COVID-19: Challenges and considerations in charity financial management

26th March 2020

Events have happened very quickly and the response of charities to these new challenges have varied widely as their sectors have demanded different responses: arts and culture organisations that run theatres and other for-hire spaces have had to close; fundraising charities have had to reforecast and anticipate the loss of income from cancelled public events and fundraising opportunities; and independent schools have activated their business continuity plans and are providing remote learning for their students.

There are a number of financial management and reporting tools that may lend themselves to further consideration in these times and may help in the short term to bridge the gap and provide more available finance, or at least identify potential funding options.

This article was created on 26 March and last reviewed on 20 May.

Endowment funds

Endowment funds come in two types: expendable and permanent.

Expendable endowment funds have always been a bit of an accounting anomaly, particularly from a legal perspective. The notion that you can have an expendable endowment does not sit easily with the legal definition of an endowment which is supposed to be something that is preserved into perpetuity. That said, those that have expendable endowments should consider how the charity should make best use of this pot, as there are no real restrictions over its use and it can provide essential funding for ongoing activity in these times.

Permanent endowment funds are more challenging. These are funds where the intention is for capital value, ultimately to be preserved and only the income arising (or capital gains) can be used for other charitable purposes. There is, however, an interesting loophole for permanent endowments which may not be obvious. Where the endowment funds are represented by properties and investment portfolios, and where you have used unrestricted cash in prior years to develop a property on an endowed site, that spend has also become endowed (or it should have been). What is often lost is that the use of unrestricted funds to capitalise into endowed assets is in fact a loan between the unrestricted fund and the endowment fund. If the endowment fund also holds investments, it is possible to consider utilising those investments to repay the loan and provide unrestricted cash to the charity, ultimately settling a credit that exists in the endowment. The endowment is still preserved in terms of its underlying value.

Restricted funds

These has always been a choice in the SORP for funds that were raised for restricted charitable purposes: to retain them as restricted funds going forward or to transfer them to unrestricted funds once the project/restriction has ended. If you consider a fundraiser for a capital project, once the project is complete, and there are no further restrictions placed upon you by the donor, the project asset and the remaining fund becomes unrestricted in your hands – you have met the restriction. Many charities have historically chosen to retain such fund balances as restricted and matched their accounting treatment with the depreciation charge on the asset created.

Given the current circumstances, you could reconsider whether these funds are actually restricted, or whether reclassifying them as unrestricted may assist you. It might not release cash as this is an accounting disclosure change, but what it will do is reclassify those properties as unrestricted and available to the charity for realisation if necessary.

Loan finance

A number of clients have discussed potentially taking out loan finance which the banks are very willing to do in the current climate, especially where there is a valuable charity asset to secure.  Remember that where you do provide any charitable asset as security for a third party loan, you must comply with the requirements set out in S124 of the Charities Act. This requires Trustees to obtain advice (which can be from a suitably qualified member of staff, or an independent contractor) that the loan is needed, that the terms and conditions are reasonable, and that you have a cashflow forecast to evidence your ability to service the loan and repayments for the period of the loan.

This is a mechanism to evidence due regard to the position and to safeguard charity assets as far as possible. Whilst the first two requirements are less subjective, the third (the ability to evidence your ability to repay the loan over the lifetime of the facility) may be more challenging in the current environment.

Converting advance payments into a Gift Aid donation

For a number of sectors that have bookings up front (theatres and other  for-hire spaces) we have received a number of calls to ask if they can approach members of the public who have already paid for a ticket or hire to convert their funds into a Gift Aid donation. Unfortunately, legislation on this topic is strict. The Government’s guidance on Gift Aid includes specific definitions on types of payments and debt conversions, there is a risk that the trail of money in relation to the payment would not fully satisfy the Gift Aid requirements.

As such, the only way to avoid an unsuccessful claim at present would be for the charity to repay the original ticket amount to the customer and ask them to make a new donation. Of course, this is very likely to lead to a much lower take-up rate than for donation conversion.

The Charity Tax Group (CTG) are calling on the Government to allow Gift Aid to be claimed in such situations in response to COVID-19.

Hopefully HMRC will follow the CTG’s advice and make changes to their guidance to enable you to claim Gift Aid on the donation. You would then be able to provide donors with guidance on what they can claim.

Business Interruption Loan

According to the British Business Bank the COVID-19 Business Interruption Loan Scheme (CBILS) is now open for all, however it is unclear how accessible this option is to charities. The current scheme is open to sole traders, freelancers, body corporates, limited partnerships, limited liability partnerships or other legal entities carrying out a business activity in the United Kingdom, with annual turnover of up to £45m, operating in all sectors (some sectors excluded).

The business must generate more than 50% of its turnover from trading activity.

What we are advised at present is that these loans are only available to organisations that would not have secured finance under normal circumstances as their security would not have been sufficient to lend, and where they were previously profitable businesses. Where charities have assets to secure against, then the normal banking facilities must still be used, albeit on more flexible terms than they may have been offered previously.

More information will be provided here as and when we received further clarification.


For those charities with investment portfolios, the markets have moved in every direction possible as companies, sectors and governments interact on a daily basis. Short term decision making on longer term portfolios is not normally advisable, however, having the discussions with your investment managers about the best course of action and any short-term cash draw requirements over the coming months will give them a better chance of protecting the underlying value of the portfolio. Also consider their strategy for ensuring that your portfolio remains in the ranges that you have agreed with them in the shorter term – should some asset classes be  rearranged to upper or lower ends of the agreed parameters? Best advice is to speak to your investment managers as soon as possible.

Guidance for fundraising

Charities have an incredible propensity to do good things. In these times, it is not uncommon to want to raise funds in support of the community, from financial support for key workers and NHS staff to providing use of your facilities for alternative uses.

Whilst no one would argue that these are all laudable in the current climate there are three key considerations:

  1. Are the activities that you are intending to do within your current charitable objects. Even if they are good things to do, if your governing document restricts your ability to do it, you should not carry out that activity
  2. Utilising your reserves in support of activities that are not in furtherance of your stated objects may also breach your legal duties. You can only use the funds you have for the aims and objectives in your governing document.
  3. Redeploying assets for use in crisis is, again, a common consideration. Even if your governing document allows the activity, you must also consider your insurance: would it cover you in the event that something went wrong? Be sure to check with your insurer.

If in doubt, seek counsel with your accountants or legal advisors to make sure that you are acting in the best interests of your charity and its beneficiaries.

Guidance to help with running your charity during the COVID-19 outbreak

The Charity Commission has a dedicated page which will be updated regularly with responses to commonly asked questions. They also confirm that charities should continue to report serious incidents using the current guidelines and their own judgement and will advise if and when this situation changes. The guidance can be found here.

For further information, please contact Richard Weaver, your usual haysmacintyre contact or email

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