Restricted funds

Restricted funds are one of the most common places small charities trip up. If a grant or appeal was given for a stated purpose, that money is held on trust for that purpose alone — even though it sits in the same bank account as everything else. The obligation is legal, not just moral.

Under charity law and the Charities SORP, restricted funds may be spent only on the purpose for which they were given, and must be accounted for separately from unrestricted funds. (Source: GOV.UK, Charity money, tax and accounts; Charities SORP, accessed 9 July 2026.) Using them for anything else — even to keep the charity afloat — is a breach of trust the trustees may have to make good.

Track each restricted pot separately, only charge it a fair share of costs through full cost recovery, and never let it fund a deficit elsewhere. Compare it with unrestricted and designated funds, and see the UK Charity Compliance Handbook for fund accounting.