Policies & procedures

7. Trustee expenses policy and procedures

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7.1. Key points about expenses and trustee payments

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This section summarises the main points for charity trustees to consider. They are based on a mixture of case law, charity law, and good practice, and are covered in more detail in the guidance.

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The concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities.

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The basic principle is that trustees must not put themselves in a position where their personal interests conflict with their duty to act in the interests of the charity unless authorised to do so.

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However, trustees are entitled to have their expenses met from the funds of the charity. Expenses can include a wide range of costs including, for example, travel and other costs of attending meetings, specific telephone and broadband charges, travelling on trustee business, and providing childcare or care of other dependants while attending to trustee business.

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Charities have a statutory power to pay a trustee, or a connected person, for the supply of goods or services in certain circumstances under section 185 of the Charity Act 2011 (as amended). This power cannot be used if the governing document prohibits this type of payment.

A charity trustee may only be paid for serving as a trustee where this is clearly in the interests of the charity and provides a significant and clear advantage over all other options. There is no general power in law for this type of payment - a charity would need a specific authority which may be found in its governing document, or be provided by the Charity Commission, or, more rarely, the courts.

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Where a charity proposes to employ a trustee in some other role, or where a charity wishes to compensate a trustee for loss of earnings to enable them to attend meetings during working hours, it must firstly ensure that it has the necessary authority in its governing document. If it does not, the charity will need to approach the Commission or the courts.

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In any case where a charity wishes to make a payment, but has no clear power to do so, the trustee board must apply to the Commission for authority before the payment is made.

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Properly assessing any potential risks and managing conflicts of interest are important factors when a charity is proposing to pay a trustee. Trustee boards should be open and transparent about their decision to pay and be prepared to justify it if publicly challenged. For all charities, disclosing such payments in the charity accounts in accordance with Charity SORP guidelines is not only a legal requirement for companies and larger charities but will help charities of all sizes dispel any perception that payments might have been made in secret.

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Charities should have clearly defined procedures for identifying and managing conflicts of interest. Ideally, these procedures should be set out in the charity’s governing document.

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As good practice, a trustee board should regularly review the performance of each trustee (including the chair). This is particularly important where a trustee is receiving a payment from the charity.

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Ensuring that the opportunity to be a trustee is open to all is one of the keys to achieving strong, effective boards of trustees. Clear policies on payment of expenses can help with this. Other forms of payment, including compensating individuals for loss of earnings, can also be used as a tool to attract promising candidates who might otherwise be unable to afford to serve. If a trustee board is considering whether to make a payment to a trustee (as opposed to reimbursement of expenses) there are six key factors to consider:

• who will receive the payment - will it be a trustee, or a person or business connected with a trustee?

• what is the payment expected to cover?

• is the payment clearly in the best interests of the charity?

• is there a legal authority for it?

• what conditions must be met if the payment is to be made?

• how will any conflict of interest be managed?

The guidance on trustee expenses and payments applies equally to charity trustees and persons or businesses connected with them.

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7.2. Introduction and meaning of terms

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The concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities. This does not mean that a trustee can never receive any payment or benefit from a charity; there are sometimes good reasons why it can be in a charity’s interests to make a payment to a trustee. Trustee boards need, though, to minimise the risks to their charity’s reputation and operation. This guidance is designed to clarify the law and good practice where trustee boards propose to make payments to one or more of the trustees.

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7.2.1 What this guidance covers

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The guidance explains:

• what can be classed as legitimate trustee expenses; the Commission emphasises that trustees should not be ‘out-of-pocket’ as a result of the work they carry out on behalf of their charity (section 3)

• how charities can use the statutory power to pay trustees and connected persons for goods or services (provided by the Charities Act 2011 (as amended)), and the conditions they must meet when doing so (section 4)

• the limited circumstances where payment may be made for serving as trustee, and the issues trustee boards need to address when considering these payments (section 6)

• when the Commission’s authority is needed if a trustee, former trustee, or person connected with a trustee, takes up paid employment with a charity. The guidance also covers situations where an employee of a charity becomes a trustee. (section 7)

• when a trustee may be paid reasonable compensation for loss of earnings (section 8)

To support charity trustees’ use of this guidance, the Commission has included examples within the guidance. It has also included details of other relevant guidance and contact details of organisations that can also provide useful advice affecting the issue of trustee payment.

