Setting a reserves policy: how much should your organisation hold?

"How much should we keep in the bank?" is one of the most common — and most contested — questions in any faith-based charity. Hold too little and a boiler failure or a dip in giving could threaten your survival. Hold too much without explanation and members, funders or your regulator may ask why money meant for good works is sitting idle.

There is no single correct figure. What the Charity Commission expects is not a particular number, but that trustees have thought about it, decided on a policy, and can explain it. This article walks through how to do that.

What "reserves" actually means

Reserves are not simply the total in your bank account. In charity terms, reserves are the part of your unrestricted funds that is freely available to spend — once you strip out:

• Restricted funds (money given for a specific purpose, like a building appeal — you can't repurpose these)
• Funds already committed or designated for a particular plan
• Money tied up in fixed assets such as your building, which can't readily be spent

What's left is your "free reserves" — the cushion you can draw on if income falls or an unexpected cost lands.

Why you need a written policy

A reserves policy is a short, board-approved statement explaining:

1. Why your charity holds reserves
2. What level (or range) you aim to hold, and why
3. What you'll do if reserves drift above or below that level

If your charity prepares accruals accounts under the Charities SORP, a reserves policy statement is expected within the trustees' annual report. Even smaller charities preparing simpler accounts benefit from having one — it's good governance and it answers funders' questions before they're asked.

How to work out the right level

A common starting point is to express reserves as a number of months of running costs. Many charities land somewhere around three to six months, but this is a rule of thumb, not a rule. The right figure for your organisation depends on a genuine risk assessment:

• How predictable is your income? A place of worship funded by steady congregational giving may need a smaller cushion than one reliant on a single annual grant or event.
• What are your fixed commitments? Salaries, utilities, insurance and loan repayments continue even if income stops. The bigger your fixed-cost base, the larger the buffer you may need.
• What known risks are on the horizon? An ageing roof, an expiring lease, or a major repair bill argues for designating funds toward it.
• How quickly could you respond to a shortfall? If you could cut costs fast, you may need less held back.

Work from your actual budget, not a generic percentage. Multiply your essential monthly running costs by the number of months of cover you've judged appropriate, and that's your target.

Designated funds — earmarking without restricting

If you're holding reserves toward a specific future cost — replacing a roof, say — you can formally designate part of your unrestricted funds for that purpose. Designation signals intent and explains why reserves are higher, while keeping the money legally unrestricted (the board can un-designate it if priorities change). This is a useful tool for faith organisations stewarding old or listed buildings with large, lumpy maintenance costs.

A note for those caring for listed buildings

If your reserves planning is built around reclaiming VAT on repairs through the Listed Places of Worship Grant Scheme, be aware this scheme is changing significantly. The government confirmed in January 2026 that the scheme will close on 31 March 2026, to be replaced by a new heritage funding package. There is currently a £25,000 annual cap per place of worship in its final year. (Correct as of June 2026 — the replacement scheme's terms had not been published at the time of writing; check the current position before budgeting around it.) Don't assume historic VAT relief will be available on the same basis going forward.

Review it regularly

A reserves policy is not a "set and forget" document. Revisit it at least annually, alongside your budget, and whenever your circumstances change materially. Minute the review so there's a clear record that trustees are actively stewarding the charity's resources.

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This article is general information, not advice. Rules and figures change and can depend on your circumstances. Check the current position with the Charity Commission (or OSCR / CCNI) or get in touch and we'll help.

Sources verified (June 2026):

• Charity Commission, Charity reserves: building resilience (CC19) — https://www.gov.uk/government/publications/charities-and-reserves-cc19
• Charities SORP 2026 (Charities SORP-making Body) — https://www.icas.com/news-insights-events/news/charities/update-on-charity-financial-threshold-changes-in-england-and-wales
• DCMS / National Churches Trust on the Listed Places of Worship Grant Scheme — https://www.nationalchurchestrust.org/impact/campaigns/save-listed-places-worship-grants-scheme and https://listed-places-of-worship-grant.dcms.gov.uk/