If your PCC receives funds, or has accumulated funds over time, it is a legal requirement for the PCC members, as trustees of a charity, to establish and maintain a formal Reserves Policy. As the Church of England guide says, hanging onto large sums in case of a ‘rainy day’ is no longer sufficient as a policy. And even PCCs without many funds at all can benefit from a policy aimed at improving that situation.
When Reserves Policies are mentioned, people can glaze over or become anxious because they feel something very technical is being discussed. However, a Reserves Policy is very straightforward. It is a set of words that explains what any accumulated funds will be spent on in the future, and it is a way of expressing our missional goals as a Church.
According to the government website the Reserves Policy must “explain whether your charity is aiming to keep a reserve of unspent income, what it will be used for and why this is reasonable. Check that your charity sticks to the policy or can explain why if it does not. Make sure that your charity’s annual report explains the policy and says how much money (if any) it has kept in reserve, what it is for and when the charity will use it.”
PCCs are charities and must comply with the 2011 Charities Act. In general, unless expressly permitted to do otherwise, charities have a duty to spend their income within a reasonable amount of time or have an express purpose for holding onto money. Charities are allowed to accumulate some income in Reserves, subject to the charity’s explicit, written Reserves Policy.
Charities often receive funds for specific purposes, and this will be accompanied with restrictions. Therefore, the charity is restricted to only use the funds for that purpose. Any unspent monies from this funding needs to be kept in a specific Restricted Reserve. However, if a charity receives funds for the general support of the charity, then any unspent monies are kept in the General Reserve. These funds are freely available to spend on any of the charity’s purposes. Charities can designate some funds from the General Reserves for specified purposes in the future, such as repairing the roof. These Designated Funds are no longer considered part of the General Reserve. For example, a legacy may state that the funds can only be used to support music at the church. These funds could not arbitrarily be added to the church building repair Designated Funds nor added to the General Reserve. They need to be kept in a Restricted reserve (perhaps called ‘Support music at church Reserve).
In drafting a Reserves Policy, the biggest question is, how much should be kept in the General Reserves fund. For most PCCs with few paid employees or costly programmes, 3-4 months tends to be a norm. In my mind this is the ‘emergency funds’ needed to close-down the business in an orderly way! So, the General Reserve needs to be sufficient to cover any ongoing financial obligations: the likely outstanding term on rental agreements, equipment leases, any bills paid in arrears, along with any redundancy payments. In addition, an organised winding down of the business over say a 3-month business; hence the general view of having sufficient funds to pay the operating costs for the next 3 months. For more complex organisations with many programmes and multiple paid staff, 6 months to one year may be more appropriate.
If PCCs are particularly concerned about large known or potential costs such as building repairs, they may want to set aside Designated Funds for these specific, named, needs. These Designated Funds remain part of the PCCs unrestricted funds but are not considered part of the General Reserves and should be explained in the annual report and accounts, alongside the General Reserves policy.
The Diocesan Finance Team is happy to discuss setting appropriate General Reserves levels with PCC Treasurers and Members, and Incumbents, and advise on funding sources for larger anticipated or unexpected repair bills.
Further guidance
For much more extensive information, please see:
The Church of England’s document, “A Simple Guide to Parish Reserves”.
The Charity Commission also provides extensive guidance here.
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