schools, all land and property has to be valued, as well as fixture and fittings, stock and local government pension schemes. Your academy’s budget should reflect the five-

year improvement plan, and take into account past performance so you can learn from under- and over-spends. Fluctuating pupil numbers can impact budgets, as well as changes to funding levels. One criticism levelled at academies is the size of

staff salaries. A number of academy trusts have been challenged by the government on the level of executive pay they have set. The head of the Education and Skills Funding Agency (EFSA), Eileen Milner, has written to the heads of all single and multi-academy trusts to remind them that, as accounting officers, they carry the responsibility of using taxpayers’ money wisely. From this academic year, trusts will have to report in their accounts return on which employees receive annual full time equivalent pay over £100,000. The letter also reminded heads of four aspects

of financial management which the ESFA has updated in the Academies Financial Handbook this year: related party transactions, controlling executive pay, scrutinising the budget and acting on audit findings.

Charities statement Academies must prepare accounts under the charities statement of recommended practice (SORP). There are various regulations to consider when preparing accounts under SORP. An accountant can help explain the significance of restricted and unrestricted funds; the roles and responsibilities of trustees and governors; and the financial returns required by the EFA, including the Financial Management and Governance Self- assessment (FMGS). Academies can generate income by, for

example, allowing the local community to use their sports facilities or classrooms. These activities are treated as charitable and are therefore tax exempt, but academies may need to update their articles to ensure this type of activity falls within the academy’s ‘charitable objects’. Again, your accountant can help to guide

trustees through the minefield of what it means to have charitable status, particularly regarding the financial benefits that are available. For example, any surplus made from an academy’s charitable activities are exempt from corporation tax and benefit from reduced business rates; property transactions are not subject to stamp duty; and donations can be boosted by gift aid receipts. These benefits can result in a significant financial boost for academies.

VAT guidance The fact that academy schools fall outside local authority control means their financial responsibilities include VAT obligations and reclaiming VAT to which they are entitled. The government has introduced rules to put

academy schools in the same VAT position as state schools. Academy schools are now required to produce their own accounts and file their own VAT claims. VAT on costs associated with educational activities can be claimed directly from HMRC. Other activities regarded as business, such as

sales of uniform, sports equipment and sports tuition, fall outside the direct claim process. These activities require formal registration for VAT.

November 2018 31 The decision on whether to register for VAT is

an important one for academies, even if an academy isn’t above the registration threshold. VAT registration can produce a more tax-efficient result for academies, but it’s worth consulting an expert to assess the pros and cons.

Special rules for MATs If an academy is within a MAT (multi-academy trust), it is governed by one trust and a board of directors, which must include representatives from each school. Schools thinking of joining a MAT should be

clear on the financial strength of the organisation. Before making a decision on whether to join a MAT, obtain a copy of the last audited statement and check that each individual academy is performing well. Ensure that the MAT holds similar goals and values as your own school, and make sure you understand the MAT’s approach to ‘top-slicing’. This is the most common method of financing a MAT, with each academy contributing some of its income. The Academies Financial Handbook requires

MATs to appoint an Accounting Officer to review and report on the internal control risk through a programme of internal audit work.

Pension considerations Academies must offer their staff membership of the Teachers’ Pension Scheme for all teachers, and the Local Government Pension Scheme (LGPS) for support staff. For the Teachers’ Pension scheme, academies

are only required to ensure that payments are properly met. However, for the LGPS, which most non-teaching staff are signed up to, the academy becomes a scheduled employing body, and the incidence of fund deficits is increasing. Brexit uncertainty has led to low returns on investment, meaning most academies are currently running mounting deficits. A deficit on the LGPS does not mean there is an immediate need to pay out substantial sums, but many academies are understandably concerned about what will happen long-term. The academy is responsible for remitting

employer and employee contributions to the administering authority, although a payroll provider may do this on its behalf. If there is a deficit in the pension fund, the SORP requires that

the academy’s statutory accounts show the deficit as a liability in the balance sheet. Although the total deficit can be substantial, the Charity Commission has advised that even if the liability exceeds the academy’s assets, it doesn’t mean the academy is trading while insolvent. This is because the deficit is being reduced by the contributions made, using the grant payable to the academy. A thorough analysis of an academy’s finances

can reveal better ways to increase efficiencies and make savings in order to plug the deficit.

Accounts direction The Education and Skills Funding Agency releases an annual Academies Accounts Direction document, which offers guidance on academies’ financial reporting. It’s important for academies to keep track of the guidelines, even though the document often contains only minor technical changes. This year, for example, purchases of alcohol or excessive gifts as a thank-you to staff will be classed as irregular expenditure. A significant change this year is a new

requirement to include information on trade union facility time to comply with the Trade Union (Facility Time Publication Requirements) Regulations 2017. This requirement applies where trusts have more than 49 full-time equivalent employees throughout any seven months during the reporting period. Financial statements now need to include information on trade union activities; the number of employees who were relevant union officials; and the percentage of time spent on facility time.

Professional help Running an academy can be a minefield in terms of accounting. Dealing with pension schemes, VAT, corporation tax, statutory audits and payroll processing, while trying to manage deficits, requires a high level of expertise. With funding an increasing concern for all

schools, consider seeking the help of a professional accountant with specific expertise in academies to help guide your academy through these challenging issues.

uFor further information on the range of services Perrys provide to the education sector, please visit:

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