What should our reserves policy say, and how much should we hold?

England and Wales: This page sets out the approach in full. Scotland: the same SORP requirement — and this is one of the four headline findings from OSCR’s own review of charity accounts, so Scottish trustees have particular reason to check their own policy against it. Northern Ireland: the same SORP requirement, with no difference.

What should a charity reserves policy say?

A reserves policy records a decision, not just a balance. The SORP’s reserves requirement is the same in England and Wales, Scotland and Northern Ireland. OSCR has looked at how well trustees meet it, and the pattern it found is stark. Of the accruals preparers in its sample:

• most mentioned reserves somewhere in the report
• about a third stated the level they believed they should hold
• fewer still stated the level they held
• only a handful were meeting their own stated policy

Anyone can describe the year-end balance. Behind a real reserves policy, the trustees have analysed their own risks and decided a target. The target is set against the free reserves figure worked out when you calculate your free reserves, not against total funds. That analysis, not the balance, is the part most published policies skip.

Whether a small charity needs one at all is answered in adopt a reserves policy. This page is about what the policy says.

How much should a charity hold in reserves?

There is no required amount: no UK charity regulator sets one. One figure is so widely repeated in the sector that trustees often treat it as a rule. It is not. OSCR says so directly, worth quoting word for word:

“We understand that many charity trustees mistakenly believe that OSCR has a required level of reserves, commonly quoted as equivalent to three months of expenditure. OSCR has no set level of reserves which a charity should hold.”

Whatever level the policy states, it has to come from the charity’s own analysis of its own risks — not a number remembered from somewhere else.

What the current SORP asks the report to say

The current edition of the SORP strengthened its reserves requirements. It ties the reserves figure more closely to the accounts and to going concern.

The report these requirements sit in is covered in what the trustees’ annual report has to include. In the same place in the trustees’ annual report, the SORP requires the charity to explain any reserves policy, state the amount of reserves and why they are held; if the trustees have decided holding reserves is unnecessary, disclose that fact and the reasons (para 1.37). It also requires the report to compare reserves held against policy and explain steps to align.

The review of reserves also has to identify material designated or committed amounts and their likely timing. That includes any designated funds the trustees have set aside for a specific future purpose but not yet spent.

A fifth requirement is to reconcile the stated figure back to the accounts. That is covered with the calculation itself, so it is not repeated here. Most published reserves policies meet one or two of these five, not all of them.

What if the charity holds no reserves at all?

Under the current SORP, saying nothing is not the safe option, even when there seems to be nothing to report. The SORP requires the trustees’ report to explain the going concern basis if reserves are nil or negative. More broadly, it also has to disclose material going concern uncertainties. Both points come back to whether the charity is still a going concern at all.

This page does not resolve that question; the trustees answer it when they assess going concern. A bare nil balance is the trigger that raises it. The current edition added this requirement. It applies to the smallest accruals charities as much as the largest.

A charity that has decided, on the evidence, that it needs no reserves is not doing anything wrong. But the SORP requires the report to say so, and say why, rather than stay silent on the point.

Do the same rules apply on receipts and payments accounts?

A charity on receipts and payments accounts is outside the SORP, so the SORP’s list does not bind it; it follows its jurisdiction’s annual report regulations instead. What those regulations require on reserves in England and Wales is not settled by this page’s own research.

The SORP’s five-part content list sits in its own Module 1. Module 1 governs the trustees’ annual report for a charity preparing accruals accounts under the SORP. Receipts and payments accounts are available instead to a charity that is not a company, where gross income is at or below £250,000 for financial years ending before 30 September 2026; £500,000 for financial years ending on or after 30 September 2026. Check the annual report regulations for your own accounting basis rather than assuming either way.

With the policy adopted, the next step is to set your investment policy for any money held beyond working needs.

Common mistake: stating what the charity holds instead of what it has decided to hold

Anyone can describe the balance. To justify a target, the trustees have to analyse their own risks. A balance on its own is not a policy.

OSCR looked at this closely. Of the accruals preparers in its sample, most mentioned reserves, and about a third stated the level they should hold. Fewer stated the level they held, and only a handful were meeting their own policy.

Common mistake: believing the regulator mandates a specific number of months’ expenditure

One figure is widely repeated in the sector as if it were a rule. OSCR deals with it directly. No UK regulator sets a required level of reserves.

Common mistake: saying nothing where the charity holds no reserves

There seems to be nothing to report. The current SORP requires a charity with no reserves, or with negative net assets, to explain why it is still operating as a going concern. That is a new requirement and it binds the smallest accruals charities.

Worked example

Tollgate Youth CIO’s trustees set a target range, in months of unrestricted running costs, not a single figure.

The policy names the risks that range is meant to absorb:

• the loss of its main grant with little notice
• an unplanned repair to its only venue

It states the level held at the year end against that range. It also records the step being taken this year to close the gap between the two. So the policy answers all four of the SORP’s own questions, not just the one about the balance.