torquay - academy update - july 2016

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  1. 1. Academy Schools Accounting and tax update seminar July 2016
  2. 2. Welcome Sharon Austen
  3. 3. pkf-francisclark.co.uk . Housekeeping
  4. 4. Agenda Accounts Direction 2016 Sharon Austen New information request spreadsheet Steph Brown VAT Update Liam Dushynsky Coffee Regularity Sharon Austen Tax Update Ben Slater Multi Academy Trusts Sharon Austen Q&A pkf-francisclark.co.uk
  5. 5. Accounts Direction 2016 Sharon Austen
  6. 6. Academies Accounts Direction 2016 This session will cover: What has changed for 2016 What this means in practice for the information you will need to provide What other changes you will see in the financial statements pkf-francisclark.co.uk
  7. 7. pkf-francisclark.co.uk . Academies Accounts Direction 2016 FRS102 2015 accounts were prepared under a framework of accounting standards which formed UK GAAP (Generally Accepted Accounting Practice) Complete overhaul this year with the introduction of FRS102 Sounds daunting but in practice the impact on the numbers in your accounts will be minimal.
  8. 8. pkf-francisclark.co.uk . Academies Accounts Direction 2016 SORP 2015 The SORP is the Statement of Recommended Practice which sets out how charities should apply the accounting standards New SORP for 2015 to take account of FRS102, but includes other changes No major impact on the numbers reported, but lots of changes to presentation and formats
  9. 9. pkf-francisclark.co.uk . What is transition There will be reference at times to transition date for FRS102 This is the date at the start of the comparative period for the year in which FRS102 is adopted For all Academies it will be 31 August 2014
  10. 10. pkf-francisclark.co.uk . Key changes Which areas may impact Academy Trusts? Trustees report Changes to the SOFA Balance sheet and cash flow Accounting policies and disclosure requirements
  11. 11. pkf-francisclark.co.uk . Key changes Trustees report Explain arrangements and policies for setting pay and remuneration of the academy trusts key management personnel, including an explanation of any benchmark or parameters / criteria used for setting pay Action: determine key management personnel
  12. 12. pkf-francisclark.co.uk . Key changes Trustees report Describe the main risks to the academy and summarise plans and strategies in place to manage them Action: ensure that risk registers are up to date and that strategies are in place for all key risks
  13. 13. pkf-francisclark.co.uk . Key changes Trustees report Compare actual level of reserves to policy and identify free reserves held Action: check reserves policy in place and appropriate
  14. 14. pkf-francisclark.co.uk . Key changes SoFA Presentational changes to headings / descriptions for various income and expenditure, eg voluntary income now donations Governance costs no longer separately disclosed, but will be included as support costs within charitable expenditure Action: Normal analysis of income and expenditure required FC will deal with the changes
  15. 15. pkf-francisclark.co.uk . Key changes SoFA Comparatives required for all columns now, not just the total Action: None FC will deal with (major headache!)
  16. 16. pkf-francisclark.co.uk . Key changes Balance sheet items Software licences that are separable should be capitalised as intangible fixed assets, where previously would have been under tangible fixed assets Action: Identify value of separable software licences in capital and consider if material.
  17. 17. pkf-francisclark.co.uk . Key changes Balance sheet items If material to the accounts, an accrual is required for accrued holiday pay not taken at 31 August For most trusts this will exclude teaching staff and those on term time only contracts, so usually a small number Action: List staff with holiday year other than academic year. Establish holiday entitlement at 31 August and compare to holiday taken. Consider if material.
