Find out how to set a reserves policy and what you need to say about reserves in your trustees’ annual report.
Keeping money aside as a reserve can protect your charity against drops in income or allow it to take advantage of new opportunities. Your charity’s reserves can be spent on any of its aims.
Reserves must be justified
By law, charities must spend income they receive within a reasonable period of time unless there's a good reason not to.
This means you need to be clear about the reasons for keeping reserves and draw up a reserves policy. Having a policy will also help you explain to others why you are setting money aside rather than spending it on your charity’s aims.
Read our detailed guidance on reserves for more information:
Charities and reserves (CC19) Explains what reserves are, the trustees' responsibility to consider whether their charity needs reserves, and what to bear in mind when developing a policy on reserves.
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Setting a reserves policy
Your reserves policy should set out:
- how much your charity needs to hold in reserve and why
- how and when your charity's reserves can be spent
- how often the reserves policy will be reviewed
You might decide to set aside enough money to meet potential needs, for example unexpected drops in income. If you set aside money for a specific purpose, such as building works, you should make it clear that this is separate from the charity’s general reserves.
A regular review of your reserves policy will help make sure you aren't setting aside too much or too little.
Reporting on reserves
You should use your trustees’ annual report to tell donors, funders and other stakeholders:
- why you need to keep money aside instead of spending it on your charity’s aims
- how much your charity holds in reserve
- why your charity needs to hold this amount in reserve
- what your charity’s reserves can be spent on
Registered charities – reporting on reserves
If you are preparing accruals accounts you must set out your reserves policy – or reasons for not holding reserves – in your trustees’ annual report.