How do I keep track of a restricted grant?

England and Wales: This page sets out the position in full. Scotland: the same breach-of-trust principle, with a dedicated scheme for restricted money that can no longer be used — but whether trustees are personally liable in the same way, and whether the same relief routes exist, is not established. See the Scotland section. Northern Ireland: covered in part. Personal liability and relief work as they do in England and Wales, under Northern Ireland’s own statutes; the regulator publishes no guidance equivalent to the English guidance on grants quoted here.

Why track a restricted grant: two exposures

Misspending a restricted grant creates two exposures for the trustees, and charities usually see only one. When a charity thinks about misspending a grant, it thinks about the funder — whether they will notice, and whether they will ask for it back.

This page assumes you have read and negotiated the grant agreement and know you have a grant, not a contract. A contract fee creates no restricted fund.

That is one exposure: the funder’s own clawback clause, which is contractual.

The second is independent of the first. A breach of trust is the use of charity property outside the terms on which it is held. Where a grant‘s conditions make it a restricted fund, applying it to anything else is a breach of trust in its own right.

The breach exists whether or not the funder notices. It does not depend on the agreement. A funder that never checks, or that has closed its programme, does not make the spending lawful.

So the question to ask is not “will the funder mind?” It is “what is this money restricted to?”

Does your grant create a restricted fund?

Not every grant does. The Charity Commission’s guidance for England and Wales, CC37, is careful about this. A funder, verbatim, “may attach terms and conditions specifying how the grant is to be spent, which could make it a restricted fund within the charity’s accounts. Spending the grant on anything else would be a breach of trust.”

Note the word could. The chain has three links, and each has to hold:

1. The grant carries conditions about how it is spent.
2. Those conditions make it a restricted fund.
3. Spending it outside them is then a breach of trust.

So read the purpose clause and the conditions. If they tie the money to a stated purpose, treat it as restricted. The same passage adds, verbatim: “Any surplus funds will be subject to the same restrictions unless the terms of the grant stipulate otherwise.” An underspend stays restricted too.

A restricted fund is not the same as a designated fund. A designated fund is unrestricted money the trustees have chosen to set aside, and they can change their minds. The kinds of fund are compared in restricted, designated and endowment funds. A restriction comes from outside the charity, and the trustees cannot lift it themselves.

When to set up the restricted fund

Set it up before the first payment arrives. The commonest failure is simple. The grant lands in the same bank account as everything else, and it is treated as general income until it is spent. By then nobody can show which pounds went where.

So set the fund up first. In the accounting records, record against it:

• the purpose, in the grant agreement’s own words
• any conditions on how it may be spent, and by when
• what the agreement says about any surplus
• who in the charity can approve spending from it

The ledger mechanics belong to the money hub’s page on recording a restricted grant. Follow it for the entries. What this page adds is the reason: the fund is the charity’s evidence that it kept a trust.

In law, the rule is short. You must apply a restricted fund only to the purpose it was given for.

Who is personally liable for a misapplied restricted grant?

If a restricted fund is misapplied, the trustees can be personally liable to the charity for the loss. The anchor for that is statute, not CC37.

In England and Wales, Charities Act 2011 s.191(2)(a) gives the Commission a power of relief. It covers a trustee who “is or may be personally liable for a breach of trust or breach of duty”. The power presupposes the liability.

The Commission’s guidance for trustees, CC3, puts it plainly, verbatim:

Trustees can be held liable to their charity for any financial loss they cause or help to cause. This applies to any type of charity whatever its legal form.

That last sentence matters. Being a CIO or a charitable company protects trustees against some claims by outsiders. It does not protect them against liability to their own charity.

CC3 is as plain about how often this happens: “It’s extremely rare, but not impossible, for charity trustees to be held personally liable”. Both halves are true, and a page that gave you only the first would mislead you. CC3 also says there is “no legal protection for trustees who have acted dishonestly, negligently or recklessly”. Negligence is on that list.

The wider question is answered in are trustees personally liable?; this section keeps to the restricted-grant case.

Relief: three routes, one test

A trustee who is liable is not without protection. England and Wales has three routes to relief:

Route	Who decides	Applies to
Charities Act 2011 s.191	the Charity Commission	trustees, auditors and independent examiners
Trustee Act 1925 s.61	the court	trustees
Companies Act 2006 s.1157	the court	officers of a charitable company, and auditors

All three turn on the same core test, in closely similar words. In s.191(2), verbatim, the person must have “acted honestly and reasonably and ought fairly to be excused for the breach of trust or duty”. Relief can cover all of the liability or only part of it.

