The changes made to the Academy Trust Handbook this year, and which apply from 1 September 2022, are less extensive to the changes which we are used to seeing, and fall within the following areas:
- Financial reporting
- Special payments
- Religious character: extending the scope from dioceses to all religious authorities in relation to ‘at cost’
One of the biggest changes stemming from the updated Academy Trust Handbook 2022 is the change which has been made in respect of obtaining ESFA approval for entering into indemnities.
In an agreement, an indemnity is used to ensure that one party will recompense the other for any loss or liability which is incurred by that other party. It is a commonly used means of remedying a situation where one party should not have to bear a loss, particularly where the risk is created by the party providing the indemnity. In the case of academy trusts, indemnities will often be provided by the academy trust when entering into contracts such as catering and cleaning contracts.
In accordance with the updated Academy Trust Handbook 2022, academy trusts must obtain the ESFA’s prior approval to enter into indemnities which are not in the normal course of business, as well as to write off debts and losses and to enter into guarantees or letters of comfort, where certain financial limits are exceeded:
- The smaller of 1% of the academy trust’s total annual income or £45,000 per transaction
- Cumulatively, 2.5% of total annual income (up to a maximum of £250,000) in any financial year per category of transaction for academy trusts that have not submitted timely, unqualified accounts for the previous two financial years. This includes where a new trust has not had the opportunity to produce two years of audited accounts, or 5% of total annual income (up to a maximum of £250,000) where a trust has submitted timely, unqualified accounts for the previous two financial years
Prior to the most recent updates to the Academy Trust Handbook 2022, ESFA approval was always needed when entering into an indemnity in excess of the limits set out above. In what is seen by the sector to be a sensible change, the necessity to obtain ESFA approval will now only apply where providing the indemnity is not in the ‘normal course of business’.
Whilst this means that ESFA approval will be needed less frequently, it does mean that academy trusts will have to carefully consider whether providing an indemnity is in the ordinary course of business in each instance.
For academies with a religious designation, the provision of services to protect and develop their religious character and ethos, which can only be provided by their religious authority, are regarded as meeting the “at cost” requirement.
In addition, changes have been made to the Academy Trust Handbook in respect of financial reporting. The Budget Forecast Return Outturn will be withdrawn, with the Academy Trust Handbook 2022 confirming that academy trusts must submit an academies budget forecast return (BFR) each July in accordance with deadlines published annually. The ESFA has a specific form to be used, which must be approved by the trustees before submission.
Furthermore, in accordance with HM Treasury’s Guidance on Public Sector Exit Payments, academy trusts must now obtain prior ESFA approval before making a special staff severance payment only where an exit package which includes a special severance payment is at, or above, £100,000, and/or the employee earns over £150,000.