Charity Reserves Policy Template: How to Set and Review Your Charity’s Reserves

Published 2026-10-23 · Last reviewed 2026-10-23

A practical, adaptable charity reserves policy template for explaining what is available, why it is held, how trustees set a target, and what they will do when reserves move outside it.

A reserves policy is not a rule that every charity must hold the same number of months’ spending. It is the trustees’ explanation of why the charity does or does not hold funds back, what level is appropriate for its circumstances, and what they will do as the financial position changes.

A useful policy connects the charity’s accounts and cash-flow planning to the work it has promised to do. It helps trustees explain how they are protecting the charity’s purposes and beneficiaries without keeping money that could responsibly be used to advance those purposes.

This guide follows the Charity Commission’s CC19 guidance for England and Wales. It is practical guidance, not legal, accounting or investment advice. Charities in Scotland or Northern Ireland should check their own regulator’s guidance, and every charity should apply its governing document and relevant accounting framework.

Reserves, restricted funds and cash are different things

CC19 defines reserves as the part of a charity’s unrestricted funds that is freely available to spend on any of its purposes. Start with the fund information in the accounts; do not assume that the balance of a bank account is the reserves figure.

Restricted funds are held for the purpose set by a donor or funder. They fall outside the definition of reserves and must be reported separately. Their nature and amount can still affect the policy: funding restricted to a particular service may reduce the need for general reserves in that area, but it cannot automatically pay an unrelated bill.

Some unrestricted funds also need careful treatment. CC19 says that reserves calculations should exclude items such as tangible fixed assets used in the charity’s work, social investments, funds designated for essential future spending, and commitments that have not been provided for as liabilities. Review the accounts and the details of any designation with the person responsible for the charity’s finances.

Designating funds is a real decision about a specific future purpose, not a way to make unspent money disappear from the explanation. State what the designation is for, why it is essential, how much is set aside and when it is expected to be spent. CC19 warns against creating designations retrospectively after the year end.

Cash is a liquidity measure: it helps show whether the charity can pay bills when they fall due. Reserves are about the funds that are freely available for the charity’s purposes. A bank balance can include restricted money or cash needed for commitments; conversely, the reserves measure is not necessarily held entirely as cash. Check both the fund reconciliation and the cash-flow forecast.

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Let the charity’s circumstances set the target

The Charity Commission says there is no single reserves level—or range—that is right for all charities. Trustees should be able to explain why their chosen target follows from the charity’s particular needs. A standard phrase or an unsupported rule of thumb will not explain that judgement.

Review the best information reasonably available, including current and future income forecasts, how reliable each income stream is, planned spending, future commitments, potential liabilities and material risks. Ask how a delay or loss of funding could affect delivery, staff, suppliers and beneficiaries. Consider whether the charity has a practical plan for an orderly closure if it has little or no reserve.

Look at timing as well as totals. A charity can forecast enough income over a year and still face a cash shortfall before a grant instalment arrives. A cash-flow forecast helps identify when the charity may need to use available funds; it is not, on its own, a reserves calculation.

Write down the reason for the target. For example, trustees might identify that a grant-funded service has a fixed end date, a replacement award is uncertain and stopping suddenly could disrupt support. That is a reason to model a suitable response—not a reason to copy another charity’s target.

A simplified hypothetical calculation

The figures below are fictional and are shown only to illustrate the arithmetic. They do not describe a real charity and are neither a benchmark nor a recommended target. Assume, for this simplified example, that the accounts show £140,000 of unrestricted funds. Trustees and their finance lead identify £40,000 in tangible fixed assets used to deliver the charity’s work, £15,000 designated for essential future spending, and £5,000 of commitments not provided for as liabilities. Assume no social investments or other relevant exclusions apply.

The illustrative estimate is £140,000 − £40,000 − £15,000 − £5,000 = £80,000. Restricted funds are shown separately and are not added to that figure. Trustees would check the accounting basis and all adjustments against the charity’s actual accounts; a real calculation may need different treatment or professional advice.

Suppose those fictional trustees then set a £70,000–£90,000 range after assessing their own forecasts and risks. The £80,000 estimate sits within that illustrative range. Neither those numbers nor that range should be reused as a target for a different charity.

Copy and adapt this reserves policy template

Use the outline as a starting point for a trustee discussion, not as a finished policy. Replace every bracket, check the calculation and record the board’s actual decision. If a section does not apply, explain why rather than leaving an ambiguous blank.

