Related party transactions for charities

Transactions with related parties, especially trustees, are a key area of risk in charity governance and financial reporting. The Charities SORP requires disclosure of related party transactions (RPTs), regardless of size, to ensure transparency and public trust.

Why it matters

RPTs can raise concerns about private benefit and conflicts of interest. The Charity Commission has investigated many cases involving transactions with related entities. Getting this right is essential for demonstrating stewardship and public benefit.

Managing risk related to RPTs

1. Understand who counts as a related party
   This includes trustees, close family members, entities they control or have significant interest in, and any subsidiaries or associates of the charity.
2. Keep declarations up to date
   As highlighted in our previous article, a Register of Interests should be completed by all new trustees to declare any interests and confirm them at least annually. Plain-English forms should be used and nil returns should be challenged to ensure completeness. If trustees are unsure whether something counts as an RPT, it’s best to include it on the declaration and then this can be assessed transparently.
3. Monitor transactions throughout the year
   Track all RPTs (eg goods, services, grants, loans) and share the register and transaction list with auditors. A standing agenda item at trustee meetings helps keep records current.
4. Review disclosures carefully at year-end
   Allow time to review disclosures before finalising the accounts. Some transactions may be grouped or excluded, but this must be clearly explained. Seek advice if any cases are sensitive or complex.

What’s new?

The Charity Commission has recently updated its guidance on payments to trustees and related individuals (CC11). The revised guidance makes clear that such payments should be exceptional, properly authorised, and demonstrably in the charity’s best interests. Some key points include:

• Payments to connected individuals (such as family members or businesses linked to trustees) are treated the same as payments to trustees,
• A written agreement must be in place, and any trustee with a conflict of interest must not take part in the decision,
• Only a minority of trustees may be paid at any one time,
• Payments for trustee duties are only rarely permitted and would usually require prior approval from the Charity Commission, and
• All RPTs must be transparently disclosed in the charity’s financial statements (subject to some specific exceptions, such as normal donations that don’t have any conditions attached).

Before proceeding with any payment, charities should carefully review their governing documents, identify and manage any conflicts of interest, and keep detailed records of all decisions.

How we can help

If you have any questions regarding the points raised here, please get in touch with Alexandra Momtahan.