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Complexities of accepting donations: Insights for charity trustees

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Imagine your charity, dedicated to environmental conservation, receives a substantial donation from a corporation. Later, you discover this corporation has been involved in environmental violations. This gives you a dilemma: should you keep the donation to fund the charity’s environmental projects, or should you return it? This is an example of the nuanced decisions charities regularly face when receiving donations.

The Charity Commission published guidance for trustees on 4 March 2024, Accepting, refusing and returning donations to your charity. Importantly, it underscores the principle that the starting point for charities should generally be to accept donations to support their purposes; but that there are instances where charities must refuse or return a donation, and other circumstances where charity trustees may decide that it’s in their charity’s best interests to do this.

When you must return or refuse donations

Sometimes this choice is clear – for example, trustees must always refuse any donation that has come from illegal sources such as terrorist or other criminal activity.

Additionally, if a donation is offered by someone lacking the capacity to make that decision or if the donation itself cannot legally be transferred to the charity, trustees must refuse or return such contributions.

Complex decisions

Trustees often encounter scenarios that are fraught and finely balanced. For instance, donations might raise significant reputational issues, might not directly align with a charity's purposes, potentially risk legal claims, or impose conditions that could compromise the charity's independence. These situations require a considered approach, assessing the potential benefits against ethical, legal and reputational risks.

Rather than moving straight to a refuse/return decision, trustees are advised to engage in dialogue with donors, where possible, to change the terms of the donation so it can be accepted or kept.

Finances are, of course, relevant, particularly in a decision to return a donation that has already been received, as the charity may have spent it or budgeted to spend it. Trustees should therefore also consider the length of time since receipt, impact on the charity’s activities and whether the charity can afford to repay.

Legal considerations and trustee duties

Trustees must make sure that any decision to refuse or return a donation aligns with their legal powers, duties, and the charity's governing documents. Charities usually have a general power under the law to refuse a donation, but the governing document should be checked as there may be provisions that affect this.

A charity’s governing document will usually include provisions that allow it to return a donation, but, again, trustees must check that this is the case before deciding to do so.

Anonymous donations

Some donors want to remain anonymous, and a charity can accept anonymous donations. However, trustees should look out for any suspicious circumstances and put safeguards in place that they consider adequate.

If a charity operates abroad, check that accepting anonymous donations complies with local law or local tax regulations. Trustees should report a serious incident to the Commission if you receive an anonymous donation of £25,000 or more.

Ringfencing

In practice, if trustees don’t consider that they have sufficient information or evidence to make a proper decision on accepting a donation, they could ringfence the funds while further information is gathered.

Policies and keeping records

Set out a policy for accepting, refusing and returning donations to provide a structured framework for decision-making. The policy should help with consistency, transparency and alignment with mission and legal obligations.

As with other significant decisions, keeping records of decisions on accepting or refusing difficult grants, including the considerations behind the decisions, is essential should criticism arise. There may be no right or wrong answer, but the trustees’ decision is required to be rational and reasonable, and supported by clear evidence.

Need help?

The Charity Commission's guidance should give charities the confidence to accept donations where it’s in the best interests of their charity to do so. If you’d like to discuss this with our Not for Profit team, please get in touch on 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Giles Kerkham

 

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Larking Gowen

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