As a charity, navigating the complex world of governance and compliance can be challenging, especially when it comes to managing trustee remuneration and expenses. Trustees play a vital role in the success of a charity, but it is important to understand the legal and regulatory requirements around these areas to ensure transparency and accountability. In this blog post, we will explore the key considerations and best practices when it comes to trustee remuneration and expenses, helping you navigate these requirements with confidence and clarity.
What key points are outlined in Charities Act 2021?
The Charities Act 2011 is the primary legislation that governs charities in England and Wales. It outlines the rules and regulations that charities must follow, including those related to trustee remuneration and expenses.
Trustees of charities are generally unpaid volunteers who serve on the board of a charity. However, in some cases, it may be appropriate for trustees to receive remuneration or reimbursement for expenses incurred in carrying out their duties. The Charities Act sets out the rules governing such payments.
Trustee Remuneration:
The Charities Act stipulates that a trustee may only be paid for their services if this is explicitly allowed by the charity's governing document or by the Charity Commission. This means that the charity's constitution must contain provisions that allow for trustee remuneration, or the Commission must approve the payment of remuneration.
If a charity's governing document allows for trustee remuneration, the amount that can be paid must be reasonable and proportionate to the work carried out by the trustee. Any payments made to trustees must be in the best interests of the charity and not excessive.
The Charity Commission must be informed of any payments made to trustees, and the charity must keep accurate records of all such payments.
Trustee Expenses:
Trustees are often required to incur expenses in carrying out their duties. For example, they may need to travel to meetings or purchase materials for the charity. The Charities Act allows for the reimbursement of reasonable expenses incurred by trustees in carrying out their duties.
The Act requires that trustees are reimbursed only for expenses that are incurred in the course of their duties as trustees and that are reasonable and proportionate. The charity's governing document must set out the rules governing the reimbursement of expenses, and the charity must keep accurate records of all expenses claimed and reimbursed.
The Charities SORP (Statement of Recommended Practice)?
The Charities SORP (Statement of Recommended Practice) is a document that provides guidance on the accounting and reporting practices for charities in the UK. The specific section that outlines the disclosure requirements for trustees' remuneration and expenses is Section 7: Trustees' Remuneration and Other Benefits.
This section provides guidance on the disclosure of trustees' remuneration and benefits, including the requirement for charities to disclose the total amount paid to trustees, the number of trustees receiving remuneration, and any other benefits provided to trustees, such as expenses or pensions.
It also provides guidance on the disclosure of related party transactions, including transactions with trustees and their family members, and the need for transparency and accountability in these transactions.
Specifically the Charities SORP outlines the following:
Trustee remuneration and benefits (SORP 9.6 and 9.7)
All charities MUST disclose that either:
none of the trustees have been paid any remuneration or received any other benefits from an employment with their charity or a related entity,
or
one or more of the trustees has been paid remuneration or has received other benefits from an employment with their charity or a related entity.
The following information MUST be provided for each individual trustee who received remuneration or other benefits in the reporting period:
the legal authority under which the payment was made
the name of the remunerated trustee
details of why the remuneration or other employment benefits were paid
the amount of remuneration paid
the amount of any pension contributions paid by the charity for the reporting period
the amount of any other benefit, for example any termination benefits, private health cover or the provision of a vehicle.
If a trustee receives remuneration or other benefits from their employment with the charity in addition to their trusteeship, the note may distinguish between remuneration and benefits received as a trustee, if any, from that received for other services or other employment with the charity.
Where the trustees, chief executive officer or senior staff members have
elected to withhold their names due to personal danger and have made the
disclosures required by paragraph 1.29 then the disclosure of related party
transactions involving that individual or those individuals may be modified to
disclose their role, e.g. chair, treasurer, or an alternative identifier in place
of their full name as required by paragraphs 9.7 and 9.20.
The disclosure of the name(s) of the transacting related party, as required
by paragraph 9.20, may also be withheld where doing so could lead to the
trustees or the party themselves being placed in personal danger. The
reason for the omissions of the name of the party should be disclosed, in
line with the paragraph 1.29.
Trustee expenses (SORP 9.11 and 9.12)
A charity MUST disclose either that:
no trustee expenses have been incurred, or
one or more of the trustees has claimed expenses or had their expenses met by the charity.
If expenses have been incurred, a charity MUST disclose:
the total amount of expenses reimbursed to trustees or paid directly to third parties
the nature of those expenses (for example travel, subsistence, accommodation, entertainment etc.)
the number of trustees reimbursed for expenses or who had expenses paid by the charity.
Top Tips for trustees and senior leaders in navigating this area of compliance
Here are some top tips for charity trustees and senior leaders to ensure compliance with the Charities Act and correct disclosure of trustees' remuneration and expenses per the Charities SORP:
1. Establish a clear policy on trustees' remuneration and expenses:
The charity should have a clear policy that sets out the types of remuneration and expenses that can be paid to trustees, the process for approving these payments, and any limits or conditions on the payments. This policy should be regularly reviewed and updated to ensure it remains compliant with the Charities Act and the Charities SORP.
2. Ensure proper approval and documentation:
Any remuneration or expenses paid to trustees should be approved in accordance with the charity's policy and properly documented. This includes maintaining records of the basis for determining the amount of remuneration or expenses, the approval process, and any related party transactions.
3. Disclose all remuneration and expenses in the year-end accounts:
All remuneration and expenses paid to trustees should be disclosed in the charity's year-end accounts in accordance with the Charities SORP.
4. Ensure compliance with the Charity Commission's guidance:
The Charity Commission provides guidance on trustee expenses and payments, which should be followed by charities to ensure compliance with the Charities Act. The guidance covers issues such as the types of expenses that can be reimbursed, the circumstances under which trustees can be paid, and the process for authorising payments.
5. Be transparent and accountable:
Trustees should be transparent and accountable in their management of the charity's resources, particularly when it comes to their own remuneration and expenses. This includes providing information to stakeholders about the basis for determining trustees' payments, the approval process, and any related party transactions.
Overall, the purpose of these disclosures is to ensure transparency and accountability in the management of the charity's resources, particularly when it comes to trustees' remuneration and expenses. By providing this information in the year-end accounts, charities can demonstrate to stakeholders that they are managing their resources effectively and responsibly.