7.2.2 What does the Commission mean by ‘expenses’ and ‘trustee payments’?

Expenses are normally refunds by the charity of costs a trustee has had to meet personally to carry out trustee duties. In some cases, these expenses may be paid in advance. A refund of properly incurred expenses is not a trustee payment, nor does it count as any kind of personal benefit.

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Trustee payments are a financial or other measurable benefit paid to a trustee, or to a ‘connected person’ (see section 2.3), from a charity’s funds in return for work the trustee has carried out for the charity. In most cases, this involves paying a trustee for goods or services over and above normal trustee duties - for example, plumbing services and parts (goods and services), painting the charity’s premises and supplying the materials (goods and services), providing sports equipment (goods), or legal or accountancy work (services). But it can also include payment for serving as trustee, and payment to a trustee as an employee of the charity in a separate role (for example a chief executive, head teacher, or religious leader who also sits on a charity’s board).

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Trustee payments might also be made ‘in kind’ - for example, free use of the charity’s facilities or services for which users normally must pay.

7.2.3 Meaning of other terms and expressions

The word ‘must’ is used where there is a specific legal or regulatory requirement that you must comply with. ‘Should’ is used for minimum good practice guidance you should follow unless there’s a good reason not to.

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Although the Commission has tried to write this guidance in everyday language, there are several technical terms it needs to use in places. This list explains some of them:

• Applicable Statement of Recommended Practice (‘SORP’) is the term used to describe the SORP to be used by the charity to prepare its accounts on an accruals basis which is in effect for the financial year for which the accounts are being prepared

• breach of trust: a breach of any duty imposed on a trustee; for charity trustees, these duties may be found in the provisions of a charity’s governing document, laws and regulations, or orders of the court or the Commission

• charitable company: a company formed and registered under the Companies Act 2006 for exclusively charitable purposes; this definition includes charitable companies registered under the Companies Act 1985, or which were in existence before that

• the Charities Act: the Charities Act 2011 (as amended)

• conditional power of payment: where use of a power to pay trustees can only be used with the Commission’s prior written approval

• conflict of interest: any situation in which a trustee’s personal interests or loyalties could, or could be seen to, prevent them from deciding only in the best interests of the charity

• connected person: in the context of trustee payment, this is defined by s.188 of the Charities Act and broadly means family, relatives or business partners of a trustee. It also covers businesses in which a trustee has an interest through ownership or influence. The term includes a trustee’s spouse or unmarried or civil partner, children, siblings, grandchildren and grandparents, as well as businesses where a trustee or family member holds at least one-fifth of the shareholding or voting rights. If in doubt about whether a person or business is a connected person, refer to s.188 of the Charities Act, or seek advice from a solicitor or other person qualified to advise on the matter

• court: usually means the High Court, but can mean any other court in England and Wales with jurisdiction over charities

• goods or services: for convenience, reference to ‘goods or services’ in this guidance means services provided, or goods provided, or goods and services provided together

• governing document: a legal document setting out the charity’s purposes and, usually, how it is to be administered; it may be a trust deed, constitution, memorandum and articles of association, will, conveyance, Royal Charter, scheme of the Commission, or other formal document

• prohibition on payment: an express instruction against paying trustees. This would usually be couched in negative terms, for example: ‘The trustees shall not pay…’ or ‘No trustee shall be paid…’. but a form of wording that says ‘All trustees must act gratuitously’ would also be a prohibition

• scheme: a legal document made by the Commission or the court which either sets out all the rules for running a charity (and is therefore its governing document), or which amends the powers of a charity (thereby forming part of its governing document)

• the 2000 Act: the Trustee Act 2000

• trustee: a charity trustee. Charity trustees are the people who are responsible for the general control and management of the administration of the charity. In the charity’s governing document, they may be collectively called trustees, the trustee board, managing trustees, management committee, governors or directors, or they may be referred to by some other title.

7.3. Payment of expenses to a trustee

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The law entitles charity trustees to claim legitimate expenses while engaged on trustee business. No separate authority is needed in the charity’s governing document or from the Commission.

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7.3.1 What are trustee expenses?

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The short answer

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Expenses are refunds by a charity of legitimate payments which a trustee has had to meet personally to carry out their trustee duties. Expense claims should normally be supported by bills or receipts, except where it is impractical to expect this, for example, where very small amounts are claimed.

