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Academies Sector Update

Buzzacott provide an update on funding, policy, reporting and more...

Posted by Joe Lawson-West | July 13, 2017 | Law, finance, HR

Funding and Finance

- Merger of funding bodies

With effect from April 2017, the EFA and SFA merged to form a single body, the Education and Skills Funding Agency (ESFA). At present Peter Lauener remains as Chief Executive of the new agency, but he has announced that he intends to retire once a replacement is recruited.

- National Funding Formula

Stage 2 of the consultation on the National Funding Formula closed in March 2017. The funding formula was a key part of the Conservative Party’s manifesto at the recent election, and they pledged to significantly amend their funding formula plans so that no school would have its budget cut as a result of the new formula. This would mean that the overall schools budget would need to increase by £4 billion by 2022.

On 17 July, Justine Greening announced that the change in funding formula will go ahead in 2018/19, although for the first two years the formula will act as a guideline, with local authorities maintaining some freedom over how funds are distributed. At the same time an additional £1.3 billion of funding was announced for the schools budget in 2018/19 and 2019/20, this has been achieved largely through cuts in the free schools budget and capital budget, and will allow per pupil funding to be maintained in real terms up to 2019/20.

- 16 to 19 funding: Maths and English condition of funding

The ESFA is seeking to gain a better understanding of the difficulties which Academies and other institutions face in ensuring that all students meet the Maths and English condition of funding. To assist with this they have published an online questionnaire to be completed by all institutions whose students did not meet the Maths and English condition of funding in the 2015 to 2016 academic year. The deadline for completion of the questionnaire is Friday 14 July 2017. The ESFA have assured institutions that the results of the questionnaire will not have an impact on future funding.

- LGPS valuations

The latest triennial valuation of the Local Government Pension Scheme (LGPS) as at 31 March 2016 has now been completed. The deficit in the scheme has reduced significantly to £37bn, from £47bn at the previous valuation in 2013. Overall, the results of the valuation put the scheme in a significantly better position than many expected, although the impact on particular academies will vary depending on location, and a number of academy trusts will see their contribution rates rise in the coming years.

Policy

- Free school meals

The Conservative Party manifesto pledged that universal infant free school meals would be withdrawn, to be replaced by free breakfasts for primary-aged children, however these proposals were dropped from the Queen’s speech as the Government set out its priorities for the coming two-year Parliament.

- Grammar schools

The Conservative Party manifesto promised to lift the ban on the establishment of selective schools. These proposals were not included in the Queen’s speech, and appear to have been shelved. The Department for Education has not confirmed whether an additional £200 million funding to finance the expansion of existing grammar schools will continue. The funding, which was expected to be available over a four year period from 2017/18, was originally announced as part of the ‘Schools that Work for Everyone’ Green Paper in September 2016.

- Sixth form college conversions to academies

The process of sixth form colleges converting to academies has begun, following the initial announcement in the 2015 Spending Review. Three sixth form colleges have already converted, with approximately 20 more currently in the process of converting. The Sixth Form Colleges Association currently anticipates that at least a third of sixth-form colleges will take the opportunity to convert, principally to benefit from a more favourable VAT regime allowing a higher proportion of VAT recovery.

The majority of colleges are expected to set up either as single-academy trusts or as the lead school in a new multi-academy trust. However, colleges rated by Ofsted as ‘inadequate’ or ‘requires improvement’ will not be allowed to set up as new academy trusts, and would be required to join existing multi-academy trusts.

Of the 23 sixth form colleges inspected this year, seven have fallen from ‘good’ or ‘outstanding’ to ‘requires improvement’ or ‘inadequate’, which could mean that some colleges choose not to convert.

- UTCs

The National Foundation for Educational Research has warned that far more needs to be done by the government to support University Technical Colleges (UTCs), and that if further support isn’t provided they will continue to struggle. UTCs have struggled to recruit students in sufficient numbers since they were introduced, and seven have either closed already or announced their plans to do so.

The NFER has identified several areas where UTCs need further support, including ensuring that accountability measures assess UTCs fairly, and ensuring that any systemic disincentives which prevent UTCs from recruiting pupils are addressed.

Financial reporting

- Accounts direction

The Academies Accounts Direction for 2016/17 was published in June 2017. The changes this year are relatively few and include:

·         Clarification of the accounting treatment of apprenticeship levy payments;

·         Guidance on the disclosure and accounting treatment of core funding for academy trusts with ‘Teaching School’ status;

·         Additional guidance on the recognition of buildings owned by a diocese or other religious body; and

·         Inclusion of disclosures required for transfers on conversion and transfers of existing academies into multi-academy trusts.

- Key reporting deadlines

As with previous years, the audited financial statements for academies must be submitted to the EFA by 31 December 2017. In addition, academies must submit their accounts return for the year ending 31 August 2017 in the required format to the EFA by 19 January 2018.

- Budget Forecast Returns

Peter Lauener wrote to Accounting Officers in March 2017 regarding the budget forecast information needed from academy trusts this year. In particular, two Budget Forecast Returns will be needed from this year onwards. 

The reason for the additional requirements is to improve the quality of financial data about academy trusts used to support analysis of cross-government public expenditure. The first return, which was due to be submitted in May 2017 will be used to inform the annual Public Expenditure Statistical Analyses (PESA) published by the Treasury.

The second return is due to be submitted by Friday 28 July 2017 (the same timeframe as in previous years), and the ESFA has published guidance on completing and submitting the return, as well as an Excel workbook to assist with preparation, which is available online.

