The four types of funds against which income must be recorded are:
- General – money that can be used for any purpose that furthers the aims of the charity. This money is a type of Unrestricted Fund;
- Designated – money that has been set aside by the PCC, from the general fund, to cover any predicted future costs. This money can be transferred back into the general fund by the PCC and is therefore another type of Unrestricted Fund;
- Restricted Fund – money that has been given for a specific purpose (e.g. roof repairs) and can only be used for that purpose;
- Endowment – an amount of money that has been given to the church and that cannot be spent. Generally endowments come with an agreement that the income can be spent on the church or for a specific [restricted] purpose. These funds are relatively rare. It is usually necessary for the endowment capital to be held in the name of the London Diocesan Fund and administered by it however the PCC would remain responsible for investment decisions and receive all income.
Further notes:
- Whether a donation is Unrestricted or Restricted is decided by the donor. If a donor makes it clear that their donation is for a specific purpose or if a reasonable person would assume their donation were going towards a specific purpose* then the donation is Restricted. If not it is Unrestricted.*This principle of assumption applies, for instance, if the church were running an event where they had announced all donations would be going towards X purpose. The donor need not state any restriction as a reasonable person would assume all money at that event would be going towards X.
- A church can have an unlimited number of Designated and Restricted funds (although too many of these can cause issues). For example, the church may have a Designated Fund for youth work and one for boiler replacement. They may also have Restricted Funds for youth work, building repair and a new sound system.
- As Restricted Funds can only be spent on the purpose for which they were given, it is not uncommon for churches to have money reserved to a project that is no longer happening meaning the money is essentially unusable. To avoid this you can:
a) Make it clear when collected Restricted donations that should the relevant activity end, any unused money can be spent on general purposes
b) Include a clear, easily visible notice on church noticeboards that states that all Restricted donations can be moved to the general fund if it no longer becomes possible to spend them on the specified purpose. - Income from room or hall hire is Unrestricted (General).
- Restricted funds can also arise from a bequest in a will where the funds are left for a specific purpose. If you are not able to use the funds for that purpose (e.g. they are left for organ repairs but the church no longer has an organ) they you can apply to the charity commission to amend the purpose. They will generally want to see the funds being used for something with a broadly similar purpose (e.g. in this case for music)