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In more detail

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Any reasonable costs that allow trustees to carry out their duties can be classed as legitimate expenses. So long as the charity only pays the trustee for the actual cost or expense, the payment is not taxable. The following are examples of expenses:

• the reasonable cost of travelling to and from trustee meetings, and on trustee business and events; this can include the cost of using public transport, taxi fares, and petrol allowances to the level permitted by HM Revenue & Customs (HMRC) before tax becomes payable

• reasonable refunds for the cost of meals taken while on charity business

• the reasonable cost of childcare, or care of other dependants (for example, an elderly parent) whilst attending trustee meetings

• the cost of postage and telephone calls on charity business

• the costs of a trustee’s telephone rental and broadband subscription, so long as these are split to reflect the percentage of time relating to usage on behalf of the charity

• communication support: translating documents into Braille for a blind trustee, or into different languages; provision of alerting and listening devices, and other special aids for people with hearing impairment

• the costs of buying training materials and publications relevant to trusteeship

• providing special transport, equipment or facilities for a trustee with a disability

• cost of reasonable overnight accommodation and subsistence (including any essential care costs) while attending trustee meetings or other essential events such as voluntary sector conferences or specialist training courses

Payments which do not count as expenses

Sections 7.3.4 and 7.3.5 cover payments which are not expenses and which either cannot legitimately be made (7.3.4) or which can only be made if there is suitable authority (7.3.5).

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It is also worth noting that reimbursement of trustees for purchases they have personally and properly made on behalf of the charity are not counted as expenses and are accounted for as part of the charity’s general expenditure.

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7.3.2  Do charities need an expenses policy?

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The short answer

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It is good practice for charities to have an expenses policy.

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In more detail

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Paying reasonable expenses is a good way of ensuring that the whole trustee board participates in running the charity and, more generally, of ensuring that being a trustee is open to all. For example, this might be particularly relevant when seeking to recruit younger trustees or to ensure that people on low incomes can participate. Unless by personal choice, no trustee should be ‘out of pocket’ because of carrying out their normal duties and responsibilities. Charities should have a written expenses policy, setting out what is recoverable as an expense and what is not, and they should ensure the policy is clearly understood by all the trustees. If trustee boards are in doubt about whether something qualifies as an expense, they should take professional advice. If the Commission decides that an item is a trustee benefit rather than an expense, and there is no power in the governing document to make the payment, the Commission may be able to approve it if it can be shown to be in the charity’s interest to do so.

7.3.3 Can trustee expenses be paid in advance?

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The short answer

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Where they consider it useful, trustee boards can decide for advance payment of reasonable out-of-pocket expenses.

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In more detail

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Repayment of expenses should be dealt with as quickly as possible and can be made in cash, particularly for smaller items. Advance payment can be particularly useful where the cost can be predicted, for example babysitting costs while attending a board meeting, a direct debit for a broadband connection, or perhaps the cost of staying at a hotel when attending a conference. It will also be particularly helpful for trustees on low incomes or state benefits who may be unable to wait for repayment.

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If the actual cost of expenses exceeds the amount advanced, then adjustments can be made. But trustee boards must be clear that any pre-payment scheme they put in place has appropriate safeguards and does not constitute a private benefit. They should ensure that any sums not spent are returned to the charity.

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Where payment exceeds actual cost: any payment kept by a trustee over and above the actual cost of the expenses will be an unauthorised private gain, and liable for repayment to the charity.

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Entitlement to benefits: state benefit rules have clarified that entitlement to benefits will be unaffected by payment for expenses paid in the future. In case of any dispute, clear record keeping will enable a charity to show that such payments are a reimbursement, and not income for the trustee concerned.

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7.3.4 What payments would not be legitimate trustee expenses?

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The short answer

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Expenses which are excessive, and/or which do not relate to legitimate trustee activities.

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In more detail

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The following are all examples of payments which are not legitimate trustee expenses or payments:

• payment of hotel accommodation or travel costs for spouses or partners who are not themselves travelling on charity business

• payment of private telephone bills for business unrelated to the charity

• payment of private medical insurance

• petrol mileage rates above the levels approved by HMRC for claimable expenses

• in the case of a trustee nominated by a local authority, expenses already allowed for under that authority’s statutory or contractual arrangements.

