Casework Guidance 

B1 Definition and key points

B1.1 Definition

Within this guidance, reference to payment to replace lost income means any payment or other benefit given by a charity to a trustee, or a trustee's employer, as full or part replacement of income lost while serving as trustee. This includes payments made:

• to an employed trustee who takes unpaid leave to carry out charity business
• to an employer of a trustee who is given paid time off to carry out charity business 
• to a self-employed trustee who loses income in order to carry out charity business
• to a self-employed trustee who has to pay for cover when carrying out charity business.

Any reference in this guidance to a payment to a trustee means any one of these four scenarios. 

In all cases, it is not simply enough that the trustee, or employer, will lose income because of trusteeship. It would only be appropriate to make such payments where the trustee, or employer, cannot afford to carry the loss. 

B1.2 Key points

• It can, in certain circumstances, be appropriate to make payments to a trustee to enable him or her to serve as trustee. This might be where the trustee will lose income while acting for the charity and cannot afford to do so. 
• Making a payment to replace lost income is a trustee benefit, not a reimbursable expense.
• A charity will need an express authority before making this kind of payment.
• Payment may be made to a trustee’s employer, rather than directly to the trustee, this is still a trustee benefit and can only be made where proper authority exists.
• A charity’s governing document may contain an express authority to make payments to replace lost income. Where it does, the trustees must comply with any conditions attached to this authority.
• If there is no suitable power in the charity's GD, authority can be provided by the court or the Commission.
• A charity's trustees should only consider making such a payment where doing so will bring a clear and positive advantage to the charity.
• The amount paid should be no more than the reasonable value of the work carried out on behalf of the charity or the amount of income lost by the trustee, whichever is the lower.
• Where payments are likely to be ongoing we would expect there to be a written agreement between the charity and the trustee, setting out the terms of the arrangement.
• Where we are satisfied, from the case made, that making the payment will be in the interests of the charity we will usually authorise this.  
• Where we are not satisfied with the case made, or where making the payment does not appear to be in the charity's interests, we will refuse to give authority.

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B2 Handling initial queries regarding payments to replace lost income

Where we are approached by trustees who are considering making payments to replace lost income we should signpost the trustees to our web guidance, the online application form and section H of CC11, this explains our policy regarding this kind of payment and sets out the legal requirements. Reading this section should help the trustees decide whether or not to go ahead with the proposal. Having done this, if the trustees decide that making these payments will bring a clear and positive advantage to the charity, they should check the charity's governing document, to see if that contains a suitable power to make the payments. If it does, the trustees can rely on that power to make the payments, providing they comply with any conditions attached to the power. If it does not, the trustees will need to apply for authority from the Commission (see B2.2) 

B2.1 Where there is a power in the charity's governing document

Where the charity's governing document contains a power to make payments to replace lost income this does not mean that the trustees can use this power without fully considering the proposal. The trustees must only decide to make a payment where doing so will bring a clear and positive advantage to the charity. Where the trustees rely on a power within the charity's governing document they must comply with any conditions attached to that power.       

B2.2 Applying to the Commission for authority to pay a trustee to replace lost income  

Where we are asked to authorise any payment to a trustee we should always refer the applicant to the online application form. We should explain that this is not simply a case of insisting on charities following our processes but that using the form will ensure that the applicant includes all the necessary information in one submission, avoiding the need for additional rounds of correspondence. 

The form asks the applicant, acting on behalf of the trustees, to give details of the proposed payments and to set out the trustees' case in support of the application.

Specifically, the form asks the applicant to:

• give details of how the trustee will lose out financially while acting for the charity, how this means the trustee cannot afford to act as trustee and why the trustee cannot act as unpaid advisor rather than remaining a trustee 
• give details of the particular skills or perspective that the trustee brings to the charity that cannot be found elsewhere
• set out the amount of the payment, explain how this figure was reached and state if this is related to the value of the work carried out for the charity or to the amount of income lost   
• state when the arrangement will start and finish
• explain the duties for which the payments are to be made
• explain what steps the trustees have taken to recruit unpaid trustees (or, if no steps have been taken, explain why not) and set out why the trustees think it is in the interests of the charity to make the payments

