How to Write a Charity Reserves Policy

A reserves policy explains why your charity holds reserves, how much it aims to hold, and how those reserves will be used. Reserves are the funds a charity keeps available to meet future needs rather than spending immediately on current activities.

The Charity Commission regulates charities in England and Wales, and trustees are responsible for their charity's governance and for compliance with charity law. Setting and following a reserves policy is part of that governance responsibility.

The headline point is that a reserves policy is not only an internal planning tool. The Commission expects trustees to set, document and explain it, and to state it publicly in the trustees' annual report.

The Commission's guidance on charities and reserves (CC19) sets out the expectation that trustees agree a reserves policy and review it as the charity changes. You can read the guidance in full on the GOV.UK charity reserves (CC19) page.

Why a Reserves Policy Matters

Reserves give a charity resilience. They help trustees manage uncertainty, cover unexpected costs, and keep delivering for beneficiaries when income is interrupted.

Holding too little can leave a charity exposed to a sudden funding gap. Holding too much, with no clear reason, can prompt questions from funders, the Commission and the public about why money is sitting unused rather than being spent on the charity's purposes.

A documented policy lets trustees explain their thinking. It shows that the level of reserves is a deliberate decision linked to the charity's risks, commitments and plans, not an accident of the balance sheet.

Following good policies is also part of the wider picture of good governance. The Charity Commission's annual return asks trustees questions about the charity, and holding and following sound policies aligns with the Charity Governance Code, a sector standard rather than a legal requirement.

What CC19 Expects of Trustees

Under CC19, trustees should do three connected things. They should set a reserves policy, document it, and explain it.

Setting the policy means deciding, on an informed basis, the level of reserves the charity aims to hold and why. Documenting it means writing that decision down so it can be reviewed and shared. Explaining it means being able to justify the figure to anyone with a legitimate interest.

The trustees' annual report should state the reserves policy and the level of reserves held, and why that level is held. This brings the policy into the open and ties it to the charity's reported finances.

How to Set the Level of Reserves

There is no single right figure, and trustees should resist copying a number from another charity. The appropriate level depends on the charity's own circumstances, risks and commitments.

Trustees usually look at factors such as the reliability of income, fixed and ongoing costs, known future commitments, and the risks identified in their planning. The reserves policy should connect to the charity's risk management work so the level reflects the threats the charity actually faces.

Avoid setting a figure once and forgetting it. Reserves should be reviewed regularly, particularly when income, activities or the risk picture change.

1. Decide the Purpose of the Reserves

Start by agreeing what the reserves are for. Common purposes include covering a temporary fall in income, meeting commitments already entered into, and funding planned future activity or contingencies.

Being specific about purpose makes the eventual figure easier to justify. It also helps trustees recognise when reserves are higher than the stated purpose requires.

2. Assess the Charity's Risks and Commitments

Link the policy to your risk register and financial planning. Consider how secure your funding is, what would happen if a major grant ended, and what fixed costs would continue regardless.

This is where the reserves policy meets risk management (CC26), under which trustees identify and assess the major risks the charity faces and decide how to manage them.

3. Set, Document and Review the Target

Record the target level or range, the reasoning behind it, and how the funds may be used. Note when the policy will next be reviewed and who is responsible for that review.

Keep the documented policy consistent with what you publish, so the figure trustees agree internally matches the level stated in the annual report.

4. State the Policy in the Trustees' Annual Report

The annual report should set out the reserves policy, the level of reserves held, and the reasons for that level. If reserves are significantly above or below target, explain why and what trustees plan to do about it.

This public statement is the part of CC19 that trustees most often overlook, so build it into your reporting process each year.

Quick Reference

Element	What trustees should do
Guidance	Follow Charity Commission guidance CC19 on charities and reserves.
Purpose	Decide and record why the charity holds reserves.
Level	Set a target level or range based on the charity's own risks and commitments, not a borrowed figure.
Link to risk	Connect the reserves level to the charity's risk register and financial planning.
Documentation	Write the policy down, including reasoning and review arrangements.
Reporting	State the policy, the level held and the reasons in the trustees' annual report.
Review	Revisit the policy regularly and when income, activities or risks change.

What Trustees Must Do

• Agree a clear purpose for holding reserves before fixing any figure.
• Set a target level or range based on your charity's own risks and commitments.
• Link the reserves level to your risk register and financial planning.
• Document the policy in writing, including the reasoning and review arrangements.
• State the reserves policy and the level held in the trustees' annual report, with reasons.
• Review the policy regularly and whenever income, activities or risks change materially.

Common Mistakes

• Copying a reserves figure from another charity instead of assessing your own circumstances.
• Setting a policy once and never reviewing it as the charity changes.
• Holding reserves with no stated purpose, which is hard to justify to funders and the Commission.
• Treating the policy as purely internal and failing to state it in the trustees' annual report.
• Reporting a reserves level that does not match the policy trustees actually agreed.
• Setting the level in isolation from the charity's risk management and financial controls.

How Policy Pros Can Help

We write bespoke charity policies that reflect your charity's purposes, activities and risks, including a reserves policy that meets the expectations in CC19 and reads clearly in your trustees' annual report. Our charity policies and procedures service covers the full suite trustees are expected to hold. Further trustee guidance is collected in the Charity Commission's guidance publications.

A reserves policy works best alongside the rest of your financial governance. We can help you put in place a charity internal financial controls policy to safeguard funds, and a charity risk management policy so your reserves level is grounded in the risks you have actually identified.

For the wider context of what trustees should have in place, see our guide to charity policies and the annual return, which maps the policies the Commission expects across governance, finance and safeguarding.