Charity Reserves

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- part of the charity’s income freely available for its general purposes

- Income available to the charity that is not yet spent, committed or ear-marked in any way ie. not restricted , designated or endowment funds

Under the SORP charities should have a reserves policy. Why?

- If you have a lot of free reserves in your Balance Sheet people reading the accounts may wonder why the charity is accumulating money.

- It may also put potential funders off funding you and may make it difficult to raise money from appeals.

- Trustees are under a legal duty to apply charity funds within a reasonable time of receiving them. If the funds have not been spent then reasons for this should be given.

- You should demonstrate that it would be irresponsible not to hold that level of reserves.

- Your tax exemption could be lost if the monies are not seen to be benefiting the Charity.

- The reasons the Charity needs reserves

- The level of reserves needed

- Steps taken to establish that level of reserves

- Arrangements for monitoring and reviewing the policy

- Forecasts of income and expenditure / activity

- The reliability of your sources of income

- Prospects for new sources

- Future contingencies and risks which cannot be met from future income

A policy should be made even if you have no free reserves.

Charities that have too much free money (!!!) can contact the Charity Commission with a view to widening the scope of the Charity in order to apply surplus funds, ( Making A Scheme, leaflet CC36).

CHARITY RESERVES

Two similar charities apply to you for a grant of £50,000 for project X.

They have the following funds or reserves:

Charity A

  Charity B