The applicant must also confirm, on behalf of the trustees, that:

• making the proposed payment is in the interests of the charity and there will be a clear and positive advantage to the charity to do so
• it is in the interests of the charity to pay the person named rather than recruit or retain trustees who can act without payment
• the person named has played no part in the proposal or decision to pay them
• the potential conflict of interest will be managed and the trustee will not be privy to any discussion or meeting at which the payment is discussed
• the level of payment is no more than is reasonable for the work undertaken for the charity
• the proposed payment, taken together with any other payments already being made, will not result in half or more than half of the trustees receiving benefits from the charity, either directly or indirectly
• the trustees who are not receiving benefit can form a quorum to carry out the business of the charity without any conflicted trustees  
• if the payments will be ongoing, the trustees will put in place a written agreement that will include a formal review process.

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B3 Considering an application 

B3.1 Initial checks

When we receive a completed online application form there are some standard checks before we consider the substance of the case made in support of the application. We should check that: 

• the charity is up to date with its filing obligations to the Commission. (This is not only because it is our policy not to deal with non-compliant charities, it is also important for us to have up to date financial information to help to inform our decision). Where the charity's income means it is required to submit accounts, the form asks the applicant to check the register to see if we have already received the latest accounts. If not, the applicant must upload the accounts with the form. Where the charity falls below the income threshold for accounts submission the form asks the applicant to upload the latest accounts to help us consider the case. If an application is submitted without our having access to the charity's most recent accounts we should reject the application as incomplete. We should suggest that the applicant re-applies for authority, using the online form, once the accounts are available. 
• there is no existing power to make these payments within the charity's governing document. If there is a suitable power in the governing document we should tell the applicant that the trustees can rely on this power without the need for our authority. We should also explain that the presence of a power in the GD does not mean that the trustees can make the payments without fully considering the case, taking into account the relevant factors (and ignoring irrelevant factors).  Trustees should only make payments to replace lost income where they are satisfied that doing so will bring a clear and positive advantage to the charity.   

B3.2 Considering the case in support of the application

Having established that we have the charity's latest accounts and that our authority is required, because there is no existing power in the charity's GD, we must consider the case made in support of the application. We should consider the case in the context of all of the information provided before deciding if we are prepared to authorise the payment.

While we will consider each case on its merits, in the context of our Risk Framework and taking into account all relevant information, the type of case we might find convincing is set out below.

• Give details of how the trustee will lose out financially while acting for the charity, how this means the trustee cannot afford to act as trustee and why the trustee cannot act as unpaid advisor rather than remaining a trustee. This might be where:
  • the trustee meetings are held during normal working hours because this is the only time that the majority of the trustees and/or advisors are available and the employer of the trustee will not allow the trustee to take paid time off to attend trustee meetings
  • the trustee is on a low income meaning that any reduction in income will be noticed to the extent that the trustee cannot afford to absorb the loss. (The trustees should only decide to make such payments where the trustee cannot afford to lose that income. Not all trustees will find that the loss of income means that they cannot afford to serve as trustee)
  • the trustees might want the trustee to continue to serve because of the shared responsibility and accountability that only trusteeship can bring.
• Give details of the particular skills or perspective that the trustee brings to the charity that cannot be found elsewhere. The trustee might fulfil these criteria because of particular life experience which brings a greater knowledge of the charity's work to the trustee board. The trustee may have special knowledge of working with the charity's beneficiary class, or particular contacts in the charity's field, that cannot easily be replaced.    
• What is the amount of the payment, explain how this figure was reached and state if this is related to the value of the work carried out for the charity or to the amount of income lost. The amount of the payment is important so that we can decide if this appears to be reasonable for the service provided. We would usually expect the level of payment to be set by looking at what is paid for carrying out a similar role in a similar organisation. We need to know if the payment is for the value of the work carried out for the charity or if it relates directly to the loss of income so that we can ensure that this is the lower figure, as the trustee should not profit from their trusteeship.   
• State when the arrangement will start and finish. We will use the information in this field to give time limited authority, if appropriate and if the arrangement has a planned end date. This will mean that the trustees will need to apply again if they would like the payments to continue beyond the period of authority. In addition, this information will help us to decide if the arrangement can be viewed as ongoing to the extent that we would expect the trustees to put in place a written agreement, including a formal review process. As a guide, if the arrangement is to continue for six months or more, we would usually expect there to be a written agreement between the charity and the trustee. Even where the arrangement has no planned end date at the time the application is made, we may decide to time-limit our authority to say, one or two years. This will mean that the trustees will have to re-apply for authority at that time, and will ensure that the trustees look again at the circumstances of the case, to be certain that making the payments still brings a clear and positive advantage to the charity. The Commission will also consider the case again when deciding to provide further authority.
• Explain fully the duties for which the payment is made. We need this information to be sure that the payment is to be made to replace lost income rather than for, say, the provisions of services (which could be made under s185). It will also help us to decide if the level of payment appears reasonable.
• Explain what steps have been taken to recruit unpaid trustees (if no steps have been taken, why not) and why is it in the interests of the charity to make the payment? We expect the trustees to consider trying to recruit replacement trustees with the necessary skills and experience before deciding to make payments to a serving trustee. In deciding to go ahead with the proposal it may be that the trustees have carried out a recruitment process, formally or informally, and that this failed to find any suitable candidates. Or the trustees might have decided that the likelihood of finding a suitable replacement is so small that it would not be a good use of time and resources to go through a recruitment process. The trustees must also include a statement explaining why it is in the best interests of the charity to make payments to replace lost income. This gives an opportunity for the trustees to provide any relevant information in support of the application.

