Restricted and unrestricted funding

Governance and ComplianceFinancial Management
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This page covers restricted funding and explains how money must be used in certain circumstances.

Asking for specific amounts

Sometimes, charities will choose to link the ‘ask’ directly to the outcome – and this can be really effective. However, these claims – for example, "£2 could buy a watering can" - need to be explained. How costs are arrived at and what these costs include must be communicated to donors. Claims that cannot be substantiated should not be made, and the language used in marketing materials should be consistent.

Charities should bear in mind the impression given to donors by marketing materials and when seeking donations. For example, "£2 buys a watering can" is a much stronger statement than "£2 could buy a watering can" and charities should consider whether such statements can be delivered upon. The former statement states that a donation of £2 will buy a watering can whereas the latter suggests a watering can as an example of what £2 could buy.

Remember, you can’t fundraise for something in particular and then say that you decided to spend it on something else after all. This risks undoing all of the good work that you do in building the donor relationship.


Restricted funding

A legal principle underpinning fundraising is that all funds raised for a particular cause must be used for that particular cause.

Examples of restricted funding include beneficiary gifts, emergency appeals where money will be raised for a specific purpose, legacies donated for a specific purpose, or a grant given for a particular project. It is important that charities are transparent about how donations will be used. They should not imply in their fundraising and marketing communications that a donation will be used for a specified purpose if it will be used for general funds. 

However, in certain instances, it may not be possible to use the monies raised for a particular gift for its intended purpose.

Surplus appeals: This may be because of excess supply or because it is inappropriate to spend the funds on a particular activity due of the nature of the beneficiary programme or activity. If a charity cannot use funds for their intended purpose, it is vital that the charity applies to the Charity Commission to allow it to use the excess money for other purposes.

Failed appeals: Where an appeal fails, for example because insufficient funds are raised, a charity is considered to hold the donations on trust for the donors. Where donors can be identified, the money must be returned unless they have indicated that they are willing for their donation to be put to another use.

In these situations, it is good practice for charities to explain to donors how donations might be used for other activities of the charity if the funds raised are insufficient or exceed the target.

Charities may also face a situation where a donation may have to be refused if the donor’s terms are deemed by the charity to be too restrictive. For guidance on this issue, see the Acceptance and Refusal of Donations guidance.

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