Accounting
Look after the pennies
Almost half of independent school staff expect spending to be cut over the coming year, according to an ATL survey. Andrew Lees looks at ways to improve the bottom-line through a strategic look at costs and supplier bases
Independent education in the UK is a serious business and accounts for a large part of consumer spend per annum. However, it is not immune, of course, from the effects of wider economic fluctuations. The outlook is double-edged. On the one hand, there is a huge opportunity with growth in the target market from a burgeoning professional class dissatisfied with a largely demoralised and highly regulated state sector. On the other hand, the number of rival schools entering the market itself is growing, increasing the competition.
Mind the gappers
Many schools offer work experience to gap-year students (gappers) and others such as postgraduates. They tend to be low-pay or no-pay positions. Lorraine Owens explores the employment and tax status of these individuals
Schools have a wide range of titles for gappers and others, but it is important to be clear about their status to ensure that you correctly categorise them for tax and employment law purposes. It matters not what you call them, the facts of each case must be reviewed. Are your gappers volunteers, voluntary workers or workers? It is crucial that you determine this point and you may need to seek employment law advice in this regard.
Rates of exchange
Salary sacrifice is a mechanism to renegotiate remuneration by swapping an element of a salary for an exempt or tax-efficient benefit. In this second part, Lorraine Owens clarifies which other benefits are covered by the scheme
For a salary sacrifice to be effective, two conditions must be met: the potential future remuneration must be given up before it is treated as received for tax or NIC purposes and the true construction of the revised contractual arrangement between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit.
Trading places
Salary sacrifice schemes offer an appealing way of achieving cost savings for independent schools. Lorraine Owens explains what they are, how they work and investigates the potential benefits enjoyed by staff
Salary sacrifice schemes are well established and accepted by HM Revenue & Customs (HMRC) as a legitimate planning opportunity. A salary sacrifice occurs when an employee gives up their right to receive part of the cash pay due under their contract of employment in return for the employer’s agreement to provide the employee with some form of non-cash exempt benefit. The “sacrifice” is achieved by varying the employee’s terms and conditions of employment relating to pay.
The visitors
Visiting teachers can be engaged on an employed or self-employed basis. But the responsibility for determining their exact status for tax purposes is with the school, not the visiting teacher, warns Lorraine Owens
It matters not one jot the status someone says they have or how another school is treating them, if they are deemed by your HMRC office to be employed, any liability will be that of the school, not the visiting teacher.
Cutting your cloth
Independent schools are under continuing pressure to retain pupil numbers as parents' disposable incomes are squeezed. David Barnes reports
As a result of the challenging economic environment, independent schools must be ruthless in their cash management to survive the coming months. One way of retaining financial control is to exercise scenario planning, as creating a model to forecast for situations enables objective decisions to be made to mitigate the impact of change. For example, the school must know the number of pupils needed to break even and the number needed to turn a profit. It must also decide on the actions it would take if numbers begin to fall, and to ensure its planning would enable these actions to be taken quickly, to correct the situation before it becomes terminal.
Hard times
The past year has seen the collapse of the banking sector, declines in the property market and unemployment at its highest level since 1995. Tracey Young reports on how your school can withstand the impacts
We are in the midst of turbulent times. The question is whether this will be a short-lived recession with a swift recovery or long and protracted with a slower recovery. Unfortunately, irrespective of the length of the recession, the independent schools’ sector is likely to suffer for longer, recover later and feel the repercussions for many years to come.
Home rule
Now is the perfect time for an internal audit. Clive Malcolm outlines the potential risks facing independent schools over the coming months and explains the pitfalls of not carrying out an internal review
The credit crunch is starting to bite throughout the economy and independent schools will not be exempt from its effect. Although the first indicators are that pupil numbers are holding up in 2009, some schools are seeing a decline in numbers as parents take stock of their financial position. Lower numbers mean that it will be harder for schools to cover fixed costs.
The percentage game
The recent change in the VAT rate will affect many operational aspects of independent schools. Steve Hodgetts provides this Q&A to illustrate the key issues that all bursars should review immediately
Q: What does the VAT rate change mean for my school?
A: Independent schools mainly make exempt supplies of education. Therefore it might seem that the
VAT rate change will not have too great an impact. However, as schools cannot recover a large proportion of the VAT they incur on purchases, the decrease in the standard rate of VAT from 1 December 2008 is good news. The 2.5 per cent decrease will mean that the cost of overheads will drop proportionately.
