OG515-1 Trustee expenses

Last reviewed:
30 October 2014
Last updated:
30 October 2014

Policy Statement/Overview

A charity trustee has a legal right to claim expenses properly incurred when serving as trustee. It can be helpful in recruiting trustees to voluntary positions for them to know that they should not be out of pocket as a result of serving as trustee.  

In dealing with expenses:

Accounting clearly for expenses is important in helping to develop and maintain confidence among a charity's supporters.

Summary of the guidance

The purpose of this guidance is to help caseworkers:

  • to advise charities about the differences between trustee expenses, which can be paid under common law, and trustee benefits, which can be paid only where clear authority exists; 
  • to answer other common queries about trustee expenses; and
  • to recognise where there may be problems with paying and reporting trustee expenses.

The Commission’s policy on the payment of trustee expenses is set out in section D of Trustee expenses and payments (CC11). Caseworkers need to read CC11, to familiarise themselves with our published policy, before advising charities about expenses. 

This guidance deals specifically with the payment of expenses incurred by a charity trustee when serving as trustee. This includes payments made directly to the trustee or paid to a third party on behalf of the trustee. It does not apply to payments made to trustees for services provided to the charity or for any other payments made to a trustee that are not directly related to legitimately incurred expenses.

Casework guidance

B1 Key points

  • A trustee has a legal right to be reimbursed for reasonable expenses properly incurred while serving as trustee.
  • A trustee should not be left out of pocket as a result of serving as trustee and all charities should repay to a trustee all reasonable expenses properly incurred by the trustee while acting for the charity.
  • Only costs which are clearly reasonable, unavoidable and necessary to enable a trustee to serve as trustee can be classed as properly incurred expenses.
  • The repayment of reasonable expenses should not count as taxable income nor should this affect a trustee’s entitlement to state benefits.
  • A payment to cover properly incurred reasonable expenses is not a trustee benefit and there is no need for an express authority before expenses can be repaid.
  • A payment made by a charity to a trustee which is not the payment of expenses (or a payment made to a trustee as a beneficiary of the charity, see CC24 Users on board) will be a trustee benefit. Such payments can only be made where the charity has clear authority to do so.
  • Expenses are usually reclaimed after the cost was incurred and an expenses claim should be supported by receipts, except where this is impossible or impractical.
  • Payments made by a charity directly to a provider on behalf of a trustee (for example, payments made directly to a travel company or a hotel) are still trustee expenses and should be recorded as such.
  • There may be occasions where it is necessary to make an advance to a trustee to cover anticipated expenses, this is acceptable as long as adjustments are made to the amount advanced as soon as the actual amount spent is known.
  • It is good practice for a charity to have a formal expenses policy agreed by its trustees. This would usually set out the procedure for claiming expenses and might help to avoid any doubt over what constitutes a reclaimable expense.
  • A charity must always keep proper records of expenses it pays to, or on behalf of, its trustees. This is particularly important in case of a query from the tax or benefits authorities. Details of expenses claims must be retained by the charity for six years from the end of the financial year in which the transaction was made.
  • Details of trustee expense payments should be reported in the charity’s accounts. In the case of charities that fall under the Statement of Recommended Practice on accounting and reporting by charities (SORP) this is a requirement. For other charities it is a matter of good practice. The SORP explains that a charity’s accounts must include a trustee expense statement even if no expenses were paid. This demonstrates that the trustees are aware of the requirement to report trustee expenses and will avoid any queries about expenses which may arise if there is no specific expenses statement. (See E11 How should expenses be dealt with in a charity's accounts?
  • Where a charity pays excessive expenses, or makes unauthorised payments to its trustees, claiming these are expenses, the trustees could be liable to repay the sum to the charity.

B2 What should we do when we are asked to advise regarding trustee expenses? 

Where a charity asks us for advice about the payment of trustee expenses we should signpost the charity to section D of CC11 and to our web guidance - Payments to charity trustees: what the rules are. We should also explain that the online trustee payment application form has a facility that allows an applicant to save and print written confirmation from us that properly incurred expenses can be paid without the need for our authority.

Additional common questions and answers about trustee expenses are set out in the Q&A and Legal and Policy Framework sections of this OG.

B3 What should we do where expenses appear to be unnecessary or unreasonably high?