Our overall position is that we will only grant authority where we are satisfied that making the payments would be in the interests of the charity.

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B4 Making our decision

When considering the case made by the trustees, we should do this in the context of the Commission's role as decision maker. Caseworkers must apply our policy consistently but must also make decisions on a case by case basis, considering the evidence presented, taking into account all relevant factors and ignoring irrelevant factors. Caseworkers may find it useful to look at It's your decision, our decision making guidance for trustees when considering a case. The decision must be taken in accordance with our Authorised Officer policy (see OG702).

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B5 Granting authority

Where we are satisfied with the case made we can give our authority, this will be a reviewable decision of the Commission. How we grant authority depends on the individual circumstances of each charity (see section B3 of OG515-5).

Where we grant authority by Scheme or Order there is model wording available in the Drafting Manual. Our authority should normally include the following wording (or wording with similar meaning):

‘Reimbursement must not exceed the amount which could be regarded as reasonable payment for the work undertaken on behalf of the charity.’ 

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B6 When might we refuse to grant authority?

Where the trustees' responses to each of the points set out in the online application form are not convincing and, particularly, where the proposed payment is set at a level which appears more than is reasonable for the service provided to the charity (or where the payment is more than the amount lost by the trustee) we should contact the trustees to ask for further information.

Having done this, if the charity's response is still not satisfactory, we will refuse to give authority.

In making the decision to refuse to authorise a proposal we need to consider our public law duties including whether our decision might impact on the human rights of any individual (or corporate body). When we formally record the reasons for making our decision, we should confirm that we have considered the case in the context of our public law duties. Caseworkers may consider it necessary to take legal advice about any public law duty impact where we are proposing to refuse to authorise the payment of compensation to a trustee. Further information on human rights can be found in OG71 Human Rights Act 1988.

Where we refuse to give authority this should be recorded as a formal decision of the Commission. This is a reviewable decision and can be appealed to the Charity Tribunal. Caseworkers must clearly record their reasons for refusal on the case file. When informing the charity of our decision we should refer to our decision review process, should the trustees decide to appeal against this decision (see the model refusal letter in OG515-5).

Case studies

D1 Where we authorised a proposal to pay a trustee to replace lost income

The charity

Income - circa £7million pa.

Activities - the charity works with people with a drug dependency, providing support in various ways including the provision of treatment and rehabilitation. 

Number of trustees - 6.

The initial approach

The charity's trustees contacted the Commission to inform us that they were in the process of recruiting a new trustee and were proposing to pay the trustee to replace lost income. The proposed trustee's employer would not give the trustee paid time off and the trustee could not afford to lose income while acting for the charity.  

Our response

We replied to the trustees, signposting to section H of CC11, for more information, and to the online application form. We explained that completing the form is the easiest and most effective way to ensure that we are given all the information we need to consider the case, avoiding the possibility of drawn out correspondence later on.

