Managing Reserves

Whether blessed with significant reserves, or breaking even each month, every PCC needs to make decisions about reserves and ensure they complete some important tasks associated with them.  

Core guidance

(CC19) Charity reserves: building resilience

The Charity Commission

Charity Statement of Recommended Practice (SORP) 2026

For accounting periods starting on or after 1 January 2026

What are reserves?

Reserves are not all the money a parish has in its accounts. For PCCs, reserves are the part of the parish’s unrestricted funds that are freely available to spend on the church’s purposes. 

They do not include: 

• Restricted funds (money given for a specific purpose) 
• Endowment funds 
• Money tied up in church buildings, land, or equipment 
• Funds set aside for a specific future purpose (called designated funds)

The Charity Commission describes reserves as “that part of a charity’s unrestricted funds that is freely available to spend on any of its purposes”.  

PCCs must be clear what is and is not included when they report their reserves publicly. 

Why every PCC needs a reserves policy

Every PCC, regardless of size or income level, is expected to have an agreed reserves policy. 

A reserves policy: 

• Helps trustees manage financial risk responsibly 
• Explains why money is being held instead of spent 
• Demonstrates good stewardship and transparency
• Enables the PCC to explain its finances clearly to the congregation, funders, and the public 

Simply holding money for a vague “rainy day” is not sufficient. Trustees are expected to explain what risks the reserves are addressing and why the chosen level is appropriate. 

Even where a PCC decides it does not need to hold reserves, that decision should still be recorded and explained as part of its reserves policy. 

How much money should the PCC hold in reserves? 

There is no required or recommended fixed amount of reserves. 

The “right” level of reserves depends on the parish’s own circumstances. PCCs should consider: 

• Regular commitments such as parish share, utilities, insurance, and staff costs
• The reliability and diversity of income 
• The condition of church buildings and likely future repairs 
• Exposure to financial shocks or unexpected events 
• Any existing financial plans or commitments 

Trustees should be able to justify the level of reserves held, rather than relying on rules of thumb or comparisons with other parishes. 

The reserves figure should be reviewed regularly— at least annually— and reassessed whenever circumstances change.  

The Charity Commission provide A simple approach to developing a reserves policy. 

What if our reserves are very low (or non-existent)? 

A PCC with low reserves is not automatically failing to manage its finances properly. 

What matters is: 

• Why this is appropriate for the parish 
• What steps are being taken to monitor financial risk 
• Whether there are plans to build reserves in future 

What if our reserves seem too high? 

Holding higher-than-needed reserves can attract questions from your supporters, grant makers and the Charity Commission. 

This does not mean high reserves are wrong — but trustees must be able to explain them as there is an expectation that charities will use the funds gifted to them for the purpose they were intended, within a reasonable timeframe. 

Common legitimate reasons for high reserve levels include: 

• Planned future expenditure not yet paid 
• Major building works anticipated 
• Risk from volatile or uncertain income 
• Transitional situations (e.g. staffing or restructuring) 

Where reserves exceed the PCC’s target level, trustees should be able to explain why this has happened and what they will do in response. This could be using the funds, designating them appropriately for a new project or gradually reducing them. Plans should be realistic and timed, with all decisions minuted. 

Poor explanations for excess funds can undermine public trust. 

Remember, it is important to understand the difference between free reserves and designated or restricted funds. Clear reporting on all funds is crucial for compliance and ensures supporters can understand why you have the funds you have. 

Designated funds and their relationship to reserves 

PCCs may choose to designate part of their unrestricted funds for a specific future purpose (for example, planned repairs or equipment replacement). 

Designated funds are still unrestricted legally and are not normally counted as free reserves. However, they must be clearly explained in the annual report. 

It is good practice for trustees to explain: 

• Why the funds have been designated 
• What they are intended for 
• When they are expected to be used 

PCCs should not designate funds without a clear use or specified timeline to make unrestricted funds appear as though they are at a lower level. 

Designation decisions should be reviewed regularly and reversed if the purpose is no longer relevant— they shouldn’t sit in the fund indefinitely. 

What must be reported in the Annual Report and Accounts?

The Charity Commission requires PCCs to include a statement on reserves in the Trustees’ Annual Report. 

This should explain: 

• The amount of free reserves held at the year end 
• The PCC’s policy on reserves 
• Why that level has been chosen 
• What action is being taken if reserves are above or below the agreed level 

Under the Charity Commission’s Statement of Recommended Practice 2026 (SORP 2026), PCCs must also: 

• Clearly reconcile the reserves figure used in the report with the figures in the accounts 
• Explain how reserves have been calculated 
• Explain the role of any designated funds 

Reviewing and managing reserves over time

A reserves policy is not a one-off task. Good reserves management is about ongoing oversight, not just year-end reporting. 

