Charity Commission issues new grant making guidance

The Charity Commission has published new guidance for charities making grants to charities and other organisations.

This new guidance replaces and expands upon previous guidance to now cover all grant-making (rather than just grants to non-charities). The Commission has stated that the purpose of this new guidance is to help charity trustees make confident, responsible grant-making decisions, as part of its programme of supporting effective philanthropy across England and Wales.

In many ways, the revised guidance does not fundamentally alter the regulatory position. It reminds trustees that they can only make grants which will help to carry out their charity's purposes, but that they do have the flexibility to provide unrestricted grants so that recipients can use funds how they think best (for example, to enable them to respond to changing beneficiary needs or simply by covering operational costs).

There also continues to be a strong emphasis on due diligence. The guidance is clear that the Commission expects charities to complete an appropriate level of checks on the potential recipients of funds, including on the status of the organisation and whether the grant can be effectively monitored (so that the charity can show the grant has been used to carry out its charitable purposes and that it has managed its resources responsibly and reasonably). Relatedly, the guidance notes that charities can fund non-charitable organisations, but that trustees must take reasonable steps to assess and manage potential risks as non-charities are less regulated.

However, whilst much of the guidance allows charities to take a proportionate approach regarding the risk of making a certain grant, a key change is that: 'in all cases, grant-making charities must have a written agreement in place'. Whilst the guidance does note that 'a letter of short agreement may be enough for low-risk grants' (and, therefore, that higher-risk grants will need extra terms and conditions), it nevertheless suggests that there must always be some kind of agreement in place, which does not seem proportionate. For example, a charity sending a small donation in support of a national campaign run by, say, the Disasters Emergency Committee really ought not to need a written agreement with DEC.

The guidance provides that, for each grant, charities should set out in writing to the recipient organisation:

1. How the grant must be used;
2. The time period for the delivery of the funded work;
3. How the charity will monitor the grant (for example, the method and timing of any reports the recipient must give);
4. Consequences if the terms of the grant are not followed;
5. What the recipient must do if it can no longer carry our the terms of the grant;
6. Any terms to protect the charity's intellectual property rights;
7. Any terms that would cause the charity to terminate the grant;
8. Any terms the charity requires in relation to safeguarding; and
9. Any other terms to protect the charity.

Mazeda Alam, Head of Trustee Guidance at the Commission, has commented that: 'Grant-making charities and philanthropists play a vital yet often unappreciated role in providing financial support to the sector. This guidance is designed to give them the flexibility to use their best judgment when awarding funds and encourage them to do so confidently, growing the reach of their support.' She added that: 'Any funding decision must ultimately be driven by one question: will this help the grant-making charity further its purpose, and make a difference to the people and causes it exists to serve? This guidance gives trustees assurance that they can answer that question, and to make decisions that are both bold and responsible.'

It is interesting to note that the Charity Commission has positioned this new guidance as something that will facilitate grant giving, pointing to the increase in awards from £16.7bn in 2023 to £17.84bn in 2024 and simultaneous ongoing financial squeeze in parts of the charity sector. However, the requirement for a written agreement for every grant may impose an unnecessary burden on charities and in fact discourage the making of smaller grants.

For advice on compliance with this grant making guidance, or if you have any questions on this topic, please get in touch with your usual Withers contact or the authors of this article.