Donations to charities: thanks, but no thanks

Many charities in the UK rely heavily on public donations to support the huge variety of important work they undertake for the benefit of the public. For some charities, donations are a key source of income and without a steady stream of donations the charity might struggle to operate.  

Donations can take many different forms and come in staggeringly varying amounts, covering everything from small donations made via online platforms through to multi-million-pound grants and legacies left in Wills. Statistics on giving to charity in the UK suggest that in 2020 donations to charities totalled c.£11.3 billion and over 60% of people in the UK made a charitable donation or took part in a charity sponsorship event. 

Why would a charity ever reject a donation? 

Notwithstanding the undeniable value of charitable donations to the sector, as with any aspect of running a charity there are sometimes risks associated with accepting donations. For example, where accepting a donation from a particular donor might result in reputational damage for the charity or be contrary to its charitable purposes, or where the charity trustees have concerns as to the source of the funds being offered. 

Whilst some type of donations, such as individuals making very small donations via online platforms or high street donation buckets, are low risk, in respect of more substantial donations and/or where there are other risk factors identified (for example, where a donation is being made in cryptocurrency or coming from a high-risk country), it is always important for appropriate ‘know your donor’ checks to be carried out. Charity trustees have an obligation to take a risk-based approach to understanding where the donations are coming from, and the source of the funds being donated. 

Charity Commission guidance 

The Charity Commission has recently published its updated guidance on ‘Accepting, refusing and returning donations to your charity’, which is essential reading for the trustees of any charity that accepts donations.  

The starting point for all charity trustees is that all decisions should be made in the best interests of the charity. In relation to donations, that will generally mean that if the donation is for a purpose that comes within the charity’s objects, the starting point should be to accept the donation. 

However, there are times where issues surrounding a donation, either in relation to the donor, the source of funds of the donation, or how the donation is required to be used, might lead trustees to question whether acceptance is in the best interests of the charity. 

There may also be times where a charity has accepted a donation but at some point after acceptance information comes to light that causes the charity trustees to consider again whether continued acceptance and use of the donation is in the best interests of the charity. 

This can lead to the need to consider whether to decline (or return) a donation. In both cases, the decision is not one that should be taken lightly and there are several key considerations. 

When must a charity reject or return a donation? 

There are some limited circumstances where trustees do not have discretion as to whether to reject or return a donation but are required by law to do so. They include circumstances where there is an element of illegality linked to the donation, either in terms of the source of the funds or in terms of how the funds are to be used. If you are concerned that you have been offered (or have received) funds that fall into this category, please seek professional advice before doing anything else (and do not speak with the donor until you have sought advice). 

Charities may also find themselves under a contractual obligation to return a donation. Many gift or grant agreements contain claw-back provisions that allow the donor or grant funder to claim back all or part of the donation or grant in certain circumstances. It is common for a grant agreement to require repayment of the grant if the monies are not used for the specified purpose. Clawback provisions can also go much further and cover a broad range of scenarios, including, for example, if the charity or anyone connected with the charity does anything to bring the funder into disrepute. If you are entering into a grant agreement, it is essential to carefully check the terms and conditions upon which the grant is made. Where there are clawback provisions it is important to understand their scope and, in particular, whether they allow the funder to recover all of the funds donated or only those not already spent or committed at the time the clawback is triggered. 

Another situation to be aware of relates to failed fundraising appeals where the charity has failed to raise sufficient funds for the intended purposes or conversely has raised funds surplus to requirements. Whether or not the charity has an obligation to repay any donations will depend on the way in which the appeal was worded. For more information on this topic, please see our article on ‘Charities Act 2022: practical guidance on failed appeals’.

When might charity trustees choose to reject or return a donation? 

The circumstances in which the charity trustees might choose to exercise their discretion to refuse or return a donation is the area that gives rise to the greatest difficulty in practice. 

If the trustees consider it to be in the charity’s best interests to refuse or return a donation, they first need to check that they have a power to do so and that nothing in the charity’s governing documents prevents them from making that decision. They will then need to very carefully consider all factors relevant to the decision before agreeing how to proceed in the best interests of the charity. Trustees should ensure that the minutes at which the decision is taken include a clear record of the points considered, how they have come to their decision and why that decision is in the best interests of the charity. 

By way of an example, your charity may have been contacted by someone who wants to gift the charity a property. Before accepting the gift, the trustees should carry out some due diligence on the donor and the property. If those investigations reveal that the property needs substantial repair work and would be a significant drain on the resources of the charity, the trustees might decide that the burden of accepting the property considerably outweighs any benefit received from the property and it is therefore in the best interests of the charity to decline the gift. 

It is reasonably common for donors to attach conditions to donations to ensure that the funds gifted are used for a particular project or purpose within the charity’s objects. For example, a donation to fund the charity’s activities in a particular geographic area. However, it may be that the charity is no longer operating in that area, or that it has adequate funding for activities in that area. In those circumstances, rather than rejecting the donation, the charity could engage with the donor with a view to agreeing a different condition in line with the current needs of the charity or ask the donor to make the donation on an unconditional basis. If the donation is a gift in a Will, the charity may be able to apply to the Charity Commission for a scheme to amend the conditions attached to the gift. 

There are also times when the trustees might have already accepted a donation, but circumstances arise such that the trustees need to consider if it remains in the best interests of the charity to continue to use the donation, or whether all (or just the unspent) funds should be returned. This scenario might arise if, for example, information comes to light about the donor that was not known when the donation was originally accepted. In this scenario the trustees need to very carefully consider the impact on the charity of returning the funds, including whether they have the financial resources available to do so and what effect this will have on the activities of the charity (which is likely to be more significant than if you are rejecting a new donation). 

The Birketts view 

Deciding to reject or return a charitable donation is complex and is not a decision to be taken lightly. When thinking about how to act in the best interest of your charity as a trustee, it is important to consider the broader impact (or potential impact) of the donation on the charity and long-term implications. 

Returning donations may also trigger the need to submit a serious incident report to the Charity Commission, particularly if the donation in question is the main or a significant source of funding for the charity. In this case many potentially conflicting factors will need to be considered by the trustees and they will need to have very strong reasons as to why they consider returning the donation is in the best interests of the charity, e.g. clear evidence that retaining the donation would materially and detrimentally impact the charity’s future ability to raise funds. Trustees should take care to ensure that their own personal views about the information that has come to light do not unduly affect their decision making. 

If you would like any further advice on rejecting or returning donations, please contact Jen Marley ([email protected]) or another member of the Charities Team.