  18. 18. pkf-francisclark.co.uk . Other changes Balance sheet items Option to treat value of property at transition as deemed cost Potential to uplift the property value without getting caught by the requirements for ongoing (expensive) valuations Action: Very unlikely to be of interest, if you think it may be, discuss in detail with us
  19. 19. pkf-francisclark.co.uk . Key changes Cash flow Presentational changes only Action: None
  20. 20. pkf-francisclark.co.uk . Key changes Accounting policies Income should be recognised when it becomes probable whereas previously it had to be virtually certain Doesnt affect GAG and most major sources of income May affect academies receiving legacies or gifts Action: Consider if any income is subject to performance related terms or conditions
  21. 21. pkf-francisclark.co.uk . Key changes Accounting policies Policies need to disclose both critical accounting estimates and judgements LGPS assumptions will generally be critical estimates Judgements may include going concern if 16/17 or 17/18 budgets are tight Action: Consider where both estimates and judgements are included in the financial statements
  22. 22. pkf-francisclark.co.uk . Key changes Accounting disclosures Need to disclose total remuneration for key management personnel as a whole KMP broader than Governing Body will likely include all SLT members Requirement to disclose staff governor remuneration remains Action: Identify key management personnel and total remuneration
  23. 23. pkf-francisclark.co.uk . Key changes Accounting disclosures Reinforcement of disclosures around going concern either details of any material uncertainties, or positive confirmation that there are none Must state that the Board have considered a period of at least 12 months from when accounts approved Action: No change to considerations required, need to ensure points above explicitly covered in disclosures
  24. 24. pkf-francisclark.co.uk . Key changes Accounting disclosures All related party transactions must be disclosed Must state whether on an arms length basis, and must have evidence to substantiate where this is stated Action: Continue to identify all related party transactions
  25. 25. pkf-francisclark.co.uk . Key changes Accounting disclosures - LGPS Detailed valuation requirements have changed will be reflected in the report provided A net interest charge will replace expected return on plan assets and interest on pension liabilities Net liability unlikely to be affected Action: Request report under FRS102 rather than FRS17, including relevant comparative disclosures for 2015
  26. 26. pkf-francisclark.co.uk . Key changes Accounting disclosures Commitments under operating leases will now be the total minimum commitment for the term of the lease, not the annual commitment Action: No change in the information required, but disclosures will be different in the accounts
  27. 27. pkf-francisclark.co.uk . Key changes Transition Various notes will be included to explain the transition to FRS102 and SORP2015 There will be a note reconciling opening reserves. In most cases this will only include the pension charge adjustments, and holiday pay if this applies Action: None, FC will deal with this
  28. 28. Academies Accounts Direction 2016 Summary: Fundamental changes to the underlying accounting standards and framework Unlikely to be significant impact on numbers reported The changes will mainly come through in disclosures and formats Review the action points pkf-francisclark.co.uk
  29. 29. pkf-francisclark.co.uk . From 1 July 2016 Annual Confirmation Statements replace Annual Returns Only have 14 days to file (was 28 days) Confirm no changes, or update for changes as required First time will need to include statement about PSC register (Persons with Significant Control) 13 fee to file online, 40 paper return Any queries please contact us Annual Confirmation Statement
  30. 30. New Information Request Form Steph Brown
  31. 31. pkf-francisclark.co.uk We have developed a template to assist with the audit process. It is an alternative to the standard audit request list. Why have we put this together? Who will this apply to? Audit Template Academy Audit Template
  32. 32. VAT Update Liam Dushynsky
  33. 33. VAT Update - Agenda Registration Limits Recharges Common Supplies and Pitfalls Sports Lettings Apportionment pkf-francisclark.co.uk
  34. 34. pkf-francisclark.co.uk VAT Registration Limits Changes from 1 April 2016 Registration 82k 83k De-registration 80k 81k Applies to all business income Includes all schools within a MAT Also includes reverse charges Agents fees Software licences Overseas services
  35. 35. pkf-francisclark.co.uk . VAT Recharges Internal Cost Centres e.g. photocopying, meals Outside the scope External Recharge of time costs for staff Admin and Teachers Consultancy Failing Schools Catering
  36. 36. pkf-francisclark.co.uk . VAT Common Supplies and Pitfalls Supply Liability Pitfall Catering Non-business or taxable Subcontracted out has caused issues, vending machines School Uniform Standard or Zero Reselling at cost assuming closely connected School Plays Exempt or Non-business Requirement to pay changes liability Before & After Clubs Non-business or Exempt Is there a profit motive Construction works Standard or Zero Level of business activity Consultancy Services Standard or Exempt Depends on service provided Staff Exempt, Standard or Non- business Depends to who, what is charged and what they do
