Policy templates / Reserves Policy
Charity Reserves Policy Template & Example (Free, UK)
Highlighted parts are yours to complete. A starting point to adapt, not legal advice.
1. What reserves are
Reserves are the part of [your charity]'s unrestricted funds that is freely available to spend. They do not include restricted funds or endowment. They do not include money you have already committed, or money tied up in buildings and equipment you cannot sell.
2. Why we hold reserves
We hold reserves to meet our obligations if income falls short, to fund an orderly wind-down of our commitments to beneficiaries and staff if we had to close, and to manage the risk that our largest income source (currently [X]) is concentrated. We set these reasons from our actual risks, not a rule of thumb.
3. Our target range and how we set it
We aim to hold between £[lower] and £[upper], equivalent to roughly [N] months of core running costs. We reached this figure by adding up our fixed commitments, the notice period for staff and premises, and the time it would take to replace lost income. The Commission is explicit that the level must be justified by your circumstances1. A bare '3 to 6 months' with no reasoning is not a reserves policy.
4. What we do when reserves fall outside the range
If reserves fall below £[lower], the trustees agree a plan to rebuild them. If they rise above £[upper], the trustees either agree a plan to spend the surplus on beneficiaries or record in the minutes why they are holding more. Any money set aside for a specific future purpose (a designated fund) carries a written purpose, an amount and an expected date, and is reported separately from free reserves, so a surplus cannot be parked in a fund with no real plan behind it.
5. Monitoring between reviews
The treasurer reports free reserves against the target range at every trustees' meeting. Movements up or down within the range are normal and need no action. If free reserves fall below £[lower], it goes on the agenda as a decision, so the board acts before a shortfall reaches payroll or other core costs.
6. Review
Trustees review this policy and the actual reserves level at least annually, alongside the annual accounts. We review it yearly rather than on our usual two-year cycle because reserves are finance-critical and can move faster than a longer cycle would catch. Approved [date]; next review [date].
More about this policy
When you need it
A reserves policy isn't a statutory document in itself, but charities preparing accruals accounts must state their reserves policy in the Trustees' Annual Report[1], and the Commission expects every charity to have thought it through. The point isn't the number. It's the reasoning: why this level, given your specific risks and commitments.
What it protects against5 examples
The policy copies a template that says "3 to 6 months of running costs" but nobody worked out what this charity's running costs actually are, so the target is a number no one can check against.
The reader sets the target from this charity's own annual expenditure, writes it as both a figure and a range, and gives a short reason for that level.
The bookkeeper reports "£80,000 in the bank" as reserves, but £50,000 is a restricted grant for next year and £20,000 is tied up in the building. Free reserves are really about £10,000.
The reader treats reserves as unrestricted funds only, after stripping out money already committed and fixed assets the charity cannot sell.
Reserves quietly climb to nearly two years of running costs while the charity turns away work and a funder asks why it is sitting on cash.
The policy sets an upper limit as well as a lower one; above it, trustees either spend to a plan or write down why they are holding more.
Cash falls month after month, nobody flags it, and the charity finds out at the last minute it cannot cover payroll.
The treasurer reports free reserves against target at every meeting, and dropping below the minimum triggers a trustee decision rather than a surprise.
Trustees shift money into a "designated fund" so free reserves appear to sit within target, but the designated pot has no real purpose or date attached.
Designated funds carry a stated purpose and timescale, and are reported separately from free reserves so nothing is hidden.
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How to enforce it
Practical steps to make it live, not just filed:
- The treasurer reports the free reserves figure against the target at every trustee meeting, or at least quarterly, so it is always on the table.
- Whoever keeps the books calculates free reserves properly: total unrestricted funds, minus money already committed, minus fixed assets the charity cannot readily sell.
- Trustees review the target once a year when they set the budget, and change it if running costs have moved.
- If reserves fall below the minimum or rise above the maximum, it goes on the next meeting agenda as a decision, and that decision is minuted.
- The reserves figure and a short statement of the policy go into the annual report and accounts each year, as the Charity Commission expects.
What larger charities add2
Pull one in only when it matches something you actually do:
- Designated funds Mid-size (£1m to £10m)+
- Reserves, investment and liquidity Large (£10m+)+
What people get wrong
- Stating a target with no justification. 'We hold 3 to 6 months' is the classic fail. CC19 requires the level to be reasoned from your own risks and commitments. Show your working.
- Confusing total funds with free reserves. Restricted funds, endowment and money tied up in fixed assets aren't reserves. State the free, unrestricted, spendable figure.
- Only looking at reserves once a year. An annual review won't catch a slow month-on-month slide. Put free reserves against target on every meeting agenda so a shortfall shows up early.
- Copying a big charity's reserves-and-investment framework. A small charity needs a clear range and a reason, not a liquidity ladder. Add the investment linkage only when you actually hold investments.
Terms used here5
- trustees' annual report
- The report trustees prepare each year alongside the accounts, explaining what the charity did and the difference it made.
- unrestricted funds
- Money the charity can use for any of its purposes, not tied to a specific donor condition.
- restricted funds
- Money that must be spent on a specific purpose set by the donor or funder.
- designated fund
- Unrestricted money the trustees have set aside for a particular purpose, with an amount and a timescale.
- free reserves
- Money the charity can spend freely: unrestricted funds, minus anything tied up in fixed assets.
Sources2
Numbered to match the [n] citations in the template.
- Charities and reserves (CC19) Commission guidance
- The essential trustee (CC3): managing resources responsibly legal duty