Grants and Ex Gratia Payments
Use this section when your charity is giving money away: making grants to other organisations or making an ex gratia payment that it feels morally obliged to make but is not legally required to make. Both involve applying charity funds outside the charity's ordinary activities, so the trustees need to be able to show that they had the power to make the payment and that it furthers the charity's purposes.
How should a charity make grants?
A charity that funds the work of other organisations should have a clear basis for deciding who gets money and on what terms and should set out the terms in writing so that the funds are used as intended and can be recovered if they are not. The Charity Grant Making Policy sets out how the charity decides what to fund. The Agreement for Grant by a Charity to a Charity (Long Version) and the Agreement for Grant by a Charity to a Charity (Short Version) are for grants to another charity, in fuller or simpler form. The Agreement for Grant by a Charity to a Non-Charity Organisation is for a grant to a body that is not a charity, where the funding charity needs tighter controls to ensure the money is applied only for charitable purposes.
What is an ex gratia payment?
An ex gratia payment is one the trustees believe the charity has a moral obligation to make although it has no legal obligation and no power under its governing document, for example returning a gift to a donor's family in unusual circumstances. Such payments are subject to specific rules and, depending on the amount and the circumstances, may need the Charity Commission's authority. The Guidance Note: Ex Gratia Payments by a Charity explains when a payment is ex gratia, what the trustees have to consider and how to go about it.
Grants the charity receives from funders are not covered here; they are documented by the funder on its own terms. Loans to or by a charity are in the Loans and Promissory Notes section.
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Frequently Asked Questions
Yes, if the grant furthers your charity's purposes, that is the test, not the recipient's status. Granting to another charity with compatible purposes is straightforward; granting to a non-charity is lawful but demands more control, because your funds must be applied charitably even in non-charitable hands. That is why this section's non-charity grant agreement carries tighter conditions and monitoring than the charity to charity versions. Record the purposes analysis in the trustee minutes.
Purpose, conditions and recovery. State exactly what the grant funds, when instalments flow and against what evidence, what reporting the recipient owes, what happens to unspent funds and your right to claw back money misapplied. For non-charity recipients add restrictions keeping the funds on charitable application. Long and short versions exist here because a 500 pound grant to a known partner does not need the machinery of a 50,000 pound programme grant; match the document to the risk.
If grants will recur, yes. A policy sets who can apply, what you fund, how decisions are made and by whom, conflict handling and monitoring expectations, which protects trustees from accusations of favouritism and gives applicants a fair process. It also answers the Commission's interest in how charitable funds are applied. Adopt it by trustee resolution and publish what applicants need. The Charity Grant Making Policy template here is the framework.
Sometimes, through an ex gratia payment: a payment the trustees feel a moral obligation to make despite no legal duty, the classic case being returning a legacy where the deceased clearly changed their mind. The law changed on 27 November 2025: trustees can now make smaller ex gratia payments without Charity Commission consent, within limits set by the charity's income, with larger payments still needing authorisation. The Ex Gratia Payments guidance note covers the new regime in full.