The case in support of the application

The charity submitted a completed online application form and dealt with each of the criteria as follows:

• Give details of how the trustee will lose out financially while acting for the charity, how this means the trustee cannot afford to act as trustee and why the trustee cannot act as unpaid advisor rather than remaining a trustee.
  • The trustee meetings had been held during working hours for over two years as this was the most convenient time for most of the trustees. The decision to do this was agreed unanimously by the board.
  • The proposed trustee's employer was a relatively low-income, but high profile, organisation working in the same field as the charity and could not afford to use the charity's limited funds to pay the trustee while he was acting for another charity.
  • The proposed trustee was on a relatively low income and could not afford to take unpaid leave when acting as trustee.
  • The trustees felt that the charity would benefit more from the person taking equal responsibility for the decision making of the charity rather than simply advising the trustees. This would also clearly demonstrate the trustee's commitment to the charity, particularly as the trustee was employed by another charity working in the same field.
• Give details of the particular skills or perspective that the trustee brings to the charity that cannot be found elsewhere.
  • The individual was particularly highly regarded and authoritative in the field bringing a unique perspective to the charity which it would struggle to find elsewhere. Appointing this particular trustee would also add to the diversity of the board due to the trustee's age and background.
  • The individual had a depth of experience in the provision of treatment to drug users as well as an understanding of the broad policy issues involved.
• What is the amount of the payment, how was this figure reached and does it relate to the value of the work carried out for the charity or to the amount of income lost.
  • The total annual cost would be approximately £4,000. The level of payment was set by benchmarking from similar consultancy roles in the sector with the chosen hourly rate matching the lowest of the benchmark figures. The figure relates to the value of the work carried out for the charity as this is less than the trustee would lose when acting for the charity.
• When will the arrangement start and end?
  • The trustee would be appointed as soon as the proposed payment was approved by the Commission and the arrangement would run initially for a period of two years. The trustees would review the arrangement at that time to see if it would be in the charity's interests for this to continue.

• What are the duties for which the payment is made?
  • The trustee would be carrying out the usual role of trustee, attending trustee meetings, visiting the charity's facilities, etc.

• What steps have been taken to recruit unpaid trustees rather than appointing the person who will need to be paid (If no steps have been taken explain why not) and why is it in the interests of the charity to make the payments?
  • The trustees had not tried to recruit an unpaid replacement trustee because they felt that the charity worked in such a specialist field that it would be very unlikely that they could find an alternative trustee with the same experience as the trustee to be paid. It would not be a good use of the charity's funds to advertise, where the chances of finding a suitable trustee are so small.
  • The proposed trustee would help to develop the work of the charity thanks to his particular knowledge and experience of the field. If the trustee could not act for the charity then this could result in the charity being less effective in targeting its help to beneficiaries. This is why making the relatively small payment to secure the trustee's services is in the interests of the charity.
  • The trustees felt that this was a good use of the charity's funds as the benefits the charity would gain from having the trustee on board would clearly outweigh the financial cost attached.

In submitting the form, the applicant also confirmed that the trustees were satisfied that:

• making the proposed payment is in the interests of the charity bringing a clear and positive advantage to the charity
• it is in the interests of the charity to pay the person named rather than recruit or retain trustees who can act without payment
• the person named played no part in the proposal or decision to pay them
• the potential conflict of interest would be managed and the trustee would not be privy to any discussion or meeting at which the payment is discussed
• the level of payment is no more than is reasonable for the work undertaken for the charity
• the proposed payment, taken together with any other payments already being made, will not result in half or more than half of the trustees receiving benefits from the charity, either directly or indirectly
• the trustees who are not receiving benefit can form a quorum to carry out the business of the charity without any conflicted trustees  
• the trustees would put in place a written agreement that will include a formal review process.

Our decision 

We decided that the case made was strong enough to authorise. We were particularly persuaded by the depth of the trustee's knowledge and experience and by the fact that the trustee would add to the diversity of the board. We were also aware from our records that the charity had had difficulty in recruiting trustees in the past.

