Can I Use Donations to Cover Admin and Salaries

Introduction

It is a common misconception that all donations to a charity must go directly to frontline projects or beneficiaries. In reality, every charity needs to spend money on administrative costs such as staff, office space, and systems to function properly.

The Charity Commission recognises that administration and salary costs are legitimate and necessary. However, charities must use funds appropriately, communicate transparently with donors, and keep accurate records of how donations are spent.

Can charities use donations for admin and salaries

Yes, most charities can use donations to cover administration and salaries, as long as the expenditure supports the charity’s purposes. Trustees have a duty to ensure all spending furthers the charity’s objectives and delivers public benefit.

Administration costs include a wide range of essential expenses such as:

Staff wages and pension contributions.

Rent, utilities, and insurance.

IT systems, bookkeeping, and accounting services.

Training, governance, and compliance costs.

Office supplies and communications.

These are not optional extras but the foundation that allows charities to operate efficiently and deliver impact. Without staff or administrative infrastructure, few charities could function at all.

Restricted versus unrestricted donations

How you can spend a donation depends on whether it is restricted or unrestricted.

Restricted donations are given for a specific purpose defined by the donor. For example, if a supporter donates £5,000 “to buy hospital equipment,” the charity must spend that money only on that purpose. Using it for salaries or rent would breach the donor’s wishes and could be considered misuse of funds.

Unrestricted donations have no specific conditions attached and can be used wherever the charity needs them most. This includes covering admin costs, staff salaries, and other operational expenses.

To avoid confusion, charities should always clarify whether a donation is restricted or unrestricted when it is received.

When you can use donations for salaries

If a donation is unrestricted, trustees can allocate part of it to salaries as long as the work being paid for contributes directly to the charity’s objectives. For example:

Paying project staff who deliver frontline services.

Employing administrators who support essential operations.

Covering the salary of a finance manager who ensures compliance with HMRC and the Charity Commission.

However, trustees must ensure that salaries are reasonable and represent fair value for the work done. Excessive or unjustified pay can damage trust and attract regulatory scrutiny.

Explaining admin costs to donors

Many donors want reassurance that their money is being used effectively. Some are wary of charities spending too much on administration. It is therefore important to explain that admin costs are part of running a successful, accountable organisation.

Ways to build trust include:

Publishing clear financial breakdowns in annual reports.

Explaining how admin costs support impact (for example, “our finance and HR teams allow us to run safe, efficient programmes”).

Demonstrating that salaries are fair and in line with sector standards.

Highlighting how operational spending helps deliver better outcomes for beneficiaries.

Transparent communication helps donors understand that administrative costs are not waste but investment in long-term sustainability.

Using grants and public funding

Some grants and public sector contracts allow a specific portion of funds to be used for overheads, often called “core funding” or “management costs.” Others may restrict spending entirely to project delivery.

Always read funding agreements carefully to check what is permitted. If administration or staffing costs are not covered, you may need to use unrestricted income to fill the gap.

Charity Commission guidance

The Charity Commission accepts that charities must spend money on running costs to achieve their purposes effectively. Trustees are expected to:

Balance spending between direct charitable activity and necessary administration.

Justify salary levels and major operational expenses.

Ensure all spending is proportionate, reasonable, and in the charity’s best interests.

The key principle is that all spending, including salaries and admin, must contribute to achieving the charity’s aims and provide public benefit.

How to budget for admin and staff costs

When preparing your annual budget, identify the proportion of income that will go toward overheads and staff. Typical admin and salary costs might range between 10 and 30 percent of total income depending on the type and size of the charity.

Include these costs in grant applications and fundraising appeals so donors understand how their contributions are used. Being upfront about overheads prevents misunderstandings later.

If you receive restricted donations, make sure admin and salary costs are funded from other sources or approved by the donor in writing.

Accounting and reporting

All charities must record how they spend donations and report this in their annual accounts. Trustees should:

Categorise admin and staff costs clearly in financial statements.

Separate restricted and unrestricted income.

Keep payroll records, invoices, and contracts as evidence of expenditure.

Be ready to explain how each cost supports the charity’s purposes if questioned by HMRC or the Charity Commission.

Transparent accounting not only satisfies legal obligations but also builds public confidence.

When donors specify “100 percent to the cause”

Some donors or fundraising campaigns state that 100 percent of donations will go directly to beneficiaries. In such cases, the charity must honour this promise. Any admin or salary costs must then be covered by other income, such as grants or corporate sponsorships.

If your charity makes such a commitment, keep clear records showing how costs were funded separately to avoid misleading donors.

Common mistakes to avoid

Using restricted funds for admin or salaries without permission.

Paying excessive wages not justified by the role or charity size.

Failing to explain overheads in fundraising materials.

Misclassifying admin costs as project expenses in reports.

Neglecting to monitor how much of total income goes to running costs.

Avoiding these mistakes helps maintain trust, accountability, and compliance.

Conclusion

Charities can use donations to cover administration and salaries, provided the spending supports their charitable purposes and complies with any donor restrictions. Trustees must act responsibly, ensure all costs are reasonable, and communicate openly about how donations are used.

Admin and staffing costs are not a sign of inefficiency—they are an investment in stability, professionalism, and impact. By managing funds transparently and maintaining good governance, charities can continue to deliver their missions effectively while retaining the trust of donors and the public.