Ex-Gratia payments by charities – when and how to apply to the charity commission

Charity trustees very occasionally wish to make payments that are outside their constitutional objects and aims. There may be circumstances where there is no strict legal obligation to make a payment from the charity’s funds, but there is a compelling moral reason to do so. These are known as ex gratia payments (sometimes called “moral payments”). Because trustees are under a duty to apply charity funds strictly in furtherance of the charity’s purposes, they cannot authorise such payments themselves without authority from the Charity Commission. Instead, they must obtain permission before any ex-gratia payment is made.

This article outlines the procedure, the required documents, and key considerations that trustees should bear in mind.

What is an Ex-Gratia payment?

An ex gratia payment arises where trustees feel a moral, but not a legal obligation to make a payment. Common examples include:

· Honouring a testator’s wishes when those wishes are made clear, however, he/she failed to execute a valid will.

· Making a payment to a long-standing employee or volunteer in recognition of exceptional service.

· Returning a donation when it later becomes clear that keeping it would be against the donor’s genuine wishes.

· Making a payment to the testators family where the charity’s legacy has become much larger than anticipated.

The unifying feature is that the payment does not directly further the charity’s purposes, but it feels morally right. Because trustees’ fiduciary duties prevent them from applying funds outside the charity’s purposes, they must seek external authorisation.

The legal framework

The authority for ex-gratia payments is found in section 106 of the Charities Act 2011, which requires trustee applications to the Charity Commission for consent. Importantly, without such consent, trustees making an ex-gratia payment could be personally liable for unauthorised use of charity funds.

The application procedure

The application is made to the Charity Commission using its online application form for ex gratia payments. The process typically involves the following steps:

1. Trustee Resolution – The trustees must first consider the request and pass a resolution confirming that, while there is no legal duty, they believe there is a moral obligation to make the payment.

2. Preparation of Supporting Documents – Trustees should collate all relevant materials, including:

• The governing document of the charity (to confirm trustee powers).
• A copy of the will or correspondence giving rise to the issue (for legacy-related cases). A copy of the Grant of Probate (if a probate-related matter).
• Minutes of the trustee meeting where the decision was discussed.
•  Legal advice obtained in support of the application.
•  A clear statement explaining why trustees believe there is a moral obligation.

3. Submission to the Commission – The application form requires details of:

•  The proposed recipient of the payment.
• The estate of the Deceased that the application relates to (if a probate-related matter).
•  The amount of the payment.
• The circumstances giving rise to the moral obligation.
•  The trustees’ reasoning.

4. Commission Consideration – The Charity Commission will review the application and may seek further information/documents. They will assess whether the trustees’ view of a moral obligation is reasonable.

If satisfied, the Commission will grant consent, usually with conditions. Only then may the trustees proceed with the payment.

Practical considerations

• Proportionality – Trustees should consider whether the payment is proportionate to the charity’s resources and whether it would materially affect its ability to carry out its purposes.
• Transparency – Trustees should ensure decisions are fully documented, with clear reasoning recorded in board minutes.
• Alternative Options – If the charity wishes to recognise service or generosity, trustees might consider lawful alternatives such as an honorarium, gift in kind, or public recognition.
• Timeframes – Applications can take several weeks or months to process, so trustees should apply promptly once an issue arises.

Conclusion

Ex-gratia payments sit at the delicate intersection of legal duty and moral conscience. Trustees must remember that they cannot authorise such payments themselves, however justified they may feel. By following the proper process, passing a reasoned resolution, preparing the necessary documents, and applying to the Charity Commission, trustees can protect themselves from liability while ensuring that fairness and moral duty are respected.

If your charity is considering an ex-gratia payment, professional advice at an early stage can help structure the application effectively and minimise delays.

For expert advice, contact Anthony Gold Solicitors at 020 7940 4000 or mail@anthonygold.co.uk.