claim is submitted to HMRC, not when it arrives in the bank.

Gift Aid Small Donations Scheme (GASDS): Charities can claim a 25% top-up on small cash and contactless donations of £30 or less, without a written declaration. The cap is £8,000 in eligible small donations per tax year (yielding a £2,000 top-up). The charity must have been HMRC-recognised for at least two complete tax years.

Gift Aid does NOT apply to: raffle ticket purchases, event ticket income, auction lots at fair value, donations from companies, or donations from individuals who have not paid sufficient UK income or capital gains tax in the year. See the Charity Tax Group for technical guidance on edge cases.

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Fundraising regulation and reporting

The Fundraising Regulator maintains the Code of Fundraising Practice (current version effective 1 November 2025, with a new Section 9 covering online fundraising platforms). Any charity fundraising in England, Wales, or Northern Ireland should follow the Code, regardless of whether it pays the voluntary levy.

Charities spending £100,000 or more annually on fundraising contribute to the Fundraising Regulator through a voluntary levy. Smaller charities are encouraged to sign up to the Code as a mark of good practice.

The Fundraising Preference Service allows members of the public to ask charities to stop contacting them. Charities that subscribe to the Code commit to honouring these requests promptly.

In Scotland, fundraising complaints are handled by the Scottish Fundraising Adjudication Panel, which operates under the same Code of Fundraising Practice.

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Charity accounting best practices

Set clear and realistic fundraising goals

Maintaining a clear view of your financial health is valuable, but it is even more useful when that insight informs your fundraising strategy. A clear goal shows you how much you need to raise to offset expenses.

When you review your expenses by month, programme, and fundraising campaign, you can adjust your fundraising goals accordingly. Be realistic about what you can raise in a year and how to do it without pushing costs higher.

Setting realistic goals may mean thinking through:

• The state of the economy and the outlook ahead

• Donor behaviour you have observed, and which fundraising activities supporters respond well to

• Reliable income from regular giving, memberships, and grants

• Staff headcount and compensation models

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Create and maintain a budget

Start with a budget that you document and make accessible for regular review within your charity. Your budget lists any expenses and income you expect in the year, even if some figures are estimates.

While no one knows exactly what will happen, your budget is the foundation for critical financial decisions. Create a regular cadence for budget review with key trustees and staff to ensure it evolves with your organisation's priorities.

Quick tips to create your charity budget:

• Be as specific as possible about the activities, fundraisers, and individuals around which you are planning expenditure and income.

• Use detailed timelines to get a clear view of when fundraising and saving need to increase.

• Leave yourself flexibility among uncertainties with cash reserves.

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Create a long-term strategic plan

Accounting practices help you maintain a current view of your charity, but it is always good to think long-term too. Your budget and financial statements help you plan to scale your mission.

Documenting your long-term strategy helps you see how each year's finances move you closer to or further from your bigger goals.

It might be helpful to think about:

• Income targets for three, five, and ten years from now

• How different focus areas such as regular giving, peer-to-peer fundraising, events, major donors, and corporate partnerships align to long-term goals

• Projects you hope to accomplish in the next few years and timelines to establish funding for them proactively

You can always revise your long-term plan, but having that grounding document to keep you on track strengthens your year-to-year decision-making.

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Rely on a solid board of trustees

Your trustees are responsible for financial oversight, so they play a central role in your charity's accounting. Under the Charities Act 2011, trustees have a legal duty to act in the best interests of the charity. Appointing trustees who can advance your mission and set a strong strategic direction is essential.

It is also important to create a degree of separation between day-to-day operations and your trustees. A trustee who is personally invested in specific fundraising activities or relationships with particular supporters may create a conflict of interest.

The board should make financial decisions based on the organisation's best interest as a whole, not personal ties. The more clearly you define that separation, the sounder the financial advice your trustees can offer to support short and long-term goal setting.

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Implement internal controls

When it comes to day-to-day operations, a robust internal controls system helps you remain accurate and compliant. The Charity Commission expects charities to have appropriate internal controls in place as part of good governance.

It is important to create processes for your team to follow and to implement them consistently across the organisation. Doing so can prevent misalignment, errors, and missing information that could result in fraud or penalties.

A few ways to create internal controls:

• Create clear roles and responsibilities: Make sure everyone knows who handles bookkeeping, who has oversight and approval authority, and who completes the final review.

• Document everything: Write processes and accounting information down in a single resource that can be referred to over time and help onboard new staff or volunteers.

• Consider security: With most processes online, prioritise cybersecurity and secure data transfer, with safeguards in place in the event of a breach.

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Audit finances regularly

Financial audits can have a bad reputation as something a charity only faces when something goes wrong. Prioritise regular internal reviews that confirm accuracy.

Every time you review finances proactively, you can test your internal systems, software, and team readiness to identify gaps in the process. That way, you are prepared when required audits or independent examinations happen.