There are many other examples. Generally, charities should be wary of the risk of excessive or false trustee expense claims. Any misuse of charity assets for private benefit can damage public confidence in a charity, can affect the charity’s ability to operate for the public benefit and is likely to amount to mismanagement or misconduct. The trustee may also be liable to repay the charity for any excessive or false trustee expense claims.

7.3.5 What legitimate payments not counted as expenses might need authority?

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The short answer (legal requirement)

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Some types of payment are often confused with expenses, when they are actually trustee benefits which HMRC will consider can be taxed as income. They can only properly be paid out of charity funds if there is suitable authority for doing so.

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In more detail

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The following are all examples of payments which are not expenses, and which the Commission might need to authorise:

• compensation for loss of earnings whilst carrying out trustee business (see section 8)

• allowances: for example, a personal clothing allowance

• honoraria (small or token sums not intended to reflect the true value of the service provided - see section 6.8)

• payment for use of a trustee’s property (or part of it) for storage and use of charity equipment.

7.3.6 How should trustee expenses be accounted for?

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The answer (legal requirement)

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Charities that have to prepare accruals accounts must follow the applicable Statement of Recommended Practice (SORP) which sets out accounting requirements for charities. In practice, this covers all charitable companies, as well as all other types of charity with gross yearly incomes of more than £250,000.

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As part of the SORP requirements, charities must disclose as a note to their accounts:

• the total amount of trustee expenses

• the nature of the various expenses

• the number of trustees involved.

For this purpose, expenses do not include purchases made on behalf of the charity for which a trustee has been reimbursed. If trustees have received no expenses, this should also be stated.

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The Commission recommends that all charities should follow this approach to accounting for expenses, even if they are not formally required to follow the SORP requirements.

7.4. Paying trustees for goods or services

This section focuses on the power that allows charities to pay trustees for additional goods or services they provide to their charity over and above their normal trustee duties (‘the statutory power’). Trustees must take this guidance into account before they enter into an agreement under this power.

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Trustees can be paid for providing goods or services to the charities for which they are trustees. The power to do this comes from section 185 of the Charities Act which allows trustees to be paid under certain conditions. The statutory power also applies to:

• payments for goods or services provided by connected persons (see section 7.2.3)

• any trustees or nominees that may have been appointed simply to hold the title to a charity’s property

The conditions that must be followed are outlined in section 7.4.3.

Situations not covered: charities cannot rely on the statutory power to pay their trustees where:

• the charity wishes to pay a trustee for serving as trustee (see section 7.6)

• the charity wishes to employ a trustee or a connected person under a contract of employment (see section 7.7)

• the charity’s governing document has a strict prohibition against payment for goods or services (see section 7.4.10)

• the conditions for making the payment cannot be met (see section 7.4.3).

Trustees may also have a separate power to pay trustees for goods or services in their governing document.

7.4.1 What goods or services can a charity pay its trustees for?

The short answer

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A charity can pay a trustee for the supply of any goods or services over and above normal trustee duties. The decision to do this must be made by those trustees who will not benefit. They must decide that the service is required by the charity and agree it is in the charity’s best interests to make the payment and must comply with certain other conditions (see section 7.4.3).

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In more detail

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Examples of goods or services that may be provided by a trustee in return for payment under the power in the Charities Act include:

• the delivery of a lecture

• a piece of research work

• the use of a trustee’s firm for a building job

• the occasional use of a trustee’s premises or facilities

• entering a maintenance contract with a trustee’s firm

• providing curtains or decorating materials for hall premises

• providing timber for a building

• providing specialist services such as estate agents, land agents, management and design consultants, computer consultancy, builders, electricians, translators, and graphic designers.

The power cannot be used to allow payment for auditing services as a trustee cannot legally act as an auditor for their charity.

7.4.2 What if a charity already has a power to pay its trustees for goods or services?

The answer

The statutory power to pay for goods or services is additional to any other form of authority to pay a trustee which exists in law or in a charity’s governing document.

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Where a power in a charity’s governing document is:

• more restrictive than the statutory power, the charity can rely on the wider statutory power provided there is no prohibition against the type of payment the trustees want to make in the charity’s governing document - for example, if the charity’s governing document only allows payment for professional services, the charity can use the wider statutory power to pay a trustee for building services as long as the governing document doesn’t prohibit this type of payment

• less restrictive than the statutory power, the charity can rely on its own power.