If we come across a case where a charity's expenses;

  • seem excessive, that is, either;
    • large sums; or
    • sums which make up a relatively large proportion of the charity’s income; or 
  • appear avoidable; or
  • do not directly relate to a trustee's work for a charity;

we should first discuss this with the trustees to see if there is a particular reason for this. We may also ask to see the charity's expenses policy. 

Where the trustees' response does not satisfy our concerns, we might consider using our regulatory powers.

B4 What if trustee payments are being shown in the accounts as expenses?

Where a payment to a trustee, which is not an expense, has been recorded in the accounts as an expense, we should explain that this is an unauthorised trustee benefit then decide what further action might be appropriate. Having done this, and if it is appropriate for the payments to continue, we should give the trustees the opportunity to apply for authority to make any future payments.  

Legal/Policy Framework

E1 Definition

Definition of 'trustee expenses'

CC11 defines trustee expenses as ‘refunds by a charity of legitimate payments which a trustee has had to meet personally in order to carry out his or her trustee duties’.

See E5 & E6 for examples of what are, and are not, trustee expenses.  

E2 Law – Key points

  • A trustee has a legal right to be reimbursed for expenses properly incurred while serving as trustee. This legal right is provided by statute (under s31(1) of the Trustee Act 2000) and under common law (Re Beddoe [1893] 1 Ch.547 at 558).
  • Details of trustee expense payments should be reported in the charity’s accounts. For charities that fall under the Statement of Recommended Practice on accounting and reporting by charities (SORP) this is a requirement. For other charities it is a matter of good practice.

E3 Policy – Key points

  • It is good practice for a charity to have a formal expenses policy agreed by its trustees. This will help to avoid any doubt over what constitutes a reclaimable expense, as well as helping to properly manage the processes involved when claiming and paying expenses.
  • Although not all charities are required to comply with the charities' SORP, we recommend that, as a matter of good practice, all charities should follow the SORP requirements when reporting trustee expenses.

E4 Trustee expenses must be reasonable and necessary

A charity may only pay expenses where these are reasonable and necessary to enable a trustee to serve as trustee.

Any expenses claimed must:

  • be unavoidable and directly incurred for the legitimate business of the charity;
  • relate directly to the cost incurred rather than simply be a set amount intended to cover an estimated spend (but see E9 Can expenses be paid in advance?). For example:
    • Where a trustee is reclaiming telephone rental or broadband subscription charges, the claim should reflect the percentage of time the trustee spends using the phone/internet on charity business.
    • Where a charity uses a trustee's property in order to carry out its activities (as a place of worship, for example) any payments made in return for the use of the property will be a trustee benefit (see E6 What is not a trustee expense?). However, any costs paid to cover expenses associated with the use of the trustee's property (heating, lighting, etc) would be expenses, not a trustee benefit. Where this is the case, the expenses should be set at a level which reflects the extent of the charity's use of the property. If a charity appears to be paying more than its fair share of these costs we should consider what further action might be appropriate (see B3 What should we do where expenses appear to be unnecessary or unreasonably high?); and
  • not be excessive in relation to the activity claimed for. A charity should not pay more that the going rate for transport, accommodation, etc. Charitable funds should not be used to pay for excessive travel or accommodation arrangements. For example, it would be unlikely that a charity could say that paying for First Class travel for a trustee would be reasonable in most circumstances.       

E5 What is a reclaimable trustee expense?

There are many types of costs that constitute legitimate expenses, some examples are set out below. By referring to the definition of expenses in CC11 it is usually easy to judge what kind of cost is a properly incurred expense and what goes beyond that. For example, it is acceptable to pay for a trustee’s travel and accommodation, when required, but not that of a spouse or partner travelling with them (unless they are a carer and their travel is essential to enable the trustee to act for the charity). Similarly, a charity would be expected to pay a mileage allowance where a trustee uses a private vehicle on charity business, but the rate paid per mile must not exceed the rate set by HMRC.

Examples of legitimate expenses include:

  • travel and subsistence costs incurred when on trustee business, including, where necessary, overnight accommodation, public transport fares, taxi fares and private vehicle mileage allowances in line with HMRC guidelines
  • costs incurred in arranging care for dependents to enable a trustee to act for the charity
  • telephone, postage and other communications costs incurred when serving as trustee
  • costs incurred by a trustee with a disability in order to deal with any accessibility issues their disability may present when serving as trustee.

