New guidance on trustee payments and expenses

New guidance on trustee payments and expenses

Sarah Furness, Charities

The Charity Commission recently published updated guidance on trustee payments and expenses. Paying trustees can provoke negative reactions as trustees tend to be volunteers and the suggestion of trustee payments can undermine trust and confidence in the sector. It is therefore important that the guidance is followed at all times and that all decisions are recorded in writing with payments being fully documented in accounts.

The guidance confirms that paying trustees their expenses is not considered a trustee payment or benefit. Further there is a difference between paying a trustee for “goods and services” and paying trustees for carrying out their trustee duties, which is something that should only be considered in truly exceptional circumstances, namely, where paying a trustee brings a clear and significant advantage to the charity over all the other options.

Should paying a trustee for carrying out their trustee duties be the best option, it is important that:

• Charity’s manage the risks with a particular emphasis on conflicts of interest.
• Any payments made are reasonable and ideally benchmarked.
• There is a written agreement in place.
• Charity’s have the power or authority to make such payments in their governing documents and if not, that permission from the Charity Commission is sought.

In respect of paying trustees for providing “goods and services” separate to their trustee duties, there is a statutory power to make such payments.

The guidance sets out six conditions which must be met when using the statutory power and this also applies when paying persons who are “connected” to a trustee such as relatives or business partners of a trustee:

1. The charity’s governing document must not contain a prohibition on making the payment.
2. Getting the goods or services from the trustee or connected person must be in the charity’s best interests. Query is the cost and service comparable and reasonable when compared to other providers?
3. The agreed payment must be reasonable by reference to factors such as market prices, what the charity has paid in the past and quotes should be obtained from other suppliers.
4. There must be a written agreement with the trustee or connected person.
5. Only a minority of trustees may be paid at any one time.
6. A conflicted trustee must not take part in any discussion or decisions about the arrangements.

Again, permission from the Charity Commission may need to be sought if the above conditions don’t apply.

In respect of the reimbursement of expenses, although emphasis was placed on the fact that such expenses must be ‘reasonable’, the Charity Commission highlighted that charities should make it clear that trustees can claim reasonable expenses as this may encourage valuable candidates to join their board at a time when many charities are struggling to recruit.

Charities are strongly encouraged to review the guidance and their payment arrangements.

Get in touch with Sarah Furness for further information.