  37. 37. pkf-francisclark.co.uk . VAT Sports Lettings Academy School Use Free Non-Business To public Members / non-members Exempt (unless OTT) Trading Subsidiary To public Standard rated if one offs, Exempt if considered land
  38. 38. pkf-francisclark.co.uk . VAT Recovery and Apportionment VAT 126 Relates to: Non-Business Activities Recover in full Business Activities No recovery General (doesnt fit into above) Apportion VAT Registered Relates to: Non-Business Activities Recover in full Business Activities Taxable - Recover in full Exempt - No recovery unless deminimis General (doesnt fit into above) Apportion Bus Mix NB NBTax Mix Ex
  39. 39. BREAK pkf-francisclark.co.uk
  40. 40. Regularity Sharon Austen
  41. 41. pkf-francisclark.co.uk . Introduction What is Regularity? How is Assurance on Regularity Provided? What Should the Academy Trust do? What Work do the Auditors do on Regularity? Problem Areas Identified by the EFA Quick Reminders on Connected Party Transactions, Leasing Transactions and Staff Severance Payments Academies Financial Handbook
  42. 42. pkf-francisclark.co.uk . What is Regularity? In simple terms the academy is handling public funds and should use it for the purposes intended What are you spending it on? What should you be spending it on? Are you following established delegated authorities? Delegated responsibility to the Academy Trust (as detailed in the Academies Financial Handbook and funding agreement) Academy Trust delegates to the Accounting Officer Accounting Officer delegates to academy staff through the scheme of delegation and financial procedures manual
  43. 43. pkf-francisclark.co.uk . How is Assurance on Regularity Provided? National Audit Office require comfort as the academy trust accounts are consolidated into the EFAs accounts Accounting officer signs off a Statement of Regularity, Propriety and Compliance in the annual report: I confirm that I and the academy trust board of trustees are able to identify any material irregular or improper use of funds by the academy trust, or material non- compliance with the terms and conditions of funding under the academy trusts funding agreement and the Academies Financial Handbook 2015. I confirm that no instances of material irregularity, impropriety or funding non- compliance have been discovered to date. If any instances are identified after the date of this statement, these will be notified to the board of trustees and EFA.
  44. 44. pkf-francisclark.co.uk . How is Assurance on Regularity Provided? Auditors sign separate Reporting Accountants assurance report on regularity Limited (negative) opinion required In the course of our work, nothing has come to our attention which suggests that in all material respects the expenditure disbursed and income received during the period to 31 August 2016 has not been applied to purposes intended by Parliament and the financial transactions do not confirm to the authorities which govern them.
  45. 45. pkf-francisclark.co.uk . What Should the Academy Trust do? Maintain and follow a financial procedures manual and scheme of delegation compliant with the Academies Financial Handbook We recommend a Key Financial Controls checklist to evidence compliance (example pro-forma available) Ensure knowledge on the trustee board of the Academies Financial Handbook The above will help enable the Accounting Officer to sign off his/her statements on Regularity, Propriety and Compliance, and the Governance Statement in the accounts
  46. 46. pkf-francisclark.co.uk . What Work do the Auditors do on Regularity? Further guidance in chapter 9 of the Academy Accounts Direction Significant elements are covered by our True and Fair audit work, but additional work undertaken including: Reviewing how the Accounting Officer provides him/herself with comfort to sign off their statements Sample testing on staff expenses and credit card payments Checking the register of governors interests is up to date Reviewing expenditure for items not consistent with running a school Reviewing non-contractual payments to staff
  47. 47. pkf-francisclark.co.uk . What Work do the Auditors do on Regularity? Reviewing borrowings and leases Reviewing purchases or disposals of land and buildings Reviewing write offs of debtors / losses Reviewing connected party transactions at cost Checking whether the academy receives income from external consultancy provided by staff Checking consultancy payments to the senior leadership team Checking MAT central funds are being used appropriately Review of internal audit work / RO reports
  48. 48. pkf-francisclark.co.uk . Problem Areas Identified by the EFA Themes of irregularity identified by the EFA from the prior year were: Lack of prior approval for finance leases (considered borrowing) No statement of assurance for connected party transactions Connected party transactions not at cost Non contractual severance payments made without the required approvals Weak internal controls
