At Sutton McGrath Hartley Chartered Accountants & Registered Auditors (SMH) we work closely with schools that are looking to convert their school to an Academy, and with those schools that have already converted.
This page, together with ‘Academy Schools: A guide to conversion’, should provide you with an easy to read summary of the main issues Academy schools face.
However, for those of you needing a more in depth understanding, we have provided a list of recommended sources for research here.
- The Company
All Academy Trusts operate through the medium of a ‘Company limited by Guarantee’. They are therefore subject to Company Law, and must submit accounts on an annual basis to Companies House.
All such companies have a ‘memorandum of association’, ‘articles of association’, ‘members’, and ‘trustees’.
The following are some of the key concepts relevant to ‘the company’:
As well as being subject to Company Law, Academy schools also have charitable status and must therefore comply with Charity Law and Charity accounting guidelines for management and reporting purposes.
However, they are exempt from the requirement to register with the Charity Commission or submit accounts to the Charity Commission.
Memorandum of Association
Amongst other things, the ‘memorandum’ sets out the objectives of the company, details each member’s interest, and states the extent of each member’s liability for company debt (usually limited to a nominal £10).
Articles of Association
These are the rules which set out how the company is governed.
The members are the persons who subscribe to the company’s memorandum of association. They are not necessarily also the trustees (and it is best practice that they are not), but they do have the power to appoint or remove trustees. Members must also not be employees.
The words ‘Trustee’, ‘Director’ and ‘Governor’ can be used interchangeably in a Single Academy Trust.
However, in a Multi Academy Trust (MAT), the term governor usually refers to a local governor of an individual academy, and not necessarily a director/trustee.
The Trustees control the Academy’s management and administration, and must act in accordance with the Articles of Association & relevant law, whilst also observing best practice and guidance.
Trustees’ duties include:
- The exercise of reasonable care, skill and diligence
- Use of independent judgement
- Avoiding conflicts of interest
- Promoting the success of the trust
The trustees must appoint an ‘accounting officer’, who should be the executive leader of the trust, who has the personal responsibility for signing a ‘statement of regularity, propriety and compliance’ for submission to the EFA each year, along with the audited accounts.
In the case of a Multi Academy Trust, the trustees are likely to include representatives from each of the member schools, but trustees may also delegate certain duties to ‘local governing bodies’ which are not comprised solely of trustees.
- Accounting Issues
There are a number of specialist software packages for Academy schools, which can greatly vary in price. There are also some generally available commercial software packages, such as Sage or Xero (which is cloud based), which have been tailored to work just as well for academies.
Provided your chosen software facilitates the provision of accurate and meaningful reports and represents good value for money you should use the package you are most comfortable with.
New accounting period
The conversion to Academy status means closing your old accounting period on the date of conversion and starting a new one (even if the conversion takes place in the middle of an academic year).
If you intend to change your software, this is the ideal time to do so.
Accounting reference date
All Academy schools are required, by the DfE, to have a reporting date of 31 August.
However, a company’s first accounting reference date will automatically default to one year after the end of the month from incorporation; for example, a company incorporated on 18th April 2017 will have an accounting reference date of 30 April 2018.
So, unless the company is formed in August the accounting reference date will need to be changed soon after incorporation.
The Academy will need to agree the value of assets & liabilities acquired from the local education authority, and then enter those balances in the accounting records of the Academy.
These entries will include bank balances, fixed assets and any stocks taken over from the Local Authority.
You will also need to record how you spend the start-up grant of £25,000, both for submission to the DfE and for writing up your accounting records. The grant is intended to help you cover conversion costs such as new software, company formation, advice on governance, transfer of leasehold etc., but any unspent funds can be retained by the Academy.
The importance of a properly structured nominal ledger & chart of accounts
The nominal ledger in your accounting software should be organised in a way that allows you to analyse, summarise and report in a meaningful way.
If you get this right, it should be easier to monitor performance, safeguard assets, and produce reports that demonstrate compliance with the terms of your funding agreement, your Articles of Association and ‘EFA accounts directions’.
A new bank account
The School must open a new bank account, in the name of the new Academy, to receive its funding.
The Academy is responsible for its own insurance from the day of conversion.
You will need to either:
- Obtain adequate insurance cover from a commercial provider; to cover land and property, business interruption, employer’s liability, vehicles etc.
- Opt into the government’s ‘Risk Protection Arrangement’ (RPA) (from September 2016 the cost is reduced from £25 per pupil to £20 per pupil)
- The RPA does not cover some items, such as motor vehicles cover.
Fixed Asset Register
You must create and maintain a Fixed Asset Register, to record the nature and value of all assets transferred from the Local Authority and any subsequent additions, disposal, depreciation etc.
Teaching staff are members of the National Teachers’ Pension Scheme and non-teaching staff are members of the Local Government Pension Scheme (LGPS).
You will be obliged to continue membership of both schemes, and whilst both Schemes are ‘final salary schemes’, there are significant differences in funding them.
The Teachers’ Pension Scheme is an ‘unfunded scheme’, which means benefits are paid out by the government from central funds , so other than to make its regular contributions and to reflect those payments in the Statement of Financial Activities, the Academy has no further obligation.