Conditional powers: many charities have a power to pay trustees which requires the Commission’s prior written consent before it can be used. This is known as a conditional power. The need for the Commission’s consent has now been removed where charities can meet the conditions of the statutory power, which are explained in section 7.4.3.

7.4.3 What conditions must be met before paying a trustee for goods or services?

The answer (legal requirement)

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There are a number of conditions, all of which must be met before payment can be made validly. The conditions are that:

• there is a written agreement between the charity and the trustee or connected person who is to be paid (see section 7.4.4)

• the agreement sets out the exact or maximum amount to be paid (see section 7.4.4)

• the trustee concerned may not take part in decisions made by the trustee board about the making of the agreement, or about the acceptability of the goods or services provided (see section 7.4.4)

• the payment is reasonable in relation to the goods or services to be provided (see section 7.4.6)

• the trustees are satisfied that the payment is in the best interests of the charity (see section 7.4.7)

• the trustee board follows the ‘duty of care’ set out in the 2000 Act (see section 7.4.8)

• the total number of trustees who are either receiving payment or who are connected to someone receiving payment are in a minority (see section 7.4.9)

• there is no prohibition against payment of a trustee (see section 7.4.10).

It is also a condition that, before entering into this type of agreement, trustees must ‘have regard to’ the Commission’s guidance on the subject. Trustees must also be able to show that:

• they are aware of this guidance

• in making a decision where the guidance is relevant, they have taken it into account

• if they have decided to depart from the guidance, they have a good reason for doing so.

7.4.4 Can the written agreement to pay for goods or services simply be a record in the charity’s minutes? If not, is there a standard format for the agreement?

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The short answer (legal requirement)

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No, recording the proposed arrangement in the charity’s minutes will not be enough to meet the conditions for an agreement. There must be a separate written agreement which must cover the issues set out below, but there is no set format. The format will depend on the nature of the goods or services being provided, and the level of detail needed to cover it. Legal advice should be sought if an arrangement is likely to continue for some time, or if it is particularly complex.

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In more detail

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Content of the agreement: although there is no set format, there are certain elements the agreement must contain:

• an accurate description of the goods or services to be provided

• the name of the trustee or connected person (including a business) who will receive the payment

• details of the amount, if a ‘one-off’ or fixed-term payment, or else the maximum amount for goods or services to be provided over the duration of the agreement. Where the benefit is a ‘payment in kind’, details of the benefit and its approximate value must be given.

As a matter of good practice, it should also contain the following statements to show that the trustee board has considered these factors and has therefore complied with its duties when reaching a decision (see sections 7.4.6 and 7.4.7):

• a statement that the trustee concerned (including one who is connected to a person providing goods or services) will withdraw from any discussion of the trustees which has any bearing on the terms of the agreement or the acceptability of the standard of goods or services provided; this should not, however, prevent a trustee or connected person from providing information which the trustee board may need in order to reach a decision

• a statement that the trustee concerned will not vote on any of these matters, and must not be included when deciding whether a quorum exists at a meeting to discuss them.

Signing the agreement: the agreement must be signed by someone authorised by the trustees to do so. This could be one or more of the trustees who do not stand to benefit under the agreement, or someone who is not a trustee but who has a sound knowledge of the matter. The agreement should also be signed by the trustee or connected person who is to be paid.

Keeping a record of the agreement: as the agreement forms part of the charity’s accounting records, it must be retained for at least 6 years.

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7.4.5 Why are there requirements for withdrawing from meetings and not voting, and should these be recorded in the agreement?

The short answer (legal requirement)

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The requirements are designed to ensure that any trustee who stands to benefit cannot influence the trustees’ decisions relating to that benefit. Including a statement in the agreement that these requirements apply is not required by law but can help demonstrate to those who fund or use the charity that proper steps are being taken to manage the conflict of interest.

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In more detail

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Requirement to manage conflict of interest: one of the conditions that must be met when using the statutory power is that the trustee concerned must not take part in any discussion or vote on any decision of the trustee board in setting the terms and conditions of the payment, or any decision to allow or continue with the payment.

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It will not be a breach of this requirement if, before its discussion, the trustee board simply asks the person concerned to provide any information necessary to help decide.

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Breach of condition: if this condition is not met, the Commission can require the repayment of all or part of any money received, including the monetary value of any ‘payment in kind’. The Commission can also require the charity to withhold further payment.