  49. 49. pkf-francisclark.co.uk . Quick Reminders Connected Party Transactions Goods / services provided by a connected party: A member or trustee A close relative of a member or trustee (i.e. child / partner) A company / business where the connected party holds more than 20% of share capital or has the equivalent control Any individual or organisation able to appoint a member or trustee Does not apply to employees unless they are one of the above
  50. 50. pkf-francisclark.co.uk . Quick Reminders Connected Party Transactions Must be at cost if cumulative transactions in a financial year exceed 2,500 with a connected party (element over 2,500 must be at cost) Must be properly procured on an open and fair basis, supported by a statement of assurance that the charges do not exceed cost and on the basis of an open book agreement Full cost includes all direct costs (materials/labour) and indirect costs (a proportionate and reasonable share of fixed and variable overheads). There must be no profit element.
  51. 51. pkf-francisclark.co.uk . Quick Reminders - Leases Trusts do not need EFA approval for operating leases (except for land and buildings) as these are not borrowing Trusts must obtain EFA prior approval for: Taking up a finance lease on any asset / duration Taking up a leasehold or tenancy on land and buildings with a term of 7 years or more Granting a leasehold interest or tenancy of any duration on land and buildings Any lease arrangement, even if EFA approval is not required, should maintain the principles of value for money, regularity and propriety
  52. 52. pkf-francisclark.co.uk . Quick Reminders Staff Severance Payments Payments outside of normal statutory or contractual requirements when leaving employment Any payment must be in the best interests of the Trust Any payment should be justified based on a legal assessment of the Trust successfully defending the case If a settlement is justified, it must be less than the legal assessment of the likely award A payment should not be a reward for failure, misconduct or poor performance Delegated authority for non-statutory / non-contractual elements under 50k
  53. 53. pkf-francisclark.co.uk . Quick Reminders Compensation payments Redress for loss or injury Any payment must be based on the facts, legal advice and that value for money will be achieved Delegated authority for non-statutory / non-contractual element under 50k Ex-gratia payments Separate to the above, all ex-gratia payments must be referred to the EFA for prior approval
  54. 54. pkf-francisclark.co.uk . Academies Financial Handbook Updated annually the 2016 version applies to accounting periods from 1 September 2016 https://www.gov.uk/government/uploads/system/uploads/attachm ent_data/file/534149/Academies_Financial_Handbook_2016.pdf Fairly limited changes from the prior year
  55. 55. pkf-francisclark.co.uk . Main Changes Boards of trustees should identify the skills they need and address gaps (including LGBs) Must publish governance arrangements in accounts and on website, including delegation to LGBs Business and pecuniary interests of the accounting officer must be published on the website (even if not trustee), along with members, trustees and local governors Clarification that changes in positions (member, trustee, local governor, chairs, accounting officer, finance officer) must be notified to DoE through Edubase within 14 days
  56. 56. pkf-francisclark.co.uk . Main Changes Variances between budget and actual income/expenditure must be understood Exposure to investment products should be tightly controlled so security of funds take precedence over revenue maximisation A requirement for trusts to have a whistleblowing procedure Trusts should consider opting into risk protection arrangements (unless better VfM can be achieved elsewhere). Linked to this Trusts must implement reasonable risk management audit recommendations made by risk auditors
  57. 57. pkf-francisclark.co.uk . Main Changes Audit committee oversight extends to the controls and risks at constituent academies in a MAT Audit committee oversight must ensure that information submitted to DfE/EFA that affects funding is accurate and compliant (i.e. pupil numbers and funding claims)
  58. 58. Tax Update Ben Slater
  59. 59. Topical Tax Issues Employment status of supply teachers and other staff A matter of fact not a question of choice! Teachers supplied via LA and those located through schools own contacts likely to be employees with all that entails.. Agency workers likely to be self-employed HMRC Manuals give guidance - see http://www.hmrc.gov.uk/manuals/esmmanual/esm4502.htm Some cases are very obvious but many are not! Dont just look at the contract look at the substance behind it. Do actual arrangements mirror the contract? pkf-francisclark.co.uk
  60. 60. pkf-francisclark.co.uk . Topical Tax Issues Do I need a trading subsidiary? If income from trading activities more than 50k per annum, school is liable to corporation tax Does not apply to primary purpose or ancillary trading If you are caught, then a trading subsidiary might be the answer? Also consider commercial risk, VAT, and practicalities of a subsidiary dont let the tax tail wag the dog!
