When Your Charity Can Pay a Trustee for Work

One of your trustees is a builder. The roof needs doing; he quotes below what anyone else would charge, and the board says yes because it obviously saves the charity money. Nobody minutes much. There is no contract, because he is a trustee and it felt odd to ask him to sign one.

The instinct about the money may well be right. The handling is wrong, and it is wrong in a way that can end with the charity unable to pay for work it has already received. There is a power in law that lets a charity pay a trustee for goods or services without asking the Charity Commission for anything, but it comes with six conditions, and all six have to be met.

If a trustee is already supplying something to your charity and you are not certain it was set up properly, our charity governance support can tell you where you stand.

What counts as goods or services

Goods cover things like hiring premises or a meeting room, buying food for a charity event, or buying stationery. Services cover work such as administration or secretarial support, computer consultancy, or land management. Plenty of arrangements are both at once – building, plumbing or similar repair work along with the materials, a training course and the printed materials that go with it, veterinary care and the medicines.

It can be one-off, such as a single piece of research, or regular, such as playing the church organ every Sunday.

Three things are expressly outside this route, and each has its own rules.

• Auditing services. You cannot pay a trustee or connected person to audit the accounts, because they must be examined by someone independent of the charity. Our guide to whether you need an audit or an independent examination covers which applies to you.
• Employment. Employing a trustee or someone connected to one is a separate question with a different and harder set of rules.
• Paying a trustee for carrying out trustee duties. Chairing, attending meetings, doing the governance work itself. That is exceptional, temporary, and usually needs Commission authority.
• Reimbursing a cost a trustee has actually incurred is not a payment at all – that is trustee expenses, and none of what follows applies to it.

The six conditions

The statutory power can be used to pay a trustee, a connected person, or a holding trustee who holds title to the charity’s land. You can use it instead of an equivalent power in your governing document. All six conditions must be met.

1. No prohibition in your governing document. That means any wording indicating trustees or connected persons cannot be paid for goods or services, or cannot receive any payment or benefit at all.
2. Getting the goods or services from that person is in the charity’s best interests. Weigh quality and speed against other providers, price against other providers, what other options exist, and the risks. The charity must actually need the thing.
3. The amount is reasonable. Look at what the charity has paid before, the price being charged, the market price, what the charity can afford, and factors like speed and quality. You should get quotations from other suppliers unless the sum is very small. A formal tender is not required, but if you have a purchasing policy, you should follow it.
4. There is a written agreement in place before the goods or service is received.
5. Only a minority of trustees are paid at any one time. Count every trustee paid by the charity for any reason, including any who are employed by it, and every trustee connected to a person or organisation the charity pays. Trustees receiving expenses are not counted.
6. No conflicted trustee takes part in any discussion or decision about the arrangement.

Conditions four and six are where boards come unstuck, and both are unforgiving, so they get a section each below.

The Commission also names the risks it expects you to weigh under condition two: the charity being seen as a way of benefitting particular individuals, criticism from inside or outside that may become public and affect funding, paid trustees becoming overly influential, trustees falling out over whether to pay one of their number, and simply not following the legal requirements. That last risk is worth putting on the risk register while the arrangement runs.

Who counts as a connected person

Boards tend to assume connected means spouse. Section 188 of the Charities Act 2011 goes considerably wider, covering a trustee’s child, parent, grandchild, grandparent, brother or sister; the spouse or civil partner of a trustee or of any of those relatives; a business partner of a trustee or of those relatives; and organisations in which any of them hold a controlling or substantial interest.

So a trustee’s brother’s company is caught. So is the firm where a trustee’s business partner holds a substantial interest. If you are unsure whether someone falls inside the definition, check the section 188 list or take legal advice; the answer changes which rules you are following.

The written agreement you need before the work starts

This is the condition small charities miss most often, because it feels excessive to put a contract in front of someone who sits on your own board.

Recording the decision in your minutes is expressly not enough. There must be a separate written agreement, and it must be entered into before the charity receives the goods or service. It has to describe accurately what the charity is buying, name the person or company providing it, and state the amount or the maximum amount the charity will pay; the upper limit you will not exceed.

The Commission also suggests the agreement confirms you have met all the conditions, particularly the one about conflicts; states how the charity will check that what it receives matches what was agreed; and says whether the charity can end the arrangement early. Add anything else the charity needs, and take legal advice on the wording if the sums justify it.

