Making grants lawfully and responsibly: what Trustees of charities in England and Wales need to know about the Charity Commission’s new guidance

The Charity Commission has published new guidance on making grants to charities and other organisations, setting out what trustees should consider when using grant funding to further their charity’s purposes. For charities in England and Wales, the guidance is a timely reminder that grant-making is not simply a question of generosity or good intentions. It is an exercise of trustees’ legal duties and must be approached with the same care, discipline and oversight as any other use of charitable funds.

From a solicitor’s perspective, the key message is straightforward: trustees must be able to show that every grant decision is properly connected to the charity’s purposes, is in the charity’s best interests and is supported by proportionate due diligence, suitable grant terms and effective monitoring. That is especially important where grants are made to organisations that are not charities, where the regulatory risk is often greater and the Charity Commission expects trustees to take extra care.

Grant-making must start with your charity’s purposes

The starting point is always the charity’s governing document. The Commission’s guidance makes clear that trustees must understand the scope and limits of their charity’s purposes and ensure that grant-making only funds work which helps carry out those purposes. This may sound obvious, but in practice it is one of the most important areas of legal risk. Trustees can be drawn towards worthwhile causes that are adjacent to, but not actually within, their charity’s objects. However well-meaning that may be, charitable funds cannot lawfully be applied outside the charity’s purposes.

Trustees must also keep in mind their broader duties: to act for the public benefit, to comply with the law and the charity’s constitution, to act in the charity’s best interests and to exercise reasonable care and skill. In practical terms, that means grant-making should be supported by a rational decision-making process, proper records and a clear explanation of why the funding decision is an appropriate use of the charity’s resources. If a grant decision were later questioned, trustees should be in a position to show not only what they decided, but why they decided it.

Put an appropriate grant-making process in place

One of the most useful aspects of the guidance is its emphasis on process. Trustees should have an appropriate grant-making framework which reflects the nature, size and risk profile of the charity’s funding activities. A small one-off grant may not require the same level of scrutiny as a substantial programme of repeat funding, but the principle is the same: trustees should know how applications will be assessed, who will make recommendations, how conflicts of interest will be handled, what checks will be undertaken and how decisions will be recorded.

This is not about creating unnecessary bureaucracy. It is about good governance. Consistent procedures help trustees make sound decisions, manage risk and demonstrate accountability. They also help avoid common problems such as informal decision-making, inadequate records or the influence of undisclosed conflicts. Where trustees are dealing with connected organisations, novel funding models or urgent applications, careful process becomes even more important.

Due diligence is essential before money leaves the charity

The Commission expects trustees to make checks on organisations before giving grants. The level of due diligence required will depend on the circumstances, but trustees should be satisfied that the recipient is genuine, capable of delivering the funded work and suitable to receive charitable funds. They should understand how the organisation is structured and operates, who controls it and whether there are any obvious legal, financial, reputational or delivery risks.

In practice, that may include checking governing documents, registration status, accounts, financial controls, safeguarding arrangements, relevant policies and whether the recipient has the operational capacity to do what the grant requires. Trustees should also consider whether the proposed use of funds can be monitored in a meaningful way. If the charity cannot realistically verify how the money will be used, that is a warning sign. The legal test is not perfection, but reasonableness: trustees should take proportionate steps to identify and manage risk before committing the charity’s resources.

Grant terms and conditions should be clear and enforceable

The guidance states that charities should put written grant terms and conditions in place. In legal terms, this is a crucial safeguard. A written grant agreement helps define what the money is for, when it will be paid, what restrictions apply, what reporting is required and what remedies are available if the funds are misapplied. It also helps avoid misunderstandings between funder and recipient and provides a practical framework for monitoring and enforcement.

For many charities, a simple award letter may be sufficient for lower-risk grants. For higher-value, higher-risk or more complex arrangements, more detailed contractual terms may be appropriate. Trustees should think carefully about matters such as permitted use of funds, reporting deadlines, repayment provisions, suspension rights, record-keeping obligations and, where relevant, rights of inspection or audit. The more risk a grant carries, the more important it is that the documentation is robust and the more appropriate it is to have the documents drafted by a suitably qualified solicitor.

Monitoring is part of trustees’ ongoing responsibility

Trustees’ responsibilities do not end when the grant is paid. The guidance makes clear that charities should monitor their grants and report on them appropriately. Monitoring should be proportionate, but it must be real. Trustees need sufficient information to assess whether the grant has been used for the intended purpose and whether the funded activity is furthering the charity’s objects as planned.

Depending on the circumstances, that may involve progress reports, financial reporting, evidence of outputs or outcomes, follow-up meetings or staged payments linked to milestones. What matters is that trustees can demonstrate reasonable oversight. A grant programme that is poorly monitored can expose the charity to financial loss, regulatory scrutiny and reputational damage, particularly if funds are diverted or the funded activity proves inconsistent with the charity’s purposes.

Extra care is needed when funding non-charities

One of the most significant points in the new guidance is that charities can make grants to organisations which are not charities, including Community Interest Companies, social enterprises and, in some cases, for-profit companies. That flexibility may be valuable, particularly where non-charitable organisations are better placed to deliver services or reach beneficiaries. However, the guidance is equally clear that trustees must take extra care in these situations.

The reason is obvious: non-charities are not subject to the same regulatory framework, asset restrictions or public benefit requirements as registered charities. That means the trustees of the funding charity must work harder to ensure that the grant will in fact be used to further the charity’s purposes and not be diverted to private benefit or non-charitable ends. In practice, that usually means more rigorous due diligence, tighter grant conditions and closer monitoring. Trustees should not assume that because an organisation is mission-driven or socially beneficial, it is automatically an appropriate recipient of charitable funds.

Record-keeping and reporting matter

The Commission also expects charities to report appropriately on their grants. Good record-keeping underpins every stage of lawful grant-making: the rationale for the grant, the due diligence undertaken, conflicts considered, the terms agreed and the monitoring carried out. From a governance perspective, trustees should ensure that board minutes and internal records are sufficiently detailed to evidence proper decision-making. If the charity’s grant-making is significant, trustees should also consider whether their policies and annual reporting adequately explain how funds are used and supervised.

When might the Charity Commission become involved?

The guidance explains that the Charity Commission may become involved where there are concerns about misconduct or mismanagement in the administration of a charity, including failures in the grant-making process. From a legal risk perspective, that should focus trustees’ minds. Poorly evidenced decisions, inadequate due diligence, weak controls over high-risk grants and/or failures to act when things go wrong can all increase the prospect of regulatory scrutiny. In more serious cases, the consequences can extend beyond criticism and include formal regulatory action.

Conclusion

The Charity Commission’s new guidance is helpful because it brings together the core principles of lawful grant-making in a clear and practical way. For trustees, the message is not that grant-making must become overly cautious or administratively heavy. Rather, it is that charitable funds must be applied in a way that is principled, documented and proportionate to the risks involved.

In practical terms, charities should review their grant-making policies, check that trustees understand the link between funding decisions and the charity’s objects and ensure that due diligence, grant terms and monitoring arrangements are fit for purpose. Where grants are being made to non-charities, overseas bodies or in other higher-risk settings, it is sensible to take legal advice at an early stage. Well-run grant-making can be an effective and legitimate way of furthering charitable purposes, but trustees should always remember that they remain responsible for how the charity’s money is used.