What provisions should academy trusts follow?

Throughout 2023, Price Bailey’s Academies team will be hosting a series of Regulatory Insight webinars aimed at supporting academy trusts.

In a recent webinar, Tom Meeks, Head of Our Academies team, explored the roles and responsibilities of academy trustees further and in our first article following this webinar, we set the background for the responsibilities of academy trustees by outlining the key provisions and legislations which govern the trustee role.

What is the legal status of an academy trust?

It is:

• a separate legal entity
• an exempt charity –The Education and Skills Funding Agency is principal regulator
• a Limited Charitable Company (limited by guarantee not by share capital)
• governed by the Memorandum, Articles of Association and the funding agreement with ESFA

Academy trusts also have a requirement to file documents at Companies House, and even though they do no operate for profit, they are potentially still part Corporation Tax regime if they generate income from trading activities that are not strictly in line with its educational objects.

So, what is a Limited Charitable Company?

Quite simply, it’s a company with charitable objects. Whilst some income streams for academy trusts are liable to Corporation Tax due to not meeting charitable objectives, most are still recognised as ‘charitable’ by HMRC, and therefore the vast majority of trusts do not pay any Corporation Tax on surpluses generated each year. Once they are recognised as a charitable organisation by HMRC, on average they only submit a Corporation Tax return to HMRC every 5 years.

Academy trusts are registered with Companies House and have limited liability, meaning as a member or trustee you are never personally responsible for any liabilities that the academy trust may incur. They are also able to hold property and enter into contracts with their legal identity, rather than the schools identity.

What are the key provisions of the Articles of Association?

We often receive questions from our clients relating to governance, and in many cases, the Articles often contain the answer when it comes to questions about academy trust governance and trustee responsibilities. Within the Articles, the three bullet ‘Objects’ below are applicable to the majority of academy trusts:

• To advance for the public benefit education in the United Kingdom
• To establish, support and co-operate with other institutions formed for the furtherance of the objectives
• In furtherance of the Objects but not further or otherwise the Academy Trust may exercise the following powers: to provide educational facilities and services to students of all ages and the wider community for the public benefit.

As well as highlighting what you can do, the Articles of Association also highlight what you cannot do. This includes, provision against remuneration or benefits for trustees except where expressly authorised.

Whilst there are clauses within the Articles of Association that may come across as legally termed and daunting, fundamentally they exist to guide and direct members and trustees.

Key provisions of the Articles of Association include

• Trustees are appointed by Members of the Academy Trust
• The Trust is run by Trustees (also known as Directors) who may exercise all powers of the Academy Trust, albeit these are mostly delegated to the executive leadership team.
• Minimum of 3 Trustees but no maximum
• The Chief Executive Officer may be a Trustee (although, the ESFA preference is for no staff trustees)
• There must be at least 2 parent Trustees (if no provision for parent governors on Local Governing Bodies (LGB’s)
• Their term of office is 4 years but they may stand for re-appointment
• Trustees may appoint LGB’s and any other committee

Legal and reporting framework hierarchy for trustees

The regulatory landscape of an academy trust is multi-faceted, and you must comply with guidance from a range of sources, including:

• the Companies Act 2006,
• the Charities Act 2022, and
• the Education Act 2011.

The Memorandum and Articles of Association, state you must comply with the Funding Agreement. This document states you must comply with the Academy Trust Handbook, and the Academy Trust Handbook states you should comply with the annