In recent years, schools and institutions across the globe have considered converting to academy status. An academy is an independently-run institution that receives public funding but operates outside of local authority control. While there are many benefits to becoming an academy, it’s crucial to understand the financial implications before making the transition. In this article, we will explore the financial side of becoming an academy, including the costs and benefits associated with this decision.
1. Funding
When a school becomes an academy, the way it receives funding changes significantly. Instead of receiving a budget from their local authority, academies receive a general annual grant (GAG) directly from central government. This allows academies more autonomy in how they allocate resources. Additionally, academies can apply for various grants, such as the Condition Improvement Fund (CIF), which aims to support building maintenance and improvements.
2. Financial management responsibilities
Academy trustees must manage finances in accordance with their funding agreements and establish robust financial controls. This includes setting an annual budget and producing regular financial reports. Academy trusts also require external audits annually and must submit financial statements to the Education & Skills Funding Agency (ESFA).
3. Conversion costs
The process of converting to an academy comes at a cost. Schools must invest in legal advice, restructuring, staff training, and other necessities during the conversion process. The government provides a £25,000 conversion grant meant to cover these expenses; however, some schools find these costs exceed this amount.
4. VAT obligations
As non-profit charitable trusts, academy schools can reclaim VAT on specific expenses such as gas and electricity or non-business related activities. However, they must also submit regular VAT returns to HMRC to ensure compliance.
5. Payroll
Academies have greater flexibility when it comes to staff pay scales and conditions of employment than traditional state schools. However, this also means that academies must manage their own payroll and ensure compliance with regulations, such as pension contributions and income tax.
6. Financial autonomy
One significant advantage of becoming an academy is the increased financial autonomy and flexibility it offers. By being free from local authority control, academy trusts can determine resource allocation and prioritize projects according to their specific needs.
7. Increased collaboration potential
Becoming an academy opens the door to collaboration possibilities. Multi-academy trusts (MATs), for example, allow academies to pool resources and share expertise across a network of schools. This can result in greater financial efficiency and more effective resource utilization.
The decision to become an academy should not be taken lightly. Schools must carefully consider whether the benefits, such as financial autonomy and increased flexibility, outweigh potential drawbacks and the added administrative responsibilities. Full comprehension of the financial implications involved is critical for those considering academy status, so choose wisely when evaluating your institution’s future direction.