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If the condition is breached, it will not affect the validity of the services provided.

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Further advice: Manage a conflict of interest in your charity provides more detailed advice about managing conflicts of interest.

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7.4.6 What constitutes a ‘reasonable payment’?

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The short answer

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There are several factors to take into account, relating to affordability, price and quality. In terms of price and quality, trustee boards should normally test the market and use comparisons for similar work to ensure they are paying no more than the ‘going rate’.

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In more detail

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Factors to consider: when considering whether a payment is reasonable, trustee boards should consider:

• whether the charity can afford the payment

• the value to the charity of the goods or services provided by the trustee

• the quality of the goods or services and the reliability of the supplier

• any costs previously paid by the charity in obtaining those goods or services

• how much other organisations pay for similar goods or services in similar circumstances

• the implications for the reputation of the charity with its donors, funders, members and supporters, and with the public.

Making comparisons: trustee boards should obtain quotations from other suppliers, unless the amounts involved are very small. Proper records should be kept of these, and of any other information used in making comparisons. Generally, the higher the costs, the more trustee boards need to be able to show they have properly tested the market and have obtained value for money. And where a charity has a policy on procurement and purchasing, trustees should ensure they comply with its terms when paying for goods or services from a trustee.

Tendering may not be required: a full tendering exercise (i.e. obtaining bids from interested suppliers) will not always be economic or appropriate - for example, if the transaction is relatively small, and good quality goods or services can be provided quickly and at low cost. Trustee boards should ensure a proper record is kept of the basis for their decision, including why the level of payment is considered reasonable - preferably by reference to payments in similar situations.

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4.7 How do trustees decide that this sort of payment is ‘in the best interests of the charity’?

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The short answer

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Before deciding, trustee boards must be satisfied that the arrangement is in the best interests of the charity. This means they should be satisfied that the goods or services are required by the charity. They should also be able to show there is a clear advantage to the charity in using one of its trustees instead of someone else. In many cases, this will involve a simple financial advantage, but there can be other factors that might influence a decision to pay a trustee. These should be weighed against any likely disadvantages; for example, that the person would be barred from contributing to decisions about the scope of the goods or services required and the terms and conditions on which they will be provided.

In more detail

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Value for money: the service must be needed by the charity, and the trustee concerned must be sufficiently experienced and skilled or qualified to deliver it. There may be a cost advantage in using a trustee, but this does not always mean work should be done ‘on the cheap’. Quality is important, and speed of delivery might also be a factor. Trustee boards must be satisfied that the charity will be receiving value for money, and that there will be no adverse effect on its reputation, or levels of support and funding. The board must ensure that the charity can afford the cost of the goods or services, without any adverse impact on the charity’s activities.

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Knowledge of the charity: a particular knowledge of the charity and its working environment can sometimes be an advantage. A trustee board may decide that for less - or no more - than the market rate, it can use the skills of a trustee who knows the specific requirements of the charity and is competent to provide the goods or services in question.

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Purchase of goods: where goods are supplied by a trustee, either in connection with a service provided or as standalone items, there must be a clear advantage. This will normally mean items being supplied at a favourable rate. Where quality is also a factor, there should still normally be a significant ‘value for money’ advantage to the charity.

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When there is no advantage: where there is an unfavourable financial comparison with an outside supplier, and no special expertise or knowledge that would benefit the charity, the charity should use the supplier who is not a trustee. There would be no clear advantage in using the trustee, because of the need to manage the conflict of interest (see section 7.4.5).

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7.4.8 What is meant by the ‘duty of care’ and how does it influence the decision to pay trustees for the provision of goods or services?

The short answer (legal requirement)

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The statutory power requires trustees to follow the duty of care set out in the 2000 Act. This means that the trustee board must act honestly and in good faith and must exercise all reasonable care and skill in reaching their decision.

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In more detail

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Exercising all reasonable care and skill means allowing for:

• any special knowledge or experience a person has or says they have

• any special knowledge it is reasonable to expect from a business or professional person when acting in either capacity.

The level of competence and proficiency required of a trustee will vary according to the level of expertise the person has.

