Restricted funds, explained for new trustees
If a funder gives your charity money for a specific purpose, it comes with rules. Here's what restricted funds are and why your accounts split them out.
If you've just joined a charity board, the accounts can look like they've been written in code. Restricted funds are usually the first thing that trips people up, but the idea is simple.
What makes a fund "restricted"?
When someone gives your charity money for a specific purpose, like a grant for a youth project, you can only spend it on that purpose. That money is restricted. Everything else is unrestricted: the charity can spend it on anything within its objects.
A charity can look healthy overall and still be short of money it's actually free to spend.
Why trustees should care
- Spending restricted money on the wrong thing can mean paying it back to the funder.
- Your free reserves (unrestricted money not tied up elsewhere) are what keeps the lights on.
- Funders will look for clear reporting on how their money was used.
A good question to ask at your next board meeting: "How much of our balance is unrestricted, and how many months of running costs does that cover?"
This article is general information, not advice for your specific situation. Rules and thresholds change, so check GOV.UK or speak to us before acting on it.