Charity trustees are almost always delighted to receive donations – they are the lifeblood which keeps such organisations afloat and able to deliver their services. So it might seem counter-intuitive to be talking about refusing a donation, or returning it once it has been made. But such cases do occur, and it is important for all trustees to understand the implications before they reach any decision.
Trustees are legally bound to make decisions in the best interests of their charity. A decision to refuse or return a donation could have a significant impact, not just financially but in terms of reputation, perception, and the continuing trust of supporters.
Fortunately the Charity Commission does have some useful guidance on their website.
What is the difference between a donation, a grant and a payment made as part of a contract?
In this context, the word ‘donation’ has a broad definition, but essentially it is money, land, goods or other property of any kind freely given to your charity.
A grant can be a donation, if it has been freely given to your charity. The donor has no right to receive anything in return but can attach terms and conditions setting out how the grant is to be spent.
However, a grant can also be made as part of a contract, and here different rules apply. If this is the case, then trustees may want to seek legal advice before returning such money.
In what circumstances would a charity refuse or return a donation?
There are two main circumstances here: donations which you must refuse or return, and those which you are likely to need to refuse or return.
Included in the former are any donations which come from an illegal source, or which come with an illegal condition attached (or which you suspect to be the case); donations from someone who does not have the mental capacity to donate; property which is not legally the donor’s to give; and where donations have been given for a specific purpose or with a specific which the charity is not able to meet.
But legality is only one factor in deciding whether to refuse or return a donation; other factors such as ethics, risk to reputation or practical issues may also come into play.
Included in this category might be donations which are for purposes which fall outside your charity’s remit; those with features or conditions which may undermine your charity’s independence; gifts might result in a valid legal claim (or risk of claim) against your charity; donations which would bring unacceptable burdens to your charity which outweigh the benefit; or those which may involve unacceptable private benefit to an individual or organisation.
In some of these cases you could consider whether you could work with the donor to change the terms of the donation so that you can accept or keep it, perhaps by the donor allowing more flexibility in how the donation can be used, aligning the donation with your charity’s purposes, or ensuring that any private benefit is no more than ‘incidental, necessary in the circumstances and reasonable in amount’.
This underlines the importance of building good relationships with donors, which enables you to have early conversations about any possible restrictions or potential issues with a gift.
What if the charity is not under a legal obligation to return a donation, but still wants to?
Because trustees must act in the best interests of their charity, there may be a conflict between the financial benefit of accepting a donation and a perceived moral obligation or reputational risk which may lead them to return it.
In such circumstances returning a donation would be termed a ‘ex gratia’ payment, and there are specific legal rules about doing so, and Charity Commission permission must be sought before making such payments.
What about returning donations made as part of a specific fundraising appeal?
A charity might launch an appeal for a specific purpose which fails to raise enough money to fulfil that aim – or it which has been too successful and ended up with more money than it needs to do so. Or in some cases, the circumstances of the charity might change such that it is unable to deliver the purpose of the appeal.
There are specific rules about how such monies can be used and when they need to be returned to donors, and once again the Charity Commission has to give its blessing if those donations are to be used in a way which varies from the original appeal’s aims.
What if the situation is less clear-cut?
Where there is a clear legal obligation to refuse or return a donation, then charity law takes precedent. But if this is not the case, what powers do trustees have to do so?
Charities usually have a general power under the law to refuse a donation; but sometimes the charity’s governing document may include a specific power to do so – or include provisions which mean trustees cannot refuse a donation.
Likewise, most charities’ governing documents include provisions allowing you to return a donation, either through a specific power to do so, or through a more general power to do what is necessary to make decisions to further your charity’s purposes.
However, in rare cases the document may include provisions that mean donations cannot be returned, and if this is the case, you may want to consider changing the governing document to allow you to do so.
Bear in mind also that there are additional legal rules for returning certain types of assets, such as land, and property held in a special trust or permanent endowment.
How do trustees go about making the decision?
The Charity Commission is very clear about the decision-making principles in making the decision to refuse or return a donation, stating that trustees must:
act within their powers
act in good faith and only in the best interests of the charity
make sure that they are sufficiently informed
take account of all relevant factors
ignore any irrelevant factors
manage conflicts of interest
make decisions that are within the range of decisions that a reasonable trustee body could make
If there is a conflict of interest in your decision-making that you cannot manage, you must obtain Commission authority. Don’t forget to keep a record of your decisions and how you reached them. Setting a policy might help streamline the process and help future trustees in similar circumstances.
What are the accounting and tax implications?
If you decide to return donations in particular (rather than refusing them in the first place), there will be implications about how that return is shown in the charity’s accounts, as well as other issues such as gift aid already claimed in the donation and other tax consequences. It is important to seek specialist advice here.
Conclusion
The starting point for trustees is usually to accept or keep donations, so that you can use them to further your charity’s purposes. But you can decide to refuse or return a donation where this would be in your charity’s best interests, as well as when you are legally obliged to do so.
Deciding whether to accept, refuse or return a donation is likely to involve a careful balancing exercise. There may be no right or wrong answer, but your decision must be rational and reasonable, and supported by clear evidence.