We cannot advise on what is, or is not, a legitimate expense. If trustees have any queries about this the trustees should seek advice from a qualified source, either the charity's professional advisors or HMRC.

E6 What is not a trustee expense?

E6.1 Payments which are trustee benefits, not expenses

Some payments may appear to be legitimate reclaimable expenses but are actually trustee benefits. For example:

E6.2 Payments to trustees which are neither expenses nor trustee benefits

There are circumstances where a charity can make payments to a trustee that are neither expenses nor benefits:

  • where a trustee purchases goods or services on behalf of a charity, and pays for the purchase personally, reclaiming the purchase price is not a trustee expense (or a trustee benefit) and does not need to be handled as such. This is because the trustee is simply acting as an agent for the charity in making the purchase, the cost of the purchase is not an expense which is necessary to enable a trustee to serve as trustee
  • a statutory authority (eg a local authority or NHS Trust) acting as charity trustee may wish to use the charity's funds to pay one of its staff to provide services to the charity, for example secretarial or legal services. Where this is the case, and:
    • the service provided is necessary to the charity;
    • the payment is reasonable for the service provided;
    • the payment reflects only what it costs the authority to employ the person and no more; and
    • the employee is suitably qualified;
    these payments form part of the necessary running costs of the charity. They are not trustee expenses nor are they a trustee benefit. In this case, the trustee must ensure that the service provided does not put the employee in a position of possible conflict, for example, a local authority solicitor must not provide legal advice to a charity about a contract between it and the local authority. (NOTE: This does not extend to allowing the authority to charge the charity for staff salary paid while the staff member acts for the authority as trustee. Nor does this mean that an authority can charge the charity for any expenses or allowances it pays to board members or councillors when discussing charity business at a meeting of the authority’s board. Each of these examples would be a trustee benefit requiring express authority.)

When preparing the charity’s accounts, charities that fall under the requirements of the charities' SORP must disclose this type of payment as a related party transaction. (See E11 for further information on what type of charity must comply with the SORP.)

accountant_referIf you have any queries about what is or is not a proper expense, ask a Commission accountant to advise.

 

E7 Should all charities have an expenses policy?

As a matter of good practice, any charity that is likely to pay expenses to trustees should have a written expenses policy. An expenses policy will usually set out what is and is not a recoverable expense and might also record the charity’s process for claiming expenses. For instance, the expenses policy could include a standard claims form and also set out the sign-off procedure for approving expenses claims.

Where trustees discuss a charity’s expenses policy, or any exceptional or unusual expenses claims, discussions should be properly recorded in the minutes of the meeting in case of any queries in the future.

E8 How should a charity handle expenses claims?

It is best practice for a charity to only repay expenses on production of supporting documents such as bills, receipts, etc. However, this may not always be possible, for example where the amounts are particularly small or if a receipt was not issued at the time the cost was incurred. A charity's expenses policy would usually require that a trustee submits a signed expenses claim for processing. This may be an official expenses claim form or the claim might simply be in writing, accompanied by any available receipts.

Occasionally, a charity may make a prepayment to cover upcoming trustee expenses (see E9 Can expenses be paid in advance?). Where this happens, particular care should be taken to record the amount advanced and to clearly show that any surplus was repaid by the trustee once the actual cost of the expense became known.

Expenses claims documentation forms part of a charity's accounting records and should be retained with the charity's other financial records. Details of expenses claims must be retained by the charity for six years from the end of the financial year in which the transaction was made. 

E9 Can expenses be paid in advance?

A charity can, in certain circumstances, prepay expenses to cover anticipated costs. This can be particularly helpful to a trustee on low income or state benefits. Where trustees agree that prepayment is necessary the trustees should ensure that any adjustments are made as soon as possible after the actual expenditure is known. Any surplus held by the trustee after paying the final costs must be returned to the charity, otherwise this will amount to an unauthorised trustee payment.

Where a charity makes a prepayment to cover expenses to a trustee in receipt of state benefit, this is not classed as income and will not affect the level of state benefit payable. Where prepayments are made, the charity will need to keep precise records, particularly where a trustee in receipt of prepaid expenses is on state benefits, in case of any future queries.

E10 How might expense repayments affect a trustee's tax and/or benefits?

