How Should Charities Handle Donations Made by Mistake

Introduction

Mistaken donations can happen for many reasons. A donor might enter the wrong amount online, make the same payment twice, or continue a regular donation they thought they had cancelled. Whatever the reason, how a charity handles the situation says a lot about its integrity and professionalism.

UK charities have legal and ethical obligations when dealing with mistaken payments. Returning funds promptly, communicating clearly, and maintaining accurate records all help protect the charity’s reputation and ensure compliance with charity law.

Why mistaken donations occur

Common causes include:

Typing the wrong amount when donating online.

Making duplicate payments through bank transfer or direct debit.

Forgetting to cancel a regular donation after a campaign ends.

A family member or friend using the wrong account.

Payment processing errors by banks or third-party platforms.

Although accidental donations are relatively rare, every charity should have a policy for managing them consistently and fairly.

Legal and ethical responsibilities

Charities must act responsibly when handling any funds received in error. Trustees have a duty under the Charities Act 2011 to ensure that all charity income is used only for charitable purposes.

If a donation was made by mistake, the money does not truly belong to the charity. Retaining it knowingly could breach charity law or damage public trust. The ethical and legal approach is to investigate the claim and, if appropriate, refund the donation promptly.

Step 1: Verify the claim

When a donor contacts your charity about a mistaken payment, always check the facts first. Ask for information such as:

The donor’s name and contact details.

The date, amount, and method of payment.

Any reference or transaction number.

Cross-check the details with your charity’s bank records or donation platform to confirm the payment. This helps ensure that refunds are legitimate and prevents fraudulent claims.

If the donation was made through a third-party fundraising site, contact the platform for confirmation and guidance on how to process the refund correctly.

Step 2: Establish whether the donation was a genuine mistake

In most cases, genuine mistakes are easy to identify. For example, if a supporter donates £1,000 instead of £100 or makes two identical payments within minutes, it’s clear that an error occurred.

Sometimes, however, donors may regret a payment after making it, especially for large or recurring donations. Charities should assess these cases carefully. If the donation was freely given, even if later regretted, the charity may not be legally obliged to refund it.

When in doubt, trustees should consider the charity’s refund policy, donor relationship, and the potential reputational impact before making a decision.

Step 3: Process refunds promptly

If the donation was indeed a mistake, process the refund as quickly as possible. Refunds should usually be made using the same payment method the donor used originally. Keep written records of:

The donor’s refund request.

The charity’s internal review or approval.

The refund transaction and date.

Timely refunds demonstrate good governance and prevent disputes. In most cases, it is better to issue the refund even if the charity could legally retain the money, as goodwill and trust are more valuable long-term.

Step 4: Handle Gift Aid corrections

If your charity claimed Gift Aid on the mistaken donation, you must also correct this with HMRC. Submit an adjustment in your next claim or contact HMRC’s charities helpline for guidance.

Gift Aid can only be claimed on genuine donations freely given by a UK taxpayer. If the payment is refunded, the Gift Aid claim must be reversed to avoid an overpayment.

Step 5: Review regular donations

If the mistake involves a recurring payment, such as a monthly direct debit, confirm whether the donor wants to cancel or adjust the amount. Help them contact their bank or payment provider if needed.

Many charities use direct debit management systems that allow donors to make changes easily. Providing clear cancellation instructions on your website reduces the likelihood of future mistakes.

Step 6: Maintain transparent communication

Always respond to refund requests politely and promptly. Thank the donor for bringing the issue to your attention and explain what steps you are taking to resolve it.

Good communication reassures donors that your charity values integrity. Even when the refund cannot legally be made, clear explanations prevent misunderstandings.

Step 7: Keep accurate records

Charities must keep detailed records of all income, refunds, and donor correspondence for at least six years. This protects the organisation in case of audits or future queries.

Your records should include:

The reason for the refund.

Who approved it.

The refund method and transaction reference.

Regular reconciliation between your donation platform, accounting system, and bank statements ensures that all refunds are properly recorded.

When a refund may not be required

A charity does not always have to refund a donation. Situations where a refund may be refused include:

The donor simply changed their mind after a voluntary gift.

The charity has already spent the funds on charitable activities and cannot reasonably recover them.

The donation was made anonymously with no way to verify the claim.

Even in such cases, the trustees should review the circumstances carefully and document their decision. Acting fairly and transparently is key.

Creating a refund policy

Every charity should have a clear refund policy approved by trustees. It should explain:

When refunds will and will not be given.

The process for verifying and approving refund requests.

Time limits for refund applications.

Who is authorised to handle refunds.

Publishing this policy on your website helps set donor expectations and demonstrates accountability.

Common mistakes to avoid

Ignoring donor refund requests or delaying responses.

Keeping funds that are clearly the result of an error.

Failing to adjust Gift Aid claims after refunds.

Not recording refund transactions accurately.

Lacking a written refund policy or trustee oversight.

Avoiding these mistakes protects your charity’s reputation and ensures compliance with HMRC and Charity Commission guidance.

Conclusion

Mistaken donations are rare but must be handled carefully. Charities should verify the claim, process refunds promptly, adjust any Gift Aid claims, and maintain clear records.

Trustees must balance legal obligations with public trust, always prioritising fairness and transparency. A clear refund policy, supported by good communication and accurate record-keeping, helps your charity respond to mistakes responsibly and maintain the confidence of its supporters.