Taxing issues
Independent schools face a complex web of tax requirements, as Graham Batty reports
There is a popular myth that charities do not pay tax. Indeed Keith Moore, the head of HMRC (Charities), recently said that charities should pay no direct tax (corporation tax and income tax). What perhaps he should have said, of course, is that charities, including schools, should not pay any direct tax provided they work within a complex web of very specific exemptions.
On the button
To run an organisation effectively, you need a mechanism to control expenditure within an agreed framework – the budget. Controls need to be robust, widely accepted, communicated and understood, says Mark Taylor
Having started my bursarial career 13 years ago, I have witnessed and trialled many budgetary methods. Effective budgeting is not rocket science but does require a process and system that supports and delivers the key requirements of the school. It is vital that the budget-setter is fully in tune with the ethos and educational direction of the school and not there to apply an inappropriate commercial template over a sometimes quite complex organisational requirement.
Financial monitoring
Financial monitoring is vital for both governors and bursars. These measures will help them use the school’s financial information more effectively. By Adam Halsey
Focus for governors
Governors should focus on strategic and long-term matters. Micromanagement should be avoided and the measures used should be consistent with their responsibilities.
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Reserves
The Teachers’ Pension Scheme is not accounted for under FRS 17, but balances on other defined benefit schemes may well have been brought onto the balance sheet for the first time this year. This feature considers the impact on reserves. By Stephen Fisher
How do we show the deficit in reserves?
In accordance with SORP 2005, a separate pension reserve is disclosed. This reserve is a debit mirroring the liability within net assets and it will be in unrestricted funds unless elements can clearly be allocated to restricted funds.
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A matter of VAT
Many schools set up their own trading companies for a variety of purposes. But, according to Steve Hodgetts, it is important to review them as they may not be the appropriate means to achieve the school’s original aims
Independent schools have historically channelled their trading activities through a subsidiary company, given the direct tax limits on trading outside their charitable objects and the restrictions placed on trustees.
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Taking audit into account
Governors must find ways of benefiting from the implementation of best practice in their school governance while limiting the cost impact of the new International Auditing Standards. Sandra De Lord explains how
Many independent schools will now be facing their first annual audit under the requirements of International Standards on Auditing (UK and Ireland) (ISAs). These standards have brought a shift in emphasis in particular aspects of auditors’ work, which have implications for the way audits are conducted and also for the cost of the audit process.
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Getting the breaks
Non-charitable independent schools face different financial challenges to their charitable counterparts. Henry Briggs shows how these proprietor-operated schools can improve their margins by judicious savings in tax
Although 80 per cent of schools are registered charities, it is also the case that there are still many schools that are run privately, for profit. Most of these are in the pre-prep and preparatory school sectors, with a high proportion of them in the wealthier catchment areas of large cities.
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Brought to account
Choosing the right accounts/accounting package can be a daunting process. Clive Gutteridge, bursar of Appleford School in Wiltshire, outlines the key attributes to look for and reveals his preferred software package
Before buying a software package, a key decision to take is whether to buy a whole school administration software package (including an accounts sub-package), or a specialist finance package (which may or may not be linked to a school admin software package). I have used both – each has its pros and cons.
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Home truths
Providing living accommodation for staff, particularly in areas with high property prices, is creating a headache for some schools. Anne Gregory-Jones reviews the issues facing those schools and assesses the potential liabilities
Traditionally, at least for schools with pupils that board, it has been necessary to have certain members of staff living in or near the school to provide proper care for the pupils and security for the building. Generally, HM Revenue & Customs (HMRC) has accepted that for certain designated members of staff – such as the head, matron, bursar, housemasters etc – no taxable benefit arises on the provision of living accommodation for these employees. This is usually referred to as “job-related accommodation”.
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Must do better
Are you a bursar who has just taken over a failing school or of one that has been marking time for much too long? Clive Gutteridge sets out a step-by-step strategy to help reverse the school’s misfortunes
So you passed the interview and have started as the bursar of St ABC’s School. The chair of governors told you that the school was in a good financial state and you quite liked the headmaster, but you now find that the school hasn’t made a surplus for eight years: what do you do?
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All change?
A school’s internal culture is critical not just for how it runs from day to day, but also how effective it is financially. Clive Gutteridge provides measures to transform a sluggish staff room
When visiting a school as a Recognised Advisor (Inspector) with the Independent Schools Inspectorate, or talking to a fellow bursar, I have often heard the dreaded words: “But our staff isn’t interested in change or improving”. This resistance can be found in the teaching or support staff; but hopefully not both at the same time.
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