Helen Oparinde, NCVS’s Group Support Coordinator (Broxtowe), and David Saunders, NCVS’s Group Development Officer (Training), have been discussing the withdrawal in September of the Charity Commission’s guidance, How to set a reserves policy for your charity; here, they share their viewpoints with you.
It is not that the Charity Commission no longer advises charities to have money in reserve; quite the reverse, in fact, as they recognise the diverse nature of charities and that a one-size-fits-all approach may not be suitable. They instead recommend that charities regularly monitor and review the effectiveness of their own reserves policy in the light of the changing funding and financial climate, among other risks. This is why they are signposting charities to their Charity reserves: building resilience CC19 guidance.
In our one-to-one support and training delivery to the sector, we are encouraging all types of VCSE organisations to review their approach to reserves following this withdrawal and consider the decisions made in the autumn budget.
What are reserves?
NCVS has developed a reserves policy template (this will open as a Word document for you to download and edit as needed), where we explain that it is good practice to keep money aside as a reserve to protect the charity against drops in income or allow it to take advantage of new opportunities. Reserves can be spent on any of its aims.
Organisations can set aside enough money to meet a potential need, such as an unexpected reduction in income. If setting aside money for a specific purpose, such as building work, a charity should make it clear that this is separate from the charity's general reserves.
Alongside this, the Charity Commission defines reserves as unrestricted funds that are freely available to spend on any of the charity’s purposes.
Budget implications on reserves
In the NCVO article Budget 2024: Key implications for charities, new financial pressures on charities were outlined as:
'The 6.7% rise in the national living wage and the increase in employer National Insurance contributions (NICs) to 15%, both effective from Tuesday 1 April 2025, will bring significant financial pressures for charities. Additionally, the NIC threshold has dropped from £9,100 to £5,000.
While fair wages are essential, these rising costs will intensify the 'triple squeeze' charities face from increasing costs, reduced funding, and higher demand.
Smaller charities, in particular, may need to shift already limited resources away from essential services, putting the communities they support at risk.'
One way of resolving this situation, in the interim, is to consider utilising reserves as a contingency fund to meet these rising costs while at the same time reviewing the organisation’s fundraising strategy and strategic plan.
How to approach developing a reserves policy
The updated guidance encourages charities to link their reserves policy to the risk management process, future budgets, and spending plans.
In the CC19 guidance, trustees are encouraged to develop a reserves policy that:
- Fully justifies and clearly explains keeping or not keeping reserves
- Identifies and plans for the maintenance of essential services for beneficiaries
- Reflects the risks of unplanned closure associated with the charity’s business model, spending commitments, potential liabilities, and financial forecasts
- Helps to address the risks of unplanned closure on their beneficiaries (in particular, vulnerable beneficiaries), staff, and volunteers
They recommend publishing your reserves policy (even if not required to by law) and ensuring it is tailored to the charity’s circumstances—it should not be just a standard form of wording. It should explain to funders, beneficiaries, the public, and the Commission exactly what reserves are kept (or not kept) for and when they are to be used. With trustees of larger charities required to publish, in their annual report, their assessment of the risks that the charity faces and how they are managing them.
So why not start today and use NCVS’s reserves policy template, a freely available resource, alongside annex 1 or 2 of the CC19 guidance to update or produce your own personalised reserves policy to build the resilience of your charity?
NCVS can help
If you would like to receive support for any aspect of strengthening your charity, contact the team at NCVS, and we will see how we can help.
David and Helen would welcome any comments about this blog. If you are a group operating in Broxtowe Borough, contact Helen by email at heleno@nottinghamcvs.co.uk. Organisations operating in the city can contact David at davids@nottinghamcvs.co.uk.