• Purpose and responsibility: “This policy applies to [charity name]. The trustees are responsible for approving it. [Named role] prepares the calculation and reports changes to the board.”
• What we count: “At [reporting date], our estimated reserves are £[amount], calculated from [accounts/fund balances] by excluding [relevant fixed assets, social investments, essential designations and unprovided commitments]. Restricted funds of £[amount] are shown separately and are not counted as reserves.”
• Why we hold—or do not hold—reserves: “We need [no reserves / a level / a range] because [explain the charity’s income reliability, planned spending, commitments, risks and potential effect on beneficiaries].”
• Our target: “We aim to maintain reserves of £[amount] / between £[lower] and £[upper]. This is based on [specific forecasts, risks and assumptions], reviewed on [date]. It is not a general rule for other charities.”
• If reserves fall below the target: “If reserves fall below £[trigger], [named role] will tell [trustee group] by [timeframe], update the forecast and recommend action. Trustees will consider [options suited to the charity], protect essential commitments and decide whether the target or plan needs review.”
• If reserves rise above the target: “If reserves exceed £[trigger], trustees will investigate why, check that funds are not restricted or needed for an identified commitment, and agree whether to retain or use the excess for the charity’s purposes. Any spending plan will state its purpose, amount, timing and review point.”
• Monitoring and review: “We will review reserves through [monthly/quarterly/other] budget reporting, review this policy at least annually, and consider an earlier review if [material funding, commitment, activity or risk trigger] occurs. [Named role] owns the next review, due [date].”
• Annual reporting: “Our trustees’ annual report will explain the policy, level of reserves held and why. We will also explain any material designated funds, including their purpose and expected spending timing, and any material difference from our target.”
• Approval record: “Approved by the trustees on [date]; minute reference [reference]; next review due [date].”

Decide what happens below the target

A target only helps if trustees know what to do when the estimate falls below it. Define a trigger that prompts review, who must be notified, what information they need and when the board will consider the issue. A trigger is a governance choice for the charity, not a threshold prescribed by CC19.

Start by identifying the cause. Is the difference due to a short-term timing issue, a one-off commitment, income arriving later, rising costs or a longer-term gap between income and planned delivery? Update the forecast and consider the likely duration and effect on beneficiaries before choosing a response.

Depending on the circumstances and trustees’ authority, responses might include slowing a discretionary commitment, reviewing costs, seeking more reliable income or revisiting a delivery plan. If reserves are very low or the charity faces financial difficulty, seek appropriate advice promptly and plan how to manage the risks—including the effect of an unplanned closure. Do not imply that a reserves target alone solves insolvency or cash-flow problems.

Decide what happens above the target

A balance above target does not automatically mean that the charity should spend it immediately. First check the calculation, restrictions, commitments and any genuine future plans. Ask whether the income was unexpectedly higher, activity was delayed, or the target no longer matches the charity’s risks.

If the board concludes that some funds are not needed for resilience, agree a reasoned and time-bound plan to use them for the charity’s purposes, subject to the governing document and any restrictions. If retaining a higher level remains justified, explain the evidence, the duration and when trustees will reconsider it. A growing surplus without a clear reason or plan can be difficult to explain to beneficiaries and funders.

Monitor during the year and review at least annually

CC19 says reserves should not be reviewed only at year end. Monitor the level through normal budgetary reporting, note when reserves are drawn on or rise materially, and investigate why the actual figure differs from the target. Keep a dated record of the calculation and assumptions so trustees can compare like with like.

The Commission says the reserves policy should be reviewed at least annually. Consider it earlier if a major grant or contract ends, a significant commitment changes, the charity alters its activities, forecasts change materially, or a new risk affects its ability to continue. Record the decision and any action owner in the minutes.

A proportionate review can use the same financial report trustees already receive: actual and forecast income and spending, restricted and unrestricted funds, cash flow, commitments, risks and the current reserves estimate. Label the reporting date and explain material changes instead of relying on an unexplained headline figure.

Explain the policy in the trustees’ annual report

A reserves policy and an internal trustee paper serve different purposes. CC19 says the trustees’ annual report should state the reserves policy, the level held and why. If the charity has no policy, say so. Where material funds have been designated, quantify them, explain their purpose and state the likely timing of the spending.

CC19 also expects trustees to publish and operate a policy tailored to their charity, even where the policy is not otherwise required by law to be published. The annual-report statement is an important way to explain the charity’s position to funders, beneficiaries and the public.

Be specific enough that a reader can understand the charity’s position: the target or range, actual reserves at the reporting date, why that level is needed, and any significant difference or plan to address it. Do not paste generic wording that could describe any charity. Explain how the conclusion reflects this charity’s income, activities, risks and commitments.

Annual-report rules depend on the charity’s jurisdiction and applicable reporting framework. The Charity Commission’s current England and Wales guidance was updated in September 2026 to reflect Charities SORP 2026 for relevant reporting periods. Check the version and requirements that apply to your own financial year.

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Put the policy into use

Before the next trustee review, bring the latest accounts, fund reconciliation, cash-flow forecast, income dates, commitments and risk assessment together. Ask the finance lead to verify the calculation; ask trustees to test whether the rationale and response plans are clear; then record the decision, owner and review date.

If you use JENY, its project, funder and reporting records can help keep supporting information organised. Bring those materials to the finance lead and trustees, verify figures against the accounts, and make the reserves judgement through your charity’s normal governance process.

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