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It is important to keep money aside as a reserve to protect your charity against drops in income or allow it to take advantage of new opportunities. Your charity’s reserves can be spent on any of its aims.

However by law, your charity must spend income it receives within a reasonable period of time unless there’s a good reason not to.

This means you need to be clear about your reasons for keeping reserves. Write a reserves policy to explain to others why you are setting money aside rather than spending it on your charity’s aims. The Charity Commission’s guidance on charity reserves gives more information on writing a reserves policy.

Your reserves policy should set out:

– how much your charity needs to hold in reserve and why

– how and when your charity’s reserves can be spent

– how often the reserves policy will be reviewed

You can set aside enough money to meet a potential need, such as an unexpected drop in income. If you set aside money for a specific purpose, such as building works, make it clear that this is separate from the charity’s general reserves.

Like anything, make sure you review your reserves policy regularly to make sure you aren’t setting aside too much or too little.

Use your trustees’ annual report to tell donors, funders and other stakeholders:

– why you need to keep money aside instead of spending it on your charity’s aim

– how much your charity holds in reserve

– why your charity needs to hold this amount in reserve

– what your charity’s reserves can be spent on

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