Charity financial controls and governance | England and Wales
Consider two charities sharing an office and some staff. The arrangement works well operationally, but the finance teams disagree about which costs should be reimbursed and when. What began as cooperation has become an unexplained balance in both sets of accounts.
The starting point is a written agreement that reflects the actual arrangement: who provides what, how charges are calculated, who authorises them, when payment is due and what happens when circumstances change. Trustees also need to consider charitable benefit, conflicts, legal authority and any tax or employment implications.
A shared purpose is a reason to explore collaboration. It does not replace those checks. The Charity Commission recommends a formal agreement proportionate to the risks and complexity. [1]
Establish who is doing what for whom
First distinguish separate legal entities from branches of one charity. The distinction affects contracting, invoicing, reporting and accountability. A shared name, building or senior team does not settle it.
Record the provider and recipient, the services or facilities involved, the intended benefit to each charity and the individuals authorised to agree changes. Identify the employer where staff are shared, and clarify responsibility for supervision, insurance, equipment, data and employment obligations.
Avoid an agreement that describes one arrangement while the invoices follow another. If the charity is giving support without expecting repayment, that needs an appropriate charitable decision and accounting treatment. It should not remain indefinitely as a supposed recoverable debt because nobody has agreed whether it is a grant or a recharge.
Choose a charging basis that can be explained
Start with the resources actually used. Time records may support staff costs; occupied space or agreed usage may support accommodation costs. Include relevant employer costs, maintenance or other overheads only where the agreement and circumstances justify them.
Illustrative example. Two charities agree to share a programme administrator. Eligible employment costs are £4,000 for the month and supported records show that one charity used 35% of the agreed time. Its recharge is £1,400 before considering any applicable VAT. That calculation is useful only if the eligible costs, allocation method and treatment of absence or exceptional work have been agreed.
Do not present a convenient percentage as a fact about consumption. If detailed measurement would cost more than it adds, use a reasonable agreed allocation and review it periodically. Record why it is suitable and what would trigger a change.
An intentionally subsidised arrangement needs its own explanation. Trustees should understand the subsidy, how it furthers their charity's purposes and whether the funds used permit it. There is no universal requirement to charge the highest possible price, but there should be a defensible decision rather than an unnoticed transfer of resources.
Deal with conflicts before negotiating the outcome
Where people hold roles in both organisations, a loyalty conflict may arise even if nobody receives a personal financial benefit. Identify it early, follow the governing document and applicable rules, and record how the decision was made by those entitled to participate. A declaration by itself is not always enough. [2]
Where a trustee or a person or organisation connected to a trustee receives a payment or benefit, check the particular authority and conditions that apply. A commercial-looking invoice does not remove the issue. The Commission's CC11 guidance separates different payment scenarios and should be read for the arrangement being considered. [3]
Sharing premises or services does not automatically make two charities related parties for financial reporting. The actual relationship and applicable SORP determine that assessment. Equally, an arrangement can need careful conflict management even where a particular disclosure threshold or definition is not met.
Make invoicing and collection part of the arrangement
Use identifiable, uniquely referenced invoices that state the service period, calculation and payment terms. Link them to the underlying schedule, the ledger and receipts. This helps both charities identify omitted, duplicated or disputed charges.
Where there is an agreed rent-free period, credit or variation, document it and ensure the billing reflects the terms. Invoices issued by mistake are not evidence that money is genuinely due.
Regularly reconcile balances between the two charities' accounting records. Both finance teams should resolve differences at transaction level rather than offsetting unrelated amounts until the totals happen to match. Trustees should be told when a balance is overdue, disputed or unlikely to be recovered, with the proposed response.
Check the matters an ordinary cost schedule cannot resolve
Charities are not automatically exempt from VAT. A supply of staff is normally standard-rated where the supplying charity is VAT registered or required to register, even when it charges only employment costs. VAT applies to the full taxable charge, not just a mark-up. [4, 6]
Genuine joint employment is different: there is no supply of staff between the joint employers. The employment documents must identify the employers; a cost-sharing agreement alone does not establish joint employment. [6]
HMRC also permits outside-the-scope treatment for certain staff secondments between charities or voluntary organisations. The employee must have worked only in the lending organisation's non-business activities and be seconded to assist the borrowing organisation's non-business activities. The charge must not exceed normal remuneration, including employer National Insurance and pension costs. These conditions need to be satisfied, not assumed. [4]
Distinguish a staff supply from simply paying another employer's salaries on its behalf: qualifying paymaster reimbursements are treated differently from charges for providing staff or administering payroll. Confirm who employs and directs the staff, what is supplied, VAT registration and the applicable rules before invoicing. [6]
Staff-sharing may also involve employment and supervision responsibilities, and premises arrangements can raise lease, licence, insurance or charity-land issues. Obtain advice proportionate to the arrangement before relying on assumptions.
These checks should be specific. Ask an adviser to assess the proposed terms and responsibilities, not simply whether charities are 'allowed to share costs'. The latter question is too broad to resolve the risks in an actual agreement.
Written terms are especially valuable when managers or trustees change. They should explain how the arrangement can be reviewed, varied or ended, how outstanding balances will be settled and who retains equipment or information. A one-page agreement may suit a simple arrangement; complex property or staffing commitments may require professional drafting.
What a trustee approval paper should contain
Bring together the charitable benefit, alternatives considered, cost and allocation basis, material legal or tax advice, conflicts and proposed controls. Show what each charity is committing to and how its board will know whether the arrangement remains worthwhile. The decision record should explain the reasoning, not only that the arrangement was approved. [5]
A practical next step is to select the largest recurring shared cost and assemble one complete file: agreement, approval, calculation, invoice, payment and latest reconciliation of balances between the charities. Missing links identify where the process needs improvement.
The intended improvement is a charge both organisations can explain, with disputed amounts identified early and a clear route for resolving them. It should not be presented as a guaranteed saving. The work remains worthwhile even if the agreed charge does not change.
Sources and further reading
Official guidance checked on 21 October 2026.
[1] Charity Commission, Work with other charities
[2] Charity Commission, Conflicts of interest: a guide for charity trustees (CC29)
[3] Charity Commission, Charities paying a trustee or a connected person (CC11)
[4] HMRC, How VAT affects charities (VAT Notice 701/1)
[5] Charity Commission, Decision-making for charity trustees (CC27)
[6] HMRC, Supply of staff and staff bureaux (VAT Notice 700/34), sections 2 and 3
Frequently asked questions
Do two charities need a written agreement to share costs?
A proportionate written agreement is recommended and may be required by the legal or funding arrangements. It should describe what is shared, how charges work, responsibilities, approvals and how the arrangement ends.
Are all recharges between charities exempt from VAT?
No. A recharge is neither automatically taxable nor automatically exempt. Review the actual supply, VAT registration and any applicable relief. Genuine joint employment and qualifying non-business staff secondments have specific treatment; sharing costs at no profit is not enough by itself. [4, 6]
Must every shared cost be split equally?
No. Use an agreed and supportable basis reflecting the arrangement. Equal sharing may be appropriate in some cases, but should not be the default where use or benefit differs substantially.
Does sharing a trustee automatically resolve approval between the charities?
No. It can create a conflict of loyalty. Each charity needs a valid decision made in its own interests, with conflicts addressed under its governing document and relevant rules.
What should we do with a recharge that has not been paid for months?
Confirm the agreement, calculation and balance, then establish why payment is delayed. Consider recoverability and the appropriate accounting treatment, and agree an action rather than carrying the balance forward without explanation.