CC3’s shorter summary — relief where trustees acted honestly and reasonably and have not benefited — is the regulator’s gloss. The words above are the test.

The Commission’s power of relief cannot reach one thing in England and Wales. Section 191(4) of the Charities Act 2011, verbatim: “Subsection (2) does not apply in relation to any personal contractual liability of a charity trustee or trustee for a charity.”

That is the live risk in grant funding. An unincorporated group cannot sign a grant agreement in its own name, so its trustees sign it themselves. If the charity then has to repay, the debt can fall on the people who signed, and the Commission cannot relieve it. The exposure that comes with applying as an unincorporated group is covered when you check eligibility properly before writing anything.

Northern Ireland: the same exposure under its own statutes

Northern Ireland follows the English pattern here, under its own statutes.

The Charity Commission for Northern Ireland’s trustee guidance draws a line between breach of duty and breach of trust. It describes a breach of trust as a trustee not fulfilling their duties and acting outside the charity’s governing document. In CCNI’s words, “Charity trustees are equally responsible (liable) for any breach of trust to their beneficiaries where the breach results in a loss”.

Relief has the same three-route shape. The Commission may relieve a trustee under the Charities Act (Northern Ireland) 2008 s.91. It uses the same “acted honestly and reasonably and ought fairly to be excused” test.

The courts keep their own powers under the Trustee Act (Northern Ireland) 1958 s.61 and the Companies Act 2006 s.1157. And s.91(4) of the 2008 Act carries the same carve-out: no relief for a trustee’s personal contractual liability.

What does not exist is a Northern Ireland equivalent of CC37. CCNI’s full index of its own guidance was searched, and nothing on restricted funds or grant accounting was found. Its general accounts guidance defines restricted funds but does not say what to do when a grant’s conditions create one.

Northern Ireland charities have the underlying law without the practical guidance. Where a restricted grant later cannot be used, Northern Ireland’s reorganisation route is in force. It is covered when you handle an underspend, overspend or change of plan.

Scotland: different machinery, and an open question

In Scotland the breach-of-trust idea carries across. What differs is the machinery around it, and one part of the picture is not established.

For restricted money that can no longer be used as intended, Scotland has a dedicated route. The Charities and Trustee Investment (Scotland) Act 2005, ss.43A to 43D, lets OSCR approve a restricted funds reorganisation scheme. It applies only where the charity cannot find out the donor’s wishes.

For a live grant with a funder you can ask, you ask the funder. The step where you handle an underspend, overspend or change of plan sets out both routes.

Personal liability is where Scotland is genuinely different, and where this page stops short. Section 66(4) of the 2005 Act treats a breach of a trustee’s general duties as “misconduct in the administration of the charity”.

That is a regulatory concept. It opens OSCR’s powers. It is not framed as personal liability to repay, the way s.191(2)(a) is in England and Wales.

Whether Scots law separately makes a trustee personally liable for a misapplied restricted grant was not established. Nor was whether Scotland has an equivalent of the three relief routes. This page does not assume that it has. Do not read the England and Wales position across on either point.

With the fund set up before the first payment, the next step is to deliver against the grant and report on it.

Common mistake: treating a restricted grant as general income until it is spent

It arrives in the same bank account as everything else.

But CC37, verbatim, says a funder “may attach terms and conditions specifying how the grant is to be spent, which could make it a restricted fund within the charity’s accounts. Spending the grant on anything else would be a breach of trust. Any surplus funds will be subject to the same restrictions unless the terms of the grant stipulate otherwise.” The chain is conditions, then restricted fund, then breach of trust — and the breach follows only where the fund is in fact restricted.

Worked example

Tollgate Youth CIO receives a grant to pay for its youth worker. The agreement ties it to that post. Later in the year the rent falls short. The treasurer covers the gap from the youth worker money, meaning to put it back when a donation comes in.

That is a breach of trust the moment it happens. It does not wait for the funder to find out, and it does not depend on the funder ever finding out.

Tollgate now has two exposures. The funder’s clawback clause may let it reclaim the grant. Separately, the trustees may be liable to the charity for the loss to the restricted fund. Being a CIO does not change that, because liability to the charity applies whatever its legal form.

If the matter ever came to relief, the question would be whether the trustees acted honestly and reasonably and ought fairly to be excused. A board that finds the problem, minutes it and deals with it openly has a record it can point to; a board that hides it does not.

Suppose the fund had been set up with its purpose recorded before the first payment. Then the transfer would have needed someone to approve it, and would probably never have happened.