By contrast, a Local Government Pension Scheme is a ‘funded’ scheme, which means that the Academy is responsible for ensuring it is sufficiently well funded to pay out all the accrued benefits.
Ensuring that you will be able to do this entails obtaining annual actuarial valuations to assess whether there is a surplus or a deficit in the pension fund and adjusting contributions accordingly.
The surplus or deficit will be reflected in the Academy’s Balance Sheet. However, the liability is underwritten by the DfE, so should never become payable by the academy.
All Academy’s must have financial policies to govern procedures for the management and allocation of resources and the approval of expenditure.
In the case of a Multi-Academy Trust it may be easier to try and manage with one set of consistent policies and procedures, but the overarching aim of the policies should be to ensure that they are effective, so in some cases it may be appropriate to adapt the main policy to accommodate the needs of an individual school or schools.
Many schools will have separate funds for specific expenditure on such things as school trips.
Such funds must be included in the statutory accounts if they are under the same control as the day to day budget.
Alternatively, if the fund is not controlled by the academy, it is possible to register these funds as individual charities with the Charity Commission and if that is the case they need not be included in the statutory accounts.
In most cases the school fund should be included in the statutory accounts, and many academies actually find this easier to maintain throughout the year.
The ‘accounting officer’ is ultimately responsible for the success of financial control systems which allow for proper oversight of financial transactions.
Amongst other things, the control systems must ensure that:
- Full and accurate accounting records are kept
- Key accounting duties are segregated to help prevent error or fraud
- Assets in general are safeguarded
The trust must also appoint a ‘chief financial officer’ (the equivalent of a finance director) to lead on implementation and monitoring of the Academy’s financial management.
All of the trust’s accounts staff must be appropriately qualified and/or experienced.
The trustees must approve a balanced budget each year, then consider actual information on financial performance at least 3 times a year, taking action wherever it is appropriate.
- Annual Audit
Academy trusts must prepare statutory accounts on an annual basis and have them audited each year by an external auditor in accordance with the Companies Act 2006.
It is important to note that this process needs to be carefully managed because of the limited timescale for completion, so a suggested timetable for the preparation of accounts and the audit process is outlined below. However, we do understand that each academy is different and we are flexible to work around the dates which suit you.
In addition, the auditor must comment on the accounting officer’s ‘statement on regularity, propriety and compliance’. This statement confirms that the Academies Financial Handbook has been adhered to and the internal controls are adequate and effective.
|Interim audit visit||Academy / Auditors||Spring term|
|Pre year-end meeting||Academy / Auditors||July|
|Final Trial Balance supportive schedules and trustees report to auditors||Academy||30 September|
|Audit planning||Auditors||Early October|
|Auditors testing on site||Academy / Auditors||Mid-October|
|Draft accounts to Audit Committee / Chief Finance Officer||Auditors||Early November|
|Meeting between Audit Committee / Chief Finance Officer and Auditors to review audit points||Academy / Auditors / Trustees||Mid-November|
|Final accounts to Trustees for consideration||Academy / Auditors / Trustees||Early December|
Value Added Tax (VAT)
Academies have two ways of reclaiming VAT on costs incurred in running the School.
- The Academy may voluntarily apply to be VAT registered, and then submit monthly or quarterly VAT returns to HM Revenue and Customs.
As a VAT registered organisation, the Academy must charge and account for output VAT on goods and services it supplies as well as reclaiming VAT incurred.
- Alternatively, it can reclaim VAT on costs incurred in the running of the school by means of a ‘Section 33 claim’ (also known as a VAT126), but this limits the Academy to the recovery of VAT on purchases made wholly and exclusively for the provision of education.
- NB. Academies will be obliged to register for VAT if their ‘taxable supplies’ exceed the VAT registration threshold, and it is very likely that Multi Academy Trusts will exceed the threshold.
If an Academy is VAT registered, a ‘partial exemption calculation’ will be necessary in order to calculate the amount of VAT that can be recovered.
Pay As You Earn (PAYE)
The Trust will need to register for a PAYE scheme in order to account for tax and national insurance deducted from staff pay to HMRC. For a Multi Academy Trust it is usually recommended that one PAYE scheme is set up and the payroll function is centralised.
Academies are not liable to Corporation Tax on the income received from central government, but they can become liable if they undertake a significant level of trading activities in order to generate some additional income.
For example, activities such as letting school buildings or provision of catering services may be classed as trading activities by HMRC
If income from trading activities exceeds £50,000, the Academy may need to set up a subsidiary company to manage the trading activities, but any tax liability can be mitigated by donating profits to the Academy.
- Filing Deadlines
a. Department for Education: 31 December following the end of the August accounting period
b. Registrar of Companies: Usually 9 months after the year end, i.e. 31 May.
However, the first filing date at Companies House for new Academies is the sooner of 9 months after the accounting period end and 21 months from the date of incorporation.
c. Corporation Tax Returns: 12 months after the end of the August accounting period, i.e. 31 August of the following year, if required.
NB. Corporation tax returns may not be required every year for each Academy.
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