That trust rests on transparency, particularly in the moments where good people’s lives and loyalties happen to overlap.

Take one of the most common related party situations we see in practice: two good trustees, two good charities, one connection between them. It’s an easy scenario to overlook, not because anyone has done anything wrong, but because it doesn’t feel like it needs the same scrutiny as a situation where something genuinely has.

A client of ours – a small charity delivering community-based support services – recently received a small grant from a local grant-making foundation, the kind of transaction that would ordinarily be unremarkable to record. However, one of the charity’s trustees also sits on the board of the foundation that awarded the grant, giving that individual visibility, and potentially influence, over both sides of the same funding decision.

No favours were done, no influence was exerted, and the trustee took no part in either side’s decision-making, but under the Charities SORP, none of those facts change whether the transaction needs disclosing. If a related party transaction goes undisclosed, a reader has no way of knowing whether influence was exerted and is left to draw their own conclusions. Where governance protocols have genuinely been followed, disclosure carries no risk; it simply confirms that they have.

Another useful and common example is when contractors are used to say, decorate the office, or update the website.  Suppliers should come from recommended sources, of course, but in small communities where everyone knows everyone, an unintentional bias could occur – and if they happen to be family members of a Trustee, extra care should be taken and the governance decision minuted.

Why good intentions aren’t the best

This is the point that surprises people who haven’t worked through SORP Module 9 in detail. Paragraph 9.3 is unambiguous: a transaction involving a trustee or other related party must always be regarded as material, regardless of its size. In other words, there is no de minimis, nor is there an exemption based on the transaction being entirely proper.

Paragraphs 9.13–9.14 explain why: disclosure lets a reader see that the relationship exists and form their own judgement about whether it may have influenced the transaction. Related party transactions are not assumed to be improper simply because they are disclosed. Disclosure is the mechanism that allows a conflict to be managed openly, rather than leaving trustees to take good governance on trust.

Paragraph 9.16 pushes this further, requiring charities to assess the substance of a relationship rather than its legal form. A trustee doesn’t need a contract, a shareholding, or a formal role to be a related party; significant influence is enough to meet the test. In our client’s case, the risk was never that the trustee would deliberately favour one charity over another. It was subtler: a foundation trustee assessing grant applications may unconsciously weigh a familiar, trusted applicant more favourably than an unknown one, and a recipient charity’s board may feel less inclined to scrutinise or challenge a grant that arrived through a fellow trustee’s connections. Neither requires bad faith or intention, but both are exactly the kind of influence the rules are designed to surface.

What actually has to be disclosed

Once a related party transaction is identified, SORP 9.20 sets out a specific list of required particulars. For each transaction, the notes to the accounts must include:

• a description of the relationship between the parties, including the related party’s interest in the transaction
• a description of the transaction itself
• the amounts involved
• any outstanding balances at the year end, and provisions for doubtful debts
• any amounts written off during the year
• the terms and conditions attached, including any security given
• details of any guarantees
• the name(s) of the related parties involved

That last point is worth your highlighter pen, since SORP requires the name of the transacting related party rather than a generic reference to “a trustee.” Smaller charities sometimes soften this in practice, but the requirement is there, and 9.21 adds a further constraint: a charity cannot assert that a related party transaction was made on arm’s length or open market terms unless that claim can actually be substantiated.

In our client’s case, the disclosure note named the trustee, described the dual role, and confirmed the grant was awarded through the foundation’s ordinary grant-making process. Because the trustee had declared their interest and taken no part in either side’s decision by removing herself from the meetings when the grant discussed, the note was able to state that the transaction was made at arm’s length with genuine confidence, rather than as an unsupported assertion.

The accounting question and the governance question aren’t the same question

Writing a compliant note is only part of the task. What actually matters is whether the conflict was managed properly at the time the decision was made, since the note is simply where that management gets recorded and evidenced afterwards.

This is where the Charity Commission’s guidance (CC29) is most useful. It sets out a five-step process trustees should follow whenever a conflict arises:

1. Identify the conflict as early as possible.

2. Declare it before any related discussion takes place.

3. Consider whether the conflict can be removed altogether.

4. Manage it properly if it can’t be removed – typically, the conflicted trustee declares their interest, withdraws from the discussion, takes no part in the decision, and isn’t counted in the quorum.

5. Record how the conflict was identified and managed.

That final step matters as much as the others, and it’s the one we see slip most often in smaller charities so please highlight this to your colleagues regularly. In short, no minutes equals no management: a conflict that was handled correctly but never recorded looks, from the outside, identical to one that was never handled at all.

Belt and braces: a register alongside the minutes

Board minutes will usually capture a conflict when it arises in a specific meeting, but a standalone register of potential conflicts adds a second layer of assurance. Every time a trustee declares an interest, steps back from a discussion, or is otherwise noted as conflicted in the minutes, that entry gets logged centrally, rather than left to be found again by searching back through a year’s worth of minutes. For a small charity this needn’t be more than a simple table, notebook or excel sheet, but it turns “we’re fairly sure this was handled properly” into something a trustee, an auditor, or the Commission can verify at a glance.

What happens when a conflict isn’t managed

The consequences of getting this wrong were set out starkly in the Charity Commission’s inquiry into the Captain Tom Foundation, the charity established in the name of NHS fundraiser Captain Sir Tom Moore. 

The Commission’s investigation found repeated failures by two of its trustees to properly identify and manage conflicts of interest, alongside personal financial benefit that the charity’s other trustees had not been made aware of at the time. Both were disqualified from acting as charity trustees, for periods of ten and eight years respectively. It’s an extreme case, and most related party situations look nothing like it, but the underlying lesson holds at any scale: an unmanaged conflict rarely stays a private matter between the individuals involved.

Why this presents itself more often than people expect

Being asked to serve as a trustee for more than one charity is, in most cases, a sign of a good trustee, someone whose judgement and experience are valued across the sector, rather than a governance red flag. As a charity’s trustee board grows, or as trustees build wider connections across the sector, the likelihood of a genuine related party relationship arising increases steadily, regardless of anyone’s intentions.

The practical takeaway

If your trustees serve on other boards, and for most charities some of them will, it’s worth checking that your process for declaring these connections would actually catch a related party transaction arising from entirely good intentions, exactly as this one did.

If you’re not already circulating an annual declaration to trustees, asking them to confirm whether they hold any relationships that could create a related party transaction or potential conflict of interest, let us know. We have a free template available – get in touch via our website contact page and we’ll send it over.

Note: this composite illustrates a common pattern across our charity clients and does not describe any single organisation.