To fulfil their duty of care when deciding to pay one of their trustees, the Commission would expect trustee boards to:

• exercise the power responsibly in the best interests of the charity

• take professional or other appropriate advice when in doubt

• be clear that payment of a trustee can be justified

• ensure that conflicts of interest are properly and openly managed

• ensure that agreements are complied with and that any poor performance is identified and addressed

• retain the agreement as part of the charity’s records as required by law

• disclose the payments in the charity’s accounts.

7.4.9 How many trustees can be paid at any one time for providing goods or services?

The answer (legal requirement)

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The statutory power can only be used if, at the time in question, the total number of trustees receiving payment from the charity’s funds will be a minority of the trustee board.

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When assessing this, the trustee board needs to take into account the number of trustees who are receiving directly or indirectly (through a connected person) any trustee payment as defined in section 7.2.3. This means they need to include:

• any trustees connected to persons or businesses receiving payment

• any trustees who are receiving payment for serving as trustees

• trustees who are also paid employees of the charity

• trustees receiving any other form of trustee benefit.

For deciding if the meeting is quorate, those trustees who face a potential conflict of interest as a result of the issue being discussed should be excluded.

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If there are only two trustees, the statutory power cannot be used, since paid trustees would not then be in a minority. If there is no other authority for the payment, either the Commission’s approval will be needed, or, if the governing document allows it, the trustees can appoint an additional unpaid trustee, which may then enable the statutory power to be used.

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7.4.10 Can a charity pay one of its trustees for goods or services even if its governing document prohibits this?

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The short answer (legal requirement)

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No. In these cases, payment can only be made after the prohibition has been removed. Charities can remove such a prohibition but may need the Commission’s involvement.

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The effect of removing the prohibition will be to enable a charity to use the statutory power to pay trustees for goods or services: it would not allow any other form of trustee payment. (See 7.4.2 for the position where there is a conditional power, rather than any outright prohibition.)

In more detail

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A charitable company can use the statutory power of amendment in the Companies Act 2006. Other types of charities can use the statutory powers of amendment set out in the Charities Act 2011 to remove a prohibition on payments that are allowed by law by amending their governing document.

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If the charity has members, it is the members that must vote to amend the governing document. Most charities can do this without Commission authority unless there is a conflict of interest that the charity cannot manage, such as when:

• the only members of the charity are its trustees

• there are not enough members who are not also trustees to vote on the change.

This is because where there are members who are not trustees, they are not conflicted and can make the decision to change the governing document. Members who are also trustees are conflicted.

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If your charity is a trust, you will need the Commission’s authority to remove the prohibition (because there are no members, and the trustees will not be able to manage the conflict of interest).

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If Commission authorisation is required, the trustees will need to apply to the Commission for an order. Trustees will need to demonstrate that they have made a reasonable decision in the best interests of the charity.

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A charity must obtain Commission authorisation if it is using a power of amendment in its governing document that requires the Commission’s consent.

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If you need authority, contact the Commission for Consent for Making Payments.

7.4.11 Can the agreement to pay a trustee for goods or services be amended?

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The short answer

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Yes - by a majority decision of the trustees who do not stand to gain. It is also necessary in these cases either for the trustee being paid to agree the change or for the contract to provide for such a change.

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In more detail

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Any change to the terms and conditions of the agreement must be discussed and approved by a meeting of the trustee board in the absence of the trustee who is providing the goods or services (or who is connected to someone doing so). The new terms must be in the best interests of the charity, and they must be agreed by a majority vote of the trustee board - again excluding the trustee concerned, who must not form part of the quorum for the purpose of the meeting. The trustee board’s decision to vary the terms should be recorded in the minutes of the meeting at which that decision is taken. (As with the original agreement, the trustee concerned can be asked to provide information to the trustee board ahead of any discussion.)

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An agreement can usually only be varied with the agreement of all the parties. If this is the case, an amended written agreement should be made.

7.4.12 Must these payments be mentioned in the charity’s accounts?

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The short answer (legal requirement)

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Yes, in the case of accounts prepared on an accruals basis - in other words, charitable companies and those other types of charity with a gross yearly income of more than £250,000.

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In more detail

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Under the applicable SORP accounting framework, charities that prepare their accounts on an accruals basis must give details of payments and other benefits to charity trustees and connected persons - including family members and businesses. They are also required to say under what legal authority the payment is made, together with the reason for it.