  61. 61. pkf-francisclark.co.uk . Topical Tax Issues Income from lettings is it taxable? Rental income usually exempt if profits applied for charitable purposes But when does letting of a premises become a trade? Let on a regular basis? Provide additional services e.g. conference facilities, IT equipment, support staff, catering, etc? Often hard to determine whether trading each case will depend on facts
  62. 62. pkf-francisclark.co.uk . Rental income or trade? Examples of services Rental Neutral Trade factor Cleaning & preparation of rooms P Arrangement of furniture P Services of reception staff P P Cloakroom staff P Technical staff P Basic refreshments P Topical Tax Issues
  63. 63. pkf-francisclark.co.uk . Topical Tax Issues Fundraising exemption applies for tax and VAT Exempt for tax and VAT for one-off events such as Summer Fairs, ticketed theatre performances and car boot sales Applies to income received including associated sponsorship BUT must not be more than 15 of the same type of event in the same location in a financial year and event must be promoted as a fund-raiser for the school
  64. 64. pkf-francisclark.co.uk . New model Gift Aid declaration wef 6 April 2016 Applies for both single and multiple donations Now must include tax to cover statement: I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax in the current tax year than the amount of Gift Aid claimed on all my donations it is my responsibility to pay any difference. Model forms at: https://www.gov.uk/guidance/gift-aid- declarations-claiming-tax-back-on-donations#declaration-formats Topical Tax Issues
  65. 65. Multi Academy Trusts some thoughts Sharon Austen
  66. 66. pkf-francisclark.co.uk Background As at September 2015, about 15% of primaries and more than 60% of secondaries were academies There were 391 MATs in March 2011 rose to 846 by July 2015. And of these, the number of MATs with 2-5 academies rose from 224 to 517. Government Agenda is clear! All schools to become Academies by 2022.? Local Authorities struggling to provide level of support and challenge previously offered so how do schools get this support? And budgets are being squeezed. Particularly difficult for small Primaries. So Multi Academy Trusts (MATs) might be an answer? Multi Academy Trusts
  67. 67. pkf-francisclark.co.uk What is a Multi Academy Trust (MAT)? A group of schools governed through a single set of members and directors One master funding agreement with the EFA but a supplemental funding agreement for each school One legal entity, with one Mem & Arts One shared ethos and culture??? Multi Academy Trusts
  68. 68. pkf-francisclark.co.uk . Multi Academy Trusts Potential benefits: Improve standards in feeder schools Shared resources/expertise Economies of scale Leadership succession planning BUT planning and due diligence is key. It is a daunting process!
  69. 69. pkf-francisclark.co.uk . Multi Academy Trusts Conversion Various grants potentially available, e.g. 25k grant available per new Academy conversion Sponsor Capacity grant for eligible academy trust to set up/expand/develop typically 50k-100k Primary Academy Chain Development grant for primaries looking to set up a MAT keeps coming and going. Average time to convert over a year! Key considerations: Structure/roles? Policies? Ethos and culture?