Publishing audit findings is also a great way to build trust and transparency with donors and stakeholders.

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Use charity accounting software

Charity accounting software makes everything covered so far much easier. Specialist tools help you manage your finances and stay compliant with charity accounting requirements.

Key features to look for:

• Charities SORP-ready reporting and fund accounting by unrestricted, restricted, and endowment funds

• Gift Aid tracking and support for HMRC Charities Online submission

• VAT partial-exemption handling (charities are not VAT-exempt by default and have specific reliefs)

• Integration with GoCardless (Direct Debit) and Stripe for payment processing

• Automation to save time and avoid manual-entry mistakes

UK charity accounting tools used in the sector include QuickBooks Online, Xero, and Sage 50 Accounts, as well as charity-specific platforms such as Liberty Accounts and IRIS Financials for Charities. The right choice depends on your organisation's size, complexity, and budget.

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Cover UK GDPR from the start

UK charities must have a lawful basis to hold and use supporter data under the UK GDPR and Data Protection Act 2018. The Privacy and Electronic Communications Regulations (PECR) govern direct electronic marketing. The Information Commissioner's Office (ICO) publishes charity-specific guidance, including updated soft opt-in guidance for charities published in 2026.

In practice, UK small charities regularly ask whether a new platform is GDPR compliant before adopting it. Build data-compliance checks into your accounting and CRM stack decisions from the outset, not as an afterthought.

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Should you hire or outsource for charity accounting?

As you consider the size of your organisation and your team's skills, time, and resources, you may decide to outsource the accounting function. Your charity has several options.

Accounting requires close attention to detail and a thorough understanding of the organisation. Depending on your plans to grow in the coming years, you can decide whether to handle things in-house or work with an accounting firm.

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Charity accounting options to consider

• Trustees or executives: Many smaller charities give financial responsibilities to their treasurer trustee or chief executive. This option works well for newer or smaller organisations with straightforward finances.

• In-house charity accountant: You can hire a full-time accountant as an employee. That gives you access to a professional whenever you need them and ensures they are fully immersed in your mission and policies. UK charity accountants typically hold ACA (ICAEW), ACCA (ACCA), or CIPFA qualifications.

• Outsourced accounting: If you do not have the budget to hire someone full-time, or want expertise from a specialist charity accountant, outsourcing is a practical option. It also provides a third-party view of your finances that can offer more insight for strategic planning.

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Charity supporter management

From setting your financial goals to ensuring adequate income, it all starts with your supporters and donors. Just as company accounting relies on customer data, supporter management is a crucial element of your accounting strategy.

The more you know about your donors, the better your relationship-building can be. As you learn from how supporters gave in the past, to which campaigns and at what amounts, your financial forecasting becomes far more accurate.

It is also important to accurately record donation amounts and view donation activity at a glance to produce the most precise SoFA, balance sheet, and other financial reporting.

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Understanding your donors

Supporter management gives you a view of the various donor segments within your community. Here are the key groups to identify when building your fundraising strategy:

• One-time donors: Individuals who have donated once, directly or through a specific campaign or donation page

• Repeat donors: Individuals who have donated multiple times through the same or a variety of campaigns

• Regular donors (Direct Debit): Individuals who commit to a monthly or quarterly donation via Direct Debit. Direct Debit is the dominant UK regular-giving mechanism, accounting for roughly 31% of all UK charity donations (NCVO)

• Gift Aid donors: Any UK taxpayer donor who has signed a Gift Aid declaration. This is a cross-cutting segment that overlaps with all donor types above, and tracking it separately is essential for HMRC claims

• Major donors: Individuals who give notably high amounts to advance your mission

• Gifts in kind: Supporters who provide non-monetary contributions such as volunteer time, goods, or expertise

• Corporate donors: Companies and their employees who partner with your charity to donate

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The importance of supporter retention

Major donors, corporate partners, and regular givers can all be excellent sources of reliable income. These gifts create a more predictable funding base that you can build into your financial plans, but only if supporter retention is a priority.

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• Build relationships with supporters that keep them coming back to give

• Create advocates who recruit family and friends to support the cause

• Expand the impact each supporter makes in a year through various campaigns

• Establish loyalty among donor communities, even in uncertain times

Supporter retention is about showing donors genuine gratitude, reaching out regularly with updates, and helping them see the difference they are making.

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The value of supporter management software

Supporter management software complements your financial strategy by helping you retain donors. Knowing who to contact and when depends on having accurate details about your supporters.

Zeffy's completely free supporter management solution securely stores and organises your donor and member data so you can engage with the right supporter at the right time.

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• Import your donor contacts and past transactions

• Automatically add new donations or purchases to your contact lists

• Filter, segment, and export donor contact lists

• Add notes to donor files to help you remember important details and personalise your outreach

• View emails and past donations to stay engaged

• View contact information and preferences

• Access receipts for all donors and campaigns

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Frequently asked questions

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