Charity Reserves Policy: SORP 2026 Complete Guide (Free Template)

Charity Reserves Policy: SORP 2026 Complete Guide

SORP 2026-compliant reserves policy guide for UK charities — what reserves are, how to set the right level, the trustee duties under CC19, and a free template.

Last reviewed: 02/07/2026 · By Ivan Siyanko, CEO, CharityIQ.

TL;DR. Reserves are unrestricted funds freely available to spend on charitable purposes — not all cash held. Every UK charity must include a reserves policy in its Trustees’ Annual Report. Under SORP 2026, the reserves figure in the narrative must reconcile to the figure in the accounts. No “right” level — depends on charity-specific risks. Free template at the end.

What “reserves” actually means

The Charity Commission’s definition (CC19): reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. Unrestricted (not tied to specific funder requirement). Freely available (not designated). For any charitable purpose.

A charity with £200,000 in the bank but £150,000 of restricted grants and £40,000 of designated funds has only £10,000 in reserves. Most small UK charities are surprised by this when they calculate it for the first time.

CC19 was last updated 14 June 2023 to reflect the Charities Act 2022.

Why every UK charity needs a reserves policy

1. Charity Commission requirement. Every UK charity must include their reserves policy in the Trustees’ Annual Report. Where there isn’t one, the report must say so explicitly. 2. SORP 2026 reconciliation requirement. Under SORP 2026, the reserves figure stated in the narrative must reconcile to the figure in the accounts. 3. Funder due diligence. Major UK funders read reserves policies. Vague or absent makes funders nervous; clear and justified builds confidence.

How much should you hold? “3-6 months” rule and why it’s wrong

The most common reserves benchmark is “3–6 months of unrestricted running costs”. This isn’t a regulatory requirement — there’s no statutory minimum or maximum. Sector convention.

The Charity Commission is clear: there is no single level right for all charities. Any target should reflect specific circumstances.

Why 3-6 months can be wrong: too high for project-based charity running short-term grants; too low for service-delivery charity with long-term commitments; too vague for a charity with funder concentration risk. Right answer comes from specific risk-based analysis, not benchmark.

The risk-based reserves calculation

Trustees set reserves based on: (1) forecast income vs expenditure with risks; (2) commitment exposure (staff, premises, contracts); (3) programme continuity costs; (4) specific risks (funder concentration, sector, governance).

Worked example for fictional Riverdale Community Trust (£200k income):

Annual unrestricted running costs: £85,000. Monthly: £7,083. Risks: 28% funder concentration (Lloyds 3-year), 1.6 FTE on 3-month notice (£21k exposure), 12-month premises break clause (£18k), 84 children depend on after-school provision (6-month transition).

Target: 3 months running costs (£21,250) + 6-month programme continuity (£24,000) + funder concentration contingency (£8,000) = £53,250 (≈ 7.5 months).

Actual: £41,200. Gap: £12,050. Plan: £4,000/year over 3 years from balanced fundraising surplus.

This level of detail is what funders and the Commission want.

SORP 2026: the reconciliation requirement

The single biggest reserves change under SORP 2026: the reserves figure in the Trustees’ Annual Report must reconcile to the figure in the accounts. Any gap must be explained.

Commission expects: what’s the gap (£ and months)? Deliberate or unplanned? What action are trustees taking? By when do we expect the gap to close?

From CharityIQ. CharityIQ pulls your reserves figures from your accounts, calculates running cost benchmarks, and drafts the SORP 2026 reserves narrative — fully reconciled. See compliance →

Free template

[CHARITY NAME] — Reserves Policy
Adopted: [date] · Approved by: [Board of Trustees]
Review date: [+12 months]

WHAT WE MEAN BY RESERVES
Reserves are unrestricted funds freely available to spend on any of our 
charitable purposes. They exclude:
- Restricted funds
- Designated funds  
- Endowment or fixed assets
- Commitments that materially reduce free availability

WHY WE HOLD RESERVES
To cover staff notice, maintain programme continuity for [X] months, 
manage risks specific to our income mix, allow strategic investment.

OUR RESERVES TARGET
Annual unrestricted running costs: £[X]. Monthly equivalent: £[X].
Specific risks considered:
- [Funder concentration risk]
- [Staff/premises commitment exposure]
- [Programme continuity needs]
Target: £[X], equivalent to [N] months running costs.

CURRENT POSITION
At [year-end], unrestricted reserves: £[X], equivalent to [N] months.
[Explain any gap from target.]

REVIEW
Reviewed annually by Board, or when material changes occur.
POLICY OWNER: [Treasurer/CFO/Trustee with finance lead]
NEXT REVIEW: [date]

Common mistakes

1. Stating target without justification. Why 3 months? 2. Mismatched figures. Narrative says X, accounts say Y. 3. Confusing reserves with cash. 4. Static targets. 2018 target may not fit 2026 risks. 5. No designation of designated funds.

When trustees should review

Annually. Trigger early review for: major funder change, significant staff change, premises change, sector-wide risk change, three months below forecast.

FAQ

Q: Reserves vs cash? Cash is in the bank. Reserves are unrestricted, freely available — typically a subset of cash. Q: Negative reserves? Technically yes, serious situation needing immediate trustee attention. Q: Cash or invested? For most small UK charities, cash. Q: Can’t reach target? Commission expects honesty, not perfection. State target, state actual, explain gap, describe plan. Q: Restricted funds = reserves? No. Q: Designated funds = reserves? No (in most policies). Q: SORP 2026 tier interaction? Applies to all tiers. Tier 1 concise; Tier 3 detailed risk analysis.

What to do next

1. Calculate current unrestricted reserves position. 2. Workshop the policy with trustees — 90 minutes is enough. 3. Adopt at next board meeting.

Reserves policy that actually reconciles.
Start a free 14-day CharityIQ trial. Join Waitlist →

Written by Ivan Siyanko, founder of CharityIQ.

Sources: Charity Commission CC19 · Charities Act 2011 · CC14 · Charity Finance Group