  70. 70. pkf-francisclark.co.uk . Multi Academy Trusts Financial Management considerations on conversion What does the Finance function(s) look like? One set of Policies and Procedures? Who keeps what records? Where? Who has what authority? Accounting software? Intra-school charging How many bank accounts?
  71. 71. pkf-francisclark.co.uk . Multi Academy Trusts Financial Oversight and considerations What does financial governance look like? Director of Finance (and Operations?)? Monthly/termly reporting process? How is the central function to be financed? Top-slicing or not? If so, what percentage? Flat-rate or not? GAG pooling? So GAG income can be applied across any academy within the MAT. Rare
  72. 72. pkf-francisclark.co.uk . Multi Academy Trusts What do the accounts look like? One set of accounts per MAT Statement of funds Costs split by school Central services Governor remuneration Related party transactions and connected parties FRS17
  73. 73. pkf-francisclark.co.uk . Multi Academy Trusts Year-end considerations Are charts of accounts consistent across all schools? Consolidation Intra-school transactions Supporting schedules
  74. 74. pkf-francisclark.co.uk . Multi Academy Trusts Conclusions? Planning is key! Impact on governance at the school level how much influence will existing Trustees have? Do their intended roles within the MAT suit their skill-set? Is there a clear ethos and philosophy shared by all? Clarify and challenge the proposed governance, structure, roles and responsibilities under the MAT before joining. Consider especially the impact on the Finance function. What does this look like under a MAT? Appoint someone to drive and manage the conversion process!
  75. 75. Q&A
  76. 76. (c) copyright PKF Francis Clark, 2016 You shall not copy, make available, retransmit, reproduce, sell, disseminate, separate, licence, distribute, store electronically, publish, broadcast or otherwise circulate either within your business or for public or commercial purposes any of (or any part of) these materials and / or any services provided by PKF Francis Clark in any format whatsoever unless you have obtained prior written consent from PKF Francis Clark to do so and entered into a licence. To the maximum extent permitted by applicable law PKF Francis Clark excludes all representations, warranties and conditions (including, without limitation, the conditions implied by law) in respect of these materials and /or any services provided by PKF Francis Clark. These materials and /or any services provided by PKF Francis Clark are designed solely for the benefit of delegates of PKF Francis Clark. The content of these materials and / or any services provided by PKF Francis Clark does not constitute advice and whilst PKF Francis Clark endeavours to ensure that the materials and / or any services provided by PKF Francis Clark are correct, we do not warrant the completeness or accuracy of the materials and /or any services provided by PKF Francis Clark; nor do we commit to ensuring that these materials and / or any services provided by PKF Francis Clark are up-to-date or error or omission-free. Where indicated, these materials are subject to Crown copyright protection. Re-use of any such Crown copyright-protected material is subject to current law and related regulations on the re-use of Crown copyright extracts in England and Wales. These materials and / or any services provided by PKF Francis Clark are subject to our terms and conditions of business as amended from time to time, a copy of which is available on request. Our liability is limited and to the maximum extent permitted under applicable law PKF Francis Clark will not be liable for any direct, indirect or consequential loss or damage arising in connection with these materials and / or any services provided by PKF Francis Clark, whether arising in tort, contract, or otherwise, including, without limitation, any loss of profit, contracts, business, goodwill, data, income or revenue. Please note however, that our liability for fraud, for death or personal injury caused by our negligence, or for any other liability is not excluded or limited. PKF Francis Clark is a trading name of Francis Clark LLP. Francis Clark LLP is a limited liability partnership, registered in England and Wales with registered number OC349116. The registered office is Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF where a list of members is available for inspection and at www.pkf-francisclark.co.uk. The term Partner is used to refer to a member of Francis Clark LLP or to an employee. Registered to carry on audit work in the UK and Ireland, regulated for a range of investment business activities and licensed to carry out reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England and Wales. Partners acting as insolvency practitioners are licensed in the UK by the Institute of Chartered Accountants in England and Wales. A partner appointed as Administrator or Administrative Receiver acts only as agent of the insolvent entity and without personal liability. Francis Clark LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Disclaimer & copyright pkf-francisclark.co.uk