Regulation

- Ofsted

Amanda Spielman, appointed as Chief Inspector of Ofsted in January 2017, recently spoke at the Festival of Education conference to criticise tendencies to focus on exam results and league tables at the expense of what she called “the real substance of education” putting “the interests of schools ahead of the interests of the children in them”.

She described the responsibility of Ofsted as being to make sure that schools are rewarded for focussing “on the right things” in order to “counteract some of the inevitable pressure created by performance tables”.

- Prevent

Following the recent terror attack in Manchester the Home Secretary, Amber Rudd, has pledged to strengthen the Prevent counter-terrorism strategy to improve its effectiveness. The strategy was recently criticised by the UN Human Rights Council as "inherently flawed" and "inconsistent with the principle of the rule of law"; assertions that were disputed by the Home Office.

Andy Burnham, Mayor of Greater Manchester, has said that the Prevent strategy will be reviewed and replaced in Manchester, following an independent review scheduled to begin in September 2017.

- General Data Protection Regulation

The General Data Protection Regulation (GDPR) coming into force on 25 May 2018 introduces additional compliance requirements for all organisations, including academy trusts. Though it may not necessarily be a requirement to register with the Information Commissioner’s Office (ICO) going forward, academy trusts will need to maintain detailed documentation about their data processing activities and make these available to the ICO on request. GDPR relates to the protection of “personal data” by entities that control or process such data. Personal data is any information related to a natural person that can be used to identify them.

The key changes coming from GDPR are:

· Consent must be obtained to use or process personal data. All consent requests must be prominent, non-ambiguous and not form part of general terms and conditions.

· Data must only be used for the purposes for which the academy trust has been given consent.

· The right of access and the right to be forgotten will mean that anyone can access personal data held about them and can request their data to be deleted; it will no longer be enough just to supress those records.

· Data portability will give anyone the right to transfer their data. Academy trusts will need to be able to provide the data in a structured and commonly used electronic format.

- Apprenticeship Levy

The Government has introduced a new apprenticeship levy which took effect from 6 April 2017. The levy will take the form of a charge of 0.5% of an employer’s “pay bill” (the total amount of earnings subject to Class 1 secondary National Insurance Contributions), which can then be used to fund training for apprentices. There is an annual allowance against the levy of £15,000, which means it will only be payable by employers with a pay bill in excess of £3million.

The levy will be collected by HMRC through the PAYE process and held in the employer’s online apprenticeship service account for up to 2 years. Academies wishing to access the funds in their account will need to register with the apprenticeship service and sign an agreement with the ESFA. The levy can be used to pay for the cost of approved apprenticeship training, but it cannot be used to fund the apprentices’ salaries.

- Reporting on payment practices

 New regulation requiring large organisations to report on payment practices came into force in April 2017, and will affect academy trusts which meet at least two of the following three criteria:

·         Annual income exceeds £36 million;

·         Balance sheet total exceeds £18 million; and

·         Over 250 employees.

Academy trusts caught by this legislation will be required to publish reports every six months on a Government website. These reports will include descriptions of the academy trust’s payment policy as well as a number of statistics including the average time taken to pay invoices from the date of receipt, the percentage of invoices which were paid in 30 days or less, between 31 and 60 days and over 60 days, and the percentage of invoices due within the reporting period which were not paid within the agreed terms.

- Gender pay reporting

New legislation on gender pay reporting also came into effect in April 2017 and will affect academy trusts with over 250 employees.

Academy trusts which are caught by the legislation will be required to publish a report by 31 March each year on their website. The figures to be reported and published include:

·         Mean pay for men and women and the difference between the two;

·         Median pay for men and women and the difference between the two;

·         Mean and median bonus pay for men and women during the relevant pay period; and

·         The proportions of the relevant male and female employees in the lower, lower middle, upper middle and upper quartile pay bands.

- The Modern Slavery Act

The Modern Slavery Act is now in force and will affect academy trusts with an annual income in excess of £36m for periods ending on or after 31 March 2016. Those academy trusts caught by the legislation will be required to produce an annual statement that describes the action taken by the academy trust to eliminate slavery and human trafficking within its supply chain.

- PAYE and off-payroll workers

With effect from 6 April 2017, academy trusts and other public authority entities will become responsible for operating the off-payroll working rules (commonly known as IR35) to any individuals providing contract work to them via a personal service company.

Academy trusts must review each contract held with personal service companies and inform the company of whether the IR35 rules apply to that contract. Where the rules apply, the academy trust will be responsible for operating employment taxes under PAYE. Prior to 6 April 2017, this was solely a responsibility of the personal service company itself.

- Benefits in kind and salary sacrifice

The Government is to consider how benefits in kind (BIKs) are valued for tax purposes, with a particular focus on employer-provided living accommodation. This could impact some academy employees who currently have very low taxable benefits supporting their income, for example: accommodation which has been owned by academy trusts for many years for employees to use are often taxed on a low 1973 gross rateable value.

Some employees choose to have different benefits as part of their remuneration package. The Government has now announced that following its consultation, the tax and employer National Insurance advantages of salary sacrifice schemes will be removed from April 2017, except for arrangements relating to pensions, childcare, Cycle to Work, and low-emission cars. Arrangements entered into before April 2017 will be protected until April 2018, and arrangements for other cars, accommodation and school fees until April 2021.

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