On 23 April 2020, the Charity Commission issued new guidance on how to manage financial difficulties in a charity caused by the 2019 novel coronavirus disease (COVID-19) pandemic.

This clear, practical guidance is aimed particularly at charity trustees of smaller charities. It suggests the following steps to help charity trustees understand their charity's financial position, create a plan, and make decisions:

It then looks at what charity trustees need to do if they decide that their charity cannot continue to operate because of financial problems caused by COVID-19.

The Commission has reminded charity trustees of the duty to act at all times in their charity's best interests (see Practice note, Duties of charity trustees: an overview) and sought to reassure them that they will "generally be protected" when they have carefully applied their skills and experience to decisions and taken advice when needed.

The Commission recognises that "these decisions will often be difficult, that there may not be an obvious ‘right’ decision, and that charities will be exposed to higher levels of risk than in more normal times". It also recognises and will take account of the fact that things may go wrong despite the best efforts of charity trustees to act in their charity's best interests.

Charity trustees are advised to make a serious incident report to the Commission if their assessment of the financial position of their charity reveals either that the scale of financial loss threatens the charity’s ability to operate and serve its beneficiaries, or the charity’s financial reserves or other measures are not sufficient to cover the losses.

The guidance also says that a serious incident report should be submitted if a charity becomes insolvent or faces closure because of financial difficulties (this is not needed if a charity is closed for other reasons). For guidance on serious incident reporting, see Practice note, Duties of charity trustees: an overview: Reporting serious incidents and Video, Serious incident reporting by charities: introduction.

For answers to frequently asked questions about the implications of the COVID-19 outbreak for charities, see Practice note: overview, COVID-19: private client FAQs: Charities. For Practical Law's global resources on coronavirus, COVID-19, pandemics and business interruption, see Global Coronavirus Toolkit.