In terms of process, the charity's governing document already included a conditional power to pay trustees, subject to the consent of the Commission. We provided written authority, with the following conditions:

• the trustee board must follow the charity’s formal conflict of interest procedures
• the rate of pay must be set at the level that has been agreed and must not exceed an amount that could be regarded as reasonable for the work undertaken for the charity.

Our authority was time limited. The authority was to run for two years after which the charity would need to re-apply for any continuation of the arrangement. We did this to ensure that the arrangement was formally reviewed at that time so that the trustees could make sure that making the payment was still bringing a clear and positive advantage to the charity.

This decision was taken by an Authorised Officer in accordance with our Authorised Officer policy.

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D2 Where we refused to authorise a proposal to pay a trustee to replace lost income

The charity

Income - over £20million pa.

Activities - the charity works in healthcare.

Number of trustees - 8.

The initial approach

We were approached by the charity with a request for authority to amend the charity's governing document. The charity wanted to adopt a power to make payments to the trustees generally and, specifically, to the Chair, to replace income lost while serving as trustee.

Our response

We replied to the trustees, signposting to section H of CC11, for more information, and to the online application form. We explained that completing the form is the easiest and most effective way to ensure that we are given all the information we need to consider the case, avoiding the possibility of drawn out correspondence later on.

The case in support of the application

The charity submitted a completed online application form responding to each of the criteria as follows:

• Give details of how the trustee will lose out financially while acting for the charity, how this means the trustee cannot afford to act as trustee and why the trustee cannot act as unpaid advisor rather than remaining a trustee.
  • The timing of the trustee meetings had recently been changed and these were now held during normal working hours. The trustee works for other organisations on a consultancy basis and might lose out on potential earnings while acting as trustee.
  • The Chair had been in post for three years without payment but the role of the trustee had recently expanded to take on appraisals for board members and senior staff. It would not be appropriate for an unpaid advisor to take on this role.
• Give details of the particular skills or perspective that the trustee brings to the charity that cannot be found elsewhere.
  • The trustee had served the charity for some years, was popular with the other board members and understood how the charity dealt with its staff and supporters. If the trustee was not able to continue to act there would be a period of disruption on the trustee board.
  • The time commitment expected of the Chair was greater than that of the other trustees and included occasionally representing the charity at external meetings and conferences.
• What is the amount of the payment, how was this figure reached and does it relate to the value of the work carried out for the charity or to the amount of income lost?
  • The trustees had not yet set the rate but expected that the level of payment would be the standard rate that the trustee would charge when working as a consultant for other organisations.
• When will the arrangement start and end?
  • Payments would begin once authority was granted and would continue until the trustee left the charity.
• What are the duties for which the payment is made?
  • The trustee would be attending trustee meetings, dealing with staff and preparing proposal papers for the other trustees, etc.

• What steps have been taken to recruit unpaid trustees rather than appointing the person who will need to be paid (If no steps have been taken explain why not) and why is it in the interests of the charity to make the payments?
  • The charity had not tried to recruit a replacement trustee able to act without payment. The trustees said that it would be inappropriate to appoint a new Chair who might not be as well qualified as the current Chair.

  • The trustee had made it clear that he was committed to the charity whether or not payment was available, the other trustees felt that making the payments would show that they valued the trustee's contribution and that this would be in the interests of the charity.

  • The ability to pay to replace lost earnings would enable the charity to help to recruit and retain suitably qualified trustees.

In submitting the form the applicant also confirmed that the trustees were satisfied that:

• making the proposed payment is in the interests of the charity bringing a clear and positive advantage to the charity
• it is in the interests of the charity to pay the person named rather than recruit or retain trustees who can act without payment
• the person named played no part in the proposal or decision to pay them.
• the potential conflict of interest would be managed and the trustee will not be privy to any discussion or meeting at which the payment is discussed
• the level of payment is no more than is reasonable for the work undertaken for the charity
• the proposed payment, taken together with any other payments already being made, will not result in half or more than half of the trustees receiving benefits from the charity, either directly or indirectly
• the trustees who are not receiving benefit can form a quorum to carry out the business of the charity without any conflicted trustees  
• the trustees would put in place a written agreement that will include a formal review process.