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Although there is strictly speaking no need for this in the case of charities that prepare accounts on a receipts and payments basis, the Commission recommends, as best practice and to enhance transparency, that similar details are provided. This can help protect trustees from accusations that they are benefiting in some hidden way.

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See Charity reporting and accounting: the essentials November 2016 (CC15d)

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7.4.13 What if a charity wants to pay for goods or services to be provided by a trustee or connected person, but cannot comply with all of the conditions of the statutory power?

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The answer

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If not all of the conditions set out in section 7.4.3 can be met, trustee boards are advised to contact the Commission with the details before making any payment, to request its approval. The Commission will not approve any proposal involving excessive costs, or which will result in an unacceptable personal benefit, or anything else clearly against the interests of the charity. But if a proposal is reasonable in terms of cost, conflicts of interest are managed and it represents a clear advantage to the charity, rather than to the individual concerned, the Commission will usually authorise it. It will consider the overall level of trustee payment, and any other relevant circumstances when assessing such cases including whether such a payment is expressly prohibited.

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7.5. Payment of trustees for work they have already carried out for the charity

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In exceptional circumstances a charity can apply to the Commission for authorisation to either pay a trustee, or for a trustee to retain payment, for work they have already carried out for the charity. The trustee who completed the work can also make the application.

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It can only be awarded where the Commission decides it would be inequitable for the trustee not to be paid for the work they have completed. This is called an ‘equitable allowance’ and can also be awarded by the courts.

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It can be awarded to a person who has since stopped being a trustee, but they must have been a trustee when the work was carried out.

The Commission’s authorisation can be either for:

• the charity to make the payment, or

• the trustee to retain the payment (or part of the payment) that they have already received for carrying out the work.

The Commission will usually only consider an application for an equitable allowance where there is no other authority for the payment. For example, the Commission would not normally consider an application if a charity’s governing document allows the payment, or the statutory power under section 185 of the Charities Act (explained in section 4 above) could be used.

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In making the decision, the Commission must have regard to several factors in law. This includes the Commission considering whether awarding the equitable allowance would encourage trustees to breach their trustee duties. We will therefore consider a range of information and evidence, including whether the trustee accepts liability for breach of duty, and how the charity intends to make sure this situation doesn’t happen again.

To apply, you will need to provide:

• the name of the trustee who completed the work and has been paid or is to be paid 

• a description of the work carried out by the trustee, why it was needed, and whether – had the trustee not carried out the work – the charity would have paid someone else to do it

• confirmation that the work was over and above the trustee’s usual trustee duties

• evidence that the trustee carried out the work in question. This could be the trustee’s invoice, and it should also include corroboration from the other trustees that the trustee did carry out the work

• the level of skill with which the work was carried out. Explain whether the trustee had the skill required, such as any necessary qualifications or experience

• whether the charity’s governing document expressly prohibits the payment. An express prohibition does not necessarily mean an application will be rejected

• the reasons why you could not comply with the statutory power at section 185 of the Charities Act; and confirmation that the charity could not use a governing document power to pay the trustee

• why you did not obtain authority before the trustee was paid, or before they carried out the work

• whether the trustee accepts liability for breach of duty, as explained above

• how much you paid the trustee, or wish to pay them, and how this was determined. Explain how you have decided that the level of payment is reasonable. For example, by reference to an hourly or day rate or quotes you obtained for the same work from someone who is not a trustee

• what steps the charity has taken to avoid the same situation happening again, such as having a policy or extra training about trustee payments

• whether all the trustees support the application. The Commission would not usually consider an application if the other trustees did not support it. We would usually want a copy of the trustee resolution to apply for an equitable allowance

• why it would be inequitable for the trustee not to be paid or not to retain a payment

• whether the trustee or the charity has applied for an equitable allowance before, and whether it was awarded or refused

• confirmation that the information you have provided is fair and accurate. You should be aware that it is an offence under section 60 of the Charities Act 2011 to knowingly or recklessly provide false or misleading information.

If your charity is an exempt charity, the Commission will consult with your principal regulator before making its decision. To apply, email: equitableallowance@charitycommission.gov.uk         

Read the Commission’s privacy notice Personal information charter.

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The application you submit, and any authorisation the Commission provides, will only cover work that the trustee has already completed. If your charity wants the trustee to continue the work, and wants to pay the trustee for that work, you will need to use the statutory power at section 185 of the Charities Act or apply to the Commission for prior authority.