As a minimum, the PCC should: 

• Review reserves as part of budget setting 
• Revisit the policy annually 
• Update explanations when circumstances change significantly 

Examples of changes that should prompt a review include: 

Changes to income 

• A significant increase or decrease in regular giving or other income
• Loss, gain, or expected end of a major grant or funding source
• Increased reliance on a single income stream

Changes to expenditure 

• New or increased regular commitments (for example staff costs, parish share, or maintenance contracts) 
• Significant one‑off expenditure, such as major repairs
• Unexpected costs that have reduced reserves 

Buildings and assets 

• Results of a quinquennial inspection or condition survey identifying major future repairs 
• Purchase, sale, or transfer of buildings or land 
• Changes that increase ongoing maintenance or insurance costs 

Use or level of reserves 

• Reserves falling below the level set out in the policy 
• Reserves building up above the agreed level 
• Use or release of designated funds, or designation of new funds 

Risk and resilience 

• Increased uncertainty or volatility in income 
• New risks identified by the PCC (for example staffing, compliance, or building risks) 
• Wider economic changes that affect costs, income, or investments

Changes in the parish’s situation 

• Appointment or loss of paid staff 
• Significant changes in activities, services, or mission priorities 
• Parish reorganisation, sharing arrangements, or merger discussions 

Governance and reporting 

• Changes in accounting basis or reporting requirements 
• Feedback from auditors, independent examiners, or the Charity Commission 
• Preparation of the Trustees’ Annual Report highlighting inconsistencies or unclear explanations 

Good practice: Where a review leads to changes in the policy or the target level of reserves, the PCC should record the reasons clearly in the minutes and ensure the updated position is explained in the Trustees’ Annual Report. 

Investing PCC reserves- key principles 

If reserves are not needed immediately, trustees must decide how they are held. 

When considering investment or deposit arrangements, PCCs should think about: 

• How much money needs to be quickly accessible 
• The balance between risk, return and security
• Whether funds are short-term or longer-term 
• Whether professional advice is needed 

The Church of England does not recommend specific products. Trustees remain responsible for ensuring decisions are appropriate for their parish and comply with charity law. 

For further guidance:

(CC14) Charities and investment matters: a guide for trustees

The Charity Commission

The Ethical Investment Advisory Group (EIAG) provide practical advice to three National Investing Bodies (NIB) of the Church of England, to enable them to invest in a way that is distinctly Christian and Anglican. You may find their advice and reviews for the NIB helpful for identifying ethical, environmental and social considerations when thinking about investing reserves.  

Investment arrangements should be reviewed periodically, particularly when financial conditions change. 

Example reserves policies 

The following examples are illustrative only and show how different PCCs might explain their approach to reserves in different circumstances; they are not recommendations of specific reserve levels. 

PCC Checklist: Managing reserves 

Use this checklist to make sure your PCC is meeting its responsibilities as charity trustees in relation to reserves. 

If you cannot confidently tick a box, that is a sign the PCC may need further discussion, or the reserves policy or reporting needs updating. 

✅ Understanding our reserves 

▢ We understand what counts as reserves: the part of our unrestricted funds that is freely available to spend on the PCC’s purposes. 

▢ We are clear which funds do not count as free reserves (for example restricted funds, endowments, buildings and equipment, and funds designated for a specific future purpose). 

▢ We can clearly explain how our reserves figure has been calculated. 

✅ Having a reserves policy 

The PCC has an agreed reserves policy, even if the policy is to hold very limited or no reserves. 

▢ Our reserves policy explains: 

• why reserves are held (or not held) 
• what level of reserves the PCC considers appropriate 
• how this level relates to the parish’s risks and circumstances 

▢ The policy avoids vague justifications such as holding money for a general “rainy day”. 

▢ The reserves policy has been formally agreed by the PCC and recorded in the minutes. 

✅ Setting and reviewing the level of reserves 

▢ We have considered the level of reserves in light of: 

• Regular running costs 
• Income reliability and diversity 
• Building condition and future liabilities
• Exposure to unexpected costs and income loss 

▢ The level of reserves is justified, not based a non-contextual calculation or comparison with other parishes. 

▢ We review the reserves level at least annually and whenever circumstances change. 

✅ When reserves are low 

▢ If reserves are low or non-existent, the PCC has: 

• explicitly considered the financial risks
• agreed that this position is appropriate 
• recorded how the parish would respond to unexpected costs 

▢ Any plans to build reserves (or reasons for not doing so) are clearly explained. 

✅ When reserves are high 

▢ If reserves appear higher than our policy indicates, the PCC can clearly explain: 

• why this is the case 
• whether funds are intended for future use, designation, or gradual reduction 

▢ High reserves are not being held without a clear purpose or explanation. 

✅ Designated funds 

▢ Any funds set aside for specific future purposes have been formally designated by the PCC. 

▢ We are clear which funds are designated and why. 

▢ Designated funds are explained separately from free reserves. 

▢ Designations are reviewed regularly and removed if no longer needed. 

✅ Annual Report and Accounts 

▢ The Trustees’ Annual Report includes a clear statement on reserves, explaining: 

• the amount of free reserves held at the year end 
• the PCC’s reserves policy 
• why that level is appropriate 
• what action is being taken if reserves differ from the policy 

▢ The reserves figure in the report can be clearly reconciled to the figures in the accounts. 

▢ Any designated funds are clearly described and explained. 

✅ Holding and investing reserves 

▢ The PCC has considered how reserves are held, including: 

• how much money needs to be quickly accessible 
• whether some funds are longer-term 

▢ We understand that trustees remain responsible for investment decisions and that no “default” option applies automatically. 

▢ Decisions about deposits or investments are reviewed periodically and recorded. 

✅ Good governance

▢ Reserves decisions are discussed by the PCC as trustees, not left solely to the treasurer. 

▢ Key decisions about reserves and designations are properly minuted. 

▢ The PCC can explain its approach clearly to the congregation, funders, and regulators if asked.