How do I work out my charity's free reserves?

England and Wales: This page sets out the approach in full. Scotland: the same approach, with no difference in the calculation — and OSCR has separately found reserves reporting to be widely inadequate across the charities it reviews, which is exactly the failure this page is written to prevent. Northern Ireland: the same approach, with no difference in the calculation.

Is total funds the same as free reserves?

No. Free reserves are what is left of a charity’s funds once you take out every fund and asset the trustees cannot freely direct. The calculation is the same in England and Wales, Scotland and Northern Ireland. OSCR has found reserves reporting widely inadequate across the charities it reviews.

The free reserves figure is read against the budget and cashflow forecast. If they are not in place, first build your first annual budget and build a cashflow forecast.

Total funds is the biggest figure on the balance sheet and the easiest one to find. That is why it gets reported as “reserves” so often. But it includes money the charity cannot spend at all:

• permanent endowment the charity holds on trust rather than owns outright
• restricted funds tied to a specific purpose
• the value locked up in the building or equipment the charity uses

How each kind of fund works is set out in the explainer on restricted and unrestricted funds. Reporting that combined figure as the charity’s resilience is meaningless. It misleads trustees and funders alike about how much cushion exists.

The free reserves calculation: what comes out, what goes back in

The treasurer works through it in this order:

1. Start from total funds.
2. Deduct permanent endowment in full. It is not the charity’s to spend, whatever its size.
3. Deduct restricted funds. The charity may hold the money, but only for the purpose it was given for.
4. Deduct the net book value of tangible fixed assets the charity holds for its own use, such as the building it works from. It is unrestricted, and it looks available. But a building in daily use is not a reserve in any sense that matters.

Designated funds are the one deduction that gets added straight back in for this purpose. The trustees themselves set that unrestricted money aside for a future purpose, such as a planned refit or a redundancy provision. So they can also reverse the designation if the money is needed elsewhere.

Designated amounts should still be disclosed separately in the workings for the reserves figure. A reader can then see how much of the “free” total is earmarked in practice, even if not legally restricted. But designated amounts are not deducted from free reserves the way endowment and restricted funds are.

The SORP requires the notes to give the planned use of each material designated fund. It requires them to explain the purpose of the designation and to say that the trustees can remove it.

The one exception is a designated fund already committed for spending. The SORP’s definition of reserves lists it among the amounts that may need to be excluded.

Does the reserves figure have to tie back to the accounts?

Yes. The current SORP requires the reserves figure in the trustees’ annual report to be consistent with the accounts. Sometimes that is not clear on the face of the accounts. Then the SORP also requires a reconciliation that shows how the two connect. It can go in the funds note or a separate note.

Drafting the report’s side of it is covered in draft your financial review and reserves reconciliation.

The SORP is dealing with a pattern the regulators had already seen many times. That pattern is a report giving a reserves figure that a reader cannot trace to anything in the accounts. This is a new requirement in the 2026 SORP. It applies even to the smallest charities that prepare accruals accounts, not just the largest ones.

If a free reserves calculation cannot be traced line by line back to the balance sheet, it fails this requirement. That holds however carefully the sums were done.

Is there an official definition of free reserves?

Not in law. Nothing in charity law defines “free reserves” or sets how to work them out. The SORP defines “reserves” as the part of a charity’s unrestricted funds that is freely available to spend on its charitable purposes. Its glossary gives examples of what may need to be excluded, not a fixed formula.

This approach follows the SORP and regulator guidance, not a formula set in law.

Charities present the figure in different ways. So comparing one charity’s reserves with another’s is often unreliable. Say this plainly where the figure is published. Do not present it as though it were a standard measure every charity works out the same way.

Working out free reserves accurately is part of the trustees’ own duty to manage the charity’s money responsibly. That duty is one of the 6 duties CC3 sets out for trustees generally. It is not a separate technical task bolted on beside them.

With the figure worked out, the next step is to write your reserves policy, which sets the level the charity aims to hold.

Common mistake: reporting total funds as reserves

It is the biggest number on the balance sheet and the quickest to find. It includes money the charity cannot spend at all. As a measure of resilience, the figure is meaningless. It misleads both trustees and funders.

Common mistake: not deducting the amount tied up in fixed assets

The assets are unrestricted, so they look available. A building the charity works from is not a reserve in any useful sense. Free reserves are overstated, sometimes hugely.

Common mistake: publishing a reserves figure in the trustees’ report that does not tie to the accounts

The report is drafted separately from the accounts, often by someone else. The current SORP requires the report’s reserves figure to be consistent with the accounts. Where that is not clear, it requires a reconciliation in the funds note or a separate note. This is a new requirement. It applies to the smallest accruals charities.

Worked example

Saltmarsh Trust owns the building it works from and holds a restricted project balance at the year end. Its free reserves calculation starts from total funds. It deducts the restricted project balance and the net book value of the building.

It then adds back a small designated fund earmarked for a future roof repair. That designated fund is disclosed separately in the workings, not folded silently into the free figure. What is left answers the real question: how long could the charity keep going on unrestricted money alone.