If we are asked to advise regarding expenses and tax we should always refer the enquirer to HMRC as we are not able to offer advice regarding tax matters. Similarly, if we are asked about how trustee expenses might affect a person's benefits entitlement, we should refer the enquirer to the benefits section of the gov.uk website.

E11 How should expenses be reported in a charity’s accounts?

The Statement of Recommended Practice on accounting and reporting by charities (SORP), which applies to all charitable companies, and to any charity with an annual income of more than £250,000, sets out the requirements for reporting trustee expenses. (We recommend that all charities, whether or not the SORP applies, should follow the SORP requirements when reporting trustee expenses.)

Paragraphs 231 to 233 of the SORP explain that a charity’s accounts must:

  • set out the total amount of expenses paid by the charity on behalf of its trustees. This total will include all expenses, ie, those claimed directly by the trustee, those that were prepaid then adjusted and those that were paid directly to a third party; and
  • set out the nature of the expense incurred (travel, accommodation, etc) and the number of trustees in receipt of expense payments; or
  • where no expenses have been paid to or on behalf of its trustees, the charity’s accounts should clearly state that no expenses were paid during the year.

This section of the SORP also clarifies that, where a trustee buys goods or services for a charity, repayment of the costs incurred is not a repayment of expenses and such payments do not need to be disclosed in the accounts as expenses. The reason for this is that the trustee is, in effect, acting as the agent of the charity in making the purchase. The cost of the purchase is not a cost incurred while acting as a trustee, it is simply a straightforward reimbursement of money spent on behalf of the charity.

Q&A

F1 What are trustee expenses?

Trustee expenses are payments to cover reasonable and necessary costs legitimately incurred by a trustee while acting on behalf of a charity. (See E4 Trustee expenses must be reasonable and necessary.) The payment of expenses is not a trustee benefit. (See E5 What is a reclaimable trustee expense?)  

F2 What payments are not legitimate trustee expenses?

F2.1 Payments which are benefits not expenses

Any payments made by a charity to a trustee which are not directly linked to costs incurred by the trustee when acting for the charity, and result in the trustee profiting from the charity, are not expenses and could only be made where clear authority exists. (See E6.1 What is not a trustee expense?)

F2.2 Payments which are neither expenses nor benefits

There are certain payments which a charity makes to a trustee which are neither expenses nor benefits. For example, refunding a trustee who has made purchases on behalf of the charity or where a statutory authority, acting as a charity trustee, pays one of its staff to work for the charity. (See E6.2 Payments to trustees which are neither expenses nor trustee benefits.)

F3 Who can claim expenses?

Any trustee who incurs expenses while acting for a charity is entitled to claim these expenses back from the charity.

F4 Can expenses be paid directly to a third party?

There may be occasions where a charity pays a third party for the provision of a service to a trustee when acting for the charity, for example, for hotel accommodation or rail travel. It is acceptable for the charity to do this. This is still a trustee expense and needs to be recorded and reported as such. 

F5 Can expenses be paid in advance?

Yes, where a trustee might not be able to afford to pay costs themselves, before claiming these costs back from the charity, the charity can prepay anticipated expenses. This can be particularly useful where a trustee is on low income. Where expenses are paid in advance, the trustee must provide receipts as soon as they are available and settle any difference between the expense incurred and the amount prepaid by the charity. (See E9 Can expenses be paid in advance?)

F6 Does a charity need to have a formal expenses policy?

There is no legal requirement for a charity to have in place a formal expenses policy. However, we would recommend that all charities, whose trustees may incur expenses, adopt an expenses policy. This will help the charity manage the payment of expenses and also set out what constitutes a legitimate expense. (See E7 Should all charities have an expenses policy?)

F7 Do expenses need to be reported in a charity's accounts? 

The Statement of Recommended Practice on accounting and reporting by charities (SORP), which applies to all charitable companies, and to charities with an annual income of over £250,000, states that all expenses must be reported a charity's accounts. For charities which do not fall under the SORP, we recommend, as a matter of good practice, that the reporting requirements of the SORP are followed. (See E11 How should expenses be reported in a charity's accounts?)

F8 When might expenses be a cause for concern?  

If we come across a case where trustee expenses make up a relatively high proportion of the charity's income or appear inappropriate (for example where a small local charity is paying significant amounts of travel or accommodation expenses) we should consider what action might be required. (See B3 What should we do where expenses appear unnecessary or unreasonably high?)