Making grants to charities and other organisations
Read about your trustee duties when making grants to charities and other organisations, including situations where you need to take extra care.
Applies to England and Wales
Your charity can carry out its purposes by making grants to other organisations. Grants are funds that do not have to be repaid.
Giving grants can help your charity, and the organisations you fund, to achieve positive impact. Some charities focus solely on this.
You can make grants to organisations that are:
Examples of what your charity can fund include:
- specific projects and activities, including work overseas
- the support costs of a project that your charity is funding. For example, premises or staff costs
- the costs of helping an organisation to develop its capacity. For example, its staff, strategy or technology
In all cases, the work you fund must help you to carry out your charity’s purposes. Your funding must not support any other purposes.
Your trustee duties
You must comply with your trustee duties when setting up and overseeing your charity’s grant-making. This includes your duty to:
- carry out your charity’s purposes for the public benefit
- comply with your charity’s governing document and the law
- act in your charity’s best interests
- act with reasonable care and skill
This guidance will also help you to:
- comply with trustee decision-making rules
- take extra care before making grants to organisations that are not charities
Only make grants for your charity’s purposes
Your charity’s purposes are in its governing document.
As trustees, you must:
- understand the scope and limits of your charity’s purposes
- make sure that your grant-making only funds work that will help you to carry out your charity’s purposes
Your charity may have more than one purpose or general charitable purposes. Depending on your charity’s priorities, you can decide to focus your grants on one or more of these purposes.
Set appropriate grant-making processes
As trustees, you should:
- set and review your charity’s funding priorities, thinking about the impact you want to have
- decide how much of your charity’s funds will be given as grants, and the types of projects, activities or organisations you want to support
Your charity should have agreed processes for making grants. For example, how organisations will apply and the information they need to include in their applications.
You should:
- ask for the right level of detail in applications so you can manage risks and make informed decisions about each grant
- agree how you will assess applications
You must:
- identify and regularly review any risks of your grant-making processes
- make appropriate checks on applicant organisations
- ensure that the work you fund will help you to carry out your charity’s purposes
Some charities do their own research to decide which organisations to fund instead of accepting grant applications. If your charity works like this, your responsibilities are the same as trustees of other grant-making charities.
You must identify and manage any conflicts of interest.
Delegating your decisions
If your charity has staff or advisers, they can administer your grant-making process.
You can usually delegate grant-making decisions to them or a sub-committee of trustees.
However, you should not usually delegate high-risk or novel decisions. As trustees, you are still responsible for decisions you delegate.
When you are delegating, make sure you have:
- written terms of reference for the group or person you have delegated to
- clear and robust reporting procedures
Make checks on organisations before giving grants
Your charity must carry out appropriate checks before making a grant. This process is sometimes called due diligence.
You should decide what checks your charity will make to assess if the organisation:
- is a charity or not
- does work that will help you to carry out your charity’s purposes
- is genuine and suitable for your charity to work with
- can carry out the funded work
- has the right experience or knowledge to deliver
- has a structure that you understand
- is well managed
- can be monitored. This will allow you to check that the terms of the grant are being followed
Take reasonable steps to assess risks
For each grant, you must:
- understand any risks and where extra care may be needed
- carefully consider the level of checks that you will carry out. This includes on organisations that your charity has worked with before
- make more checks where the risks are higher. For example, some grants to organisations operating overseas or to organisations that are not charities
- use your checks to help you manage any risks and make your funding decision
- decide how you will monitor risks while the funded work is in progress. New risks may appear, or existing risks may become more likely to happen
All grant-making involves a degree of risk. Sometimes you may decide to accept a higher level of risk. For example, to fund an innovative project that could deliver significant impact or to give an ‘unrestricted’ grant.
Read more about:
Set grant terms and conditions
Set out in writing to the recipient organisation:
- how the grant must be used
- the time period for the delivery of the funded work
- how you will monitor the grant. For example, the method and timing of any reports you need from the organisation
- what will happen if the terms of the grant are not followed
- what the recipient organisation must do if it can no longer carry out the terms of the grant
- any terms to protect your charity’s intellectual property rights. For example, use of your charity’s logo
- any terms that would cause you to terminate the grant
- any terms you require relating to safeguarding
- any other terms to protect your charity
A letter or short agreement may be enough for low-risk grants. For higher-risk grants, you will need extra terms and conditions. For example, if the grant is multi-year or funding overseas work.
Your charity can take legal advice on preparing the document.
Make sure the recipient organisation understands what the grant can and cannot be used for.