Signatures matter here. The agreement should be signed by the trustee or connected person supplying the goods or service, and must be signed by one of the other trustees or someone the other trustees have authorised. It then forms part of your charity’s financial records and must be kept for six years. Working out who signs on the board’s behalf is one more thing your scheme of delegation should already answer.

Leaving the room, and what that does to your quorum

A conflicted trustee is one who is going to provide the goods or service, or who is connected to the person or organisation that will. There can be more than one, and you have to identify them all; a trustee connected to another trustee’s business is conflicted too.

A conflicted trustee must take no part in discussions or decisions about the payment. That covers whether to go ahead at all, what goes into the agreement, and whether to change or end it later. In practice, it means two things: the conflicted trustee leaves the meeting while it is discussed and decided, and they are not counted in the quorum.

That second point is the one that catches small boards, and it is arithmetic rather than principle. If your governing document sets a quorum of three and two of your trustees are conflicted, the remaining trustees may be unable to take the decision at all. It is the same problem as a board sitting close to its quorum with a vacancy open, arriving from a different direction. Our guide to running a trustee meeting covers how to handle the departure and the vote, and the trustees meeting minutes template gives you somewhere to record it.

A conflicted trustee may give the other trustees information to help them decide before leaving the room. Answering questions about the quote is fine. Staying for the decision is not.

The sanction for getting this one wrong is specific. Where this condition is not met, the Commission can require the person to repay money they received for supplying the goods or services, or order the charity not to pay for goods or services it has already received.

Boards are rarely the right judge of an arrangement they are inside.

The trustee doing the work is usually well liked, usually charging less than a stranger would, and usually doing the charity a favour. That is exactly why the conditions exist, and why the conversation is hard to have around your own table. A free clarity call gives you someone outside it to check the arrangement against the rules.

If the arrangement is already running

Most boards read this after the fact rather than before. Work through the six conditions against what actually exists, and be honest about the answers.

If there is no written agreement, get one in place for the work still to come. It cannot retrospectively cover what has already been delivered, because the condition requires it before receipt, but it stops the gap from widening. If the conflicted trustee sat through the decision, record what happened and take the decision again properly with them out of the room. If you never got comparative quotes, get them now and satisfy yourselves that the amount is reasonable.

Then check your governing document, because it determines your route. If it contains a prohibition, you cannot use the statutory power until the prohibition is removed. Most charities can remove one without Commission involvement, using the statutory power to amend a governing document in the Companies Act 2006 for charitable companies or the Charities Act 2011 for other structures. You will need the Commission if your charity is a trust, or if your only members are the trustees, or there are not enough members who are not also trustees to vote; because every trustee stands to benefit from that change, so every trustee is conflicted. Our guide to changing your governing document covers the process.

If your governing document contains a power rather than a prohibition, you can use it, but you must comply with what it says. A power covering professional services only cannot be stretched to cover goods. A power that does not mention connected persons will not cover a trustee’s company. And a power that refers to sections 185 to 186 of the Charities Act 2011 is the statutory power, so the six conditions apply anyway. Where a power requires Commission consent, you do not need that consent if you can meet the statutory conditions instead, but keep a record showing you met them.

Two situations sit outside all of this. You cannot use the statutory power to pay a trustee or connected person for supplying goods or services to a charity’s trading subsidiary, which needs a clear power in the governing document or Commission authority. And charitable companies have company law rules on transactions with directors, where members’ approval may be needed; in which case you need Commission authority under section 201 first, then the members’ approval.

Whatever the route, keep a full record of the decision and the reasons for it, keep any Commission authority, and disclose the payment in your accounts. Charities preparing accrual accounts must give details of payments and benefits to trustees and connected persons under the current SORP, and those preparing receipts and payments accounts should give the same information – who was paid, why, how much, and the power or authority relied on. Those accounts become public. Everything here should also show up in what the board reviews each quarter and in the annual budget, and a new trustee should be told about any live arrangement during their induction rather than discovering it in the accounts.

Where a condition was missed on work already delivered, take legal advice before deciding what to do next. The duties that got the board here – acting in the charity’s best interests, with reasonable care and skill – are the same ones that apply to every trustee sorting it out.

Arrangements like this usually start because the alternative was expensive.

That is a legitimate instinct, and it needs a structure around it; a purchasing approach, a conflicts policy, and a board that knows what it decides and what it does not. Our ongoing support plans put those in place so the next arrangement starts correctly rather than getting fixed afterwards.