An unrestricted fund is money held by a charity that trustees can use for any of the charity's general charitable purposes, as opposed to a restricted fund, which must be spent only on the specific purpose for which it was given.
How unrestricted funds work
Unrestricted income, such as general donations, unrestricted grants or trading income, is recorded separately from restricted funds in a charity's accounts, and trustees have discretion over how it is used within the charity's objects. Some charities choose to designate part of their unrestricted funds for a particular future purpose, known as a designated fund, while retaining the flexibility to redesignate it if circumstances change. Reporting unrestricted and restricted funds separately is a requirement of the Charities SORP.
How UK charities manage unrestricted funds
- A charity receives a general donation with no conditions attached, which is recorded as unrestricted income the trustees can direct towards any of the charity's charitable purposes.
- Trustees designate part of the charity's unrestricted funds towards a future building project, while retaining the flexibility to redirect the money if circumstances change.
- A charity's annual accounts report unrestricted and restricted funds separately, in line with Charities SORP requirements, giving funders and the public a clear view of how money can be used.
- A finance team monitors the balance of unrestricted reserves against the charity's reserves policy, ensuring enough unrestricted funds are held to cover core running costs.
How Advantage supports fund accounting for charities
Advantage helps charities configure Dynamics 365 Business Central to track unrestricted and restricted funds separately using dimensions, giving trustees a clear, real-time view of unrestricted reserves available for general use.
Frequently Asked Questions
Can trustees spend unrestricted funds on anything they like?
Trustees have discretion to use unrestricted funds for any of the charity's charitable purposes, but they still need to act in line with their trustee duties and the charity's objects, not simply on anything unrelated to the charity's purpose.
What is a designated fund?
A designated fund is part of a charity's unrestricted funds that trustees have earmarked for a particular future purpose, though it remains legally unrestricted and can be redesignated if circumstances change.
Why do charities need to hold unrestricted reserves?
Unrestricted reserves give a charity flexibility to cover core running costs, respond to unexpected needs, and maintain financial resilience, since restricted funds cannot be used for purposes outside their specific terms.