Remember, the grant must help you to carry out your charity’s purposes.
You can give unrestricted grants to certain charities
If you are giving a grant to a charity with the same or narrower purposes than yours, your funding can be unrestricted. This means that the recipient charity can choose what to spend the money on.
For example, a charity with purposes to relieve poverty in the UK can provide an unrestricted grant to a charity with purposes to relieve poverty in Wales.
Unrestricted funding can allow recipient charities:
- to use their expertise to make decisions
- more flexibility over how they work
- to respond to unexpected external events
- to try new things
If you are giving a grant to an organisation that is not a charity or a charity with wider purposes than yours, you must restrict the grant. This will ensure that your grant-making only carries out your charity’s purposes.
Monitor your charity’s grants
Monitoring how your grant is spent will help to ensure that the terms are being followed and that the funded work will carry out your charity’s purposes. It can also help you to improve your grant-making process.
You should decide how you will monitor the grant. This will depend on the size of the grant and the level of risk.
For example, your monitoring could include:
- a one-off report at the end of the funded work. For small and low-risk grants, you may decide this is enough
- regular reporting during the period of funding. You could request reports at agreed milestones, particularly if giving funding in instalments
- asking for evidence of how the grant is being used. For example, invoices
As well as monitoring if the terms are being followed, you should also check if the grant is achieving your charity’s intended impact.
Adequate monitoring is crucial for large grants or in high-risk situations. You can read more about monitoring grants when the risk is high.
You must be able to show that:
- the grant has been used to help you to carry out your charity’s purposes
- you have managed your charity’s resources responsibly and reasonably
Sometimes grants will not have their desired impact even though the funded work has been completed. If the grant terms have been followed, you should consider why the grant did not achieve its objectives. This will help you to improve your future grant-making process.
What to do if something goes wrong
You must take immediate action if your monitoring shows that the grant is not being used as required. One option may be to suspend any ongoing funding while you review the situation.
You may need to report it to the Commission.
Report on your charity’s grants
If making grants is a significant part of your charity’s activities, you may be required to explain your grant-making policy in your trustees’ annual report.
Find out more in the Charities SORP.
Take extra care before making grants to organisations that are not charities
Your charity can usually make grants to organisations that are not charities.
Doing this may help you to carry out your charity’s purposes more effectively. For example, these organisations could help you to reach your target:
- causes
- beneficiaries
- communities
Your grant can fund projects and activities. It can also fund support costs and capacity building but only if doing this will help you to carry out your charity’s purposes.
However, it is higher risk to give grants to organisations that are not charities. This is because they do not need to:
- follow charity law
- have charitable purposes
- operate for the public benefit
How to check if an organisation is a charity
It may not be clear whether an organisation is a charity.
For example, the following organisations are not charities:
- Community Interest Companies (CICs)
- co-operatives
- for-profit companies
- public sector bodies
- some social enterprises
- some community benefit societies
- organisations with political purposes
If you are unsure, you should check if it is:
- listed on the Charity Commission register
- a charity that does not need to register. For example, charities with a gross income below £5,000 and ‘exempt charities’ do not need to register
You can ask charities that do not need to register for evidence that HMRC recognises them as a charity for tax purposes.
You should not:
- assume that an organisation with similar purposes or activities to your charity is a charity
- treat an organisation as a charity if there is no evidence of this
Organisations that are charities in other jurisdictions
Some organisations will not be charities in England and Wales, but may be registered as charities elsewhere. This can usually be checked with the relevant charity regulator.
For example, Scottish and Northern Irish charities are regulated by:
Registration as a charity in another country may give you some assurance about the organisation’s governance and credentials.
What to do before making a grant to an organisation that is not a charity
Check your charity’s governing document. In rare cases, it may say that you cannot make grants to organisations that are not charities.
If you can make a grant, you must restrict it so that it helps you to carry out your charity’s purposes.
When following the above guidance, you should particularly make sure:
- you do appropriate checks on the organisation
- the recipient organisation understands and agrees, in writing, what the grant can and cannot be used for
- you will be able to monitor the grant
- the grant does not give rise to more than incidental personal benefit. Personal benefit is ‘incidental’ where (taking account of its nature and amount) it is a necessary result or by-product of carrying out your charity’s purposes
- you comply with decision-making principles and keep a record of decisions you make. You should be able to explain and justify funding decisions
- you safeguard your charity from terrorism, fraud and other abuse
When the Charity Commission will become involved
The Commission may get involved if you cannot show that you have complied with your trustee duties.
Read about how we assess concerns and the actions we can take.