Our decision

We considered the case made by the charity and concluded that this was not strong enough for us to authorise the adoption of a clause to allow these payments to be made. We were particularly concerned that:

• the trustees had not tried to recruit a new trustee with the required skills and experience who was able to act without payment
• it was not clear that the trustee could only continue to act if payments were made. The trustees had already stated that the trustee was committed to the charity whether or not payments were made and the case they had made in support of the application did not address this point
• the proposed level of payment was based on the amount the trustee might lose, there was no evidence that the trustees had tried to calculate the value of the work carried out for the charity. 

Because of this, it was apparent that the trustees had not fully thought through the proposal and had not demonstrated that the proposal would bring a clear and positive advantage to the charity. For these reasons we decided to refuse to give our authority.          

We wrote to the charity, setting out our decision and the reasoning behind this. We explained our decision review process and set out how the charity could appeal against this decision. This decision was taken by an Authorised Officer in accordance with our Authorised Officer policy.

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Legal/Policy Framework 

E1 Law key points

• Making payments to replace lost income is a trustee benefit, not a reimbursable expense, a charity must have an express authority in place before making such a payment.
• The amount paid should be no more than the reasonable value of the work carried out on behalf of the charity or the amount of income lost by the trustee, whichever is the lower.

E2 Policy key points

• A charity's trustees must only decide to make a payment to replace lost income where they are satisfied that doing so will bring a clear and positive advantage to the charity.
• Where we are asked to authorise a proposal to pay a trustee to replace lost income, we are more likely to do this than we might be to authorise payments for serving as trustee, which are not related to lost income, for two reasons:
  • because this kind of payment is often intended to increase the diversity of a trustee board by enabling a person, who might not otherwise be able to afford to do so, to serve as trustee, and 
  •  because the payment will not result in the trustee being paid more than he or she would otherwise earn, if free to attend work.
• Where we are satisfied, from the case made, that paying to replace lost income is in the interests of the charity, we will usually authorise this.

E3 Why might a charity's trustees think it appropriate to pay a trustee to replace lost earnings?

Wherever possible, a charity's trustees should only be required to carry out trustee duties at times which mean that all trustees can do so without this interfering with their working life. However, this is not always possible, particularly where a trustee may have irregular working patterns.

If a trustee has to be available at times when he or she might otherwise be working, a trustee's employer might agree to give the trustee paid time off. This would demonstrate that the employer values the work the trustee carries out for charity and may enhance the employer’s reputation as a good employer.

However, in some cases, an employed trustee will need to take time off work to act for the charity and will have to take unpaid leave to do so. Where a trustee is self-employed, the trustee may need to stop work to act for the charity and this may result in the trustee losing income.

Where this is the case, a trustee will need to carefully consider if he or she can afford to lose income to be able to serve as trustee, this is particularly an issue for trustees on lower incomes. It is important, in order to ensure the diversity of the sector, that people are not excluded from serving as charity trustees for economic reasons. Because of this, in certain circumstances, it can be acceptable to use charitable funds to make payments to enable a person to serve as trustee.

If a trustee or potential trustee:

• brings particular skills or perspective which are valuable to the charity and which cannot be found elsewhere; and
• will lose income when serving as trustee and cannot afford to do so;

the other trustees may consider it appropriate to make payments to the trustee to replace lost income.

A charity's trustees should only consider making these payments where this will bring a clear and positive advantage to the charity.

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E4 What risks might be attached to a proposal to pay a trustee to replace lost income?

Where a charity is proposing to pay a trustee so that they can afford to serve as trustee there may be risks attached to this proposal. For example:

• Only trustees who are in paid employment (including self-employment) can benefit from this payment, this may be seen to be unfair to those trustees who are not in paid work.
• The fact that the level of payment must be no more than the reasonable value of the work carried out for the charity (and might, therefore, be less than the amount lost by the trustee) could cause problems where the trustee believes that the payment should directly replace the amount of income lost. A payment should only directly replace the amount lost by the trustee where the amount lost is less than the value of the work carried out for the charity. 
• If the payments are ongoing, this might remove the incentive to always try to avoid the necessity to make these payments (for example, by holding meetings outside of normal working hours).

These risks are in addition to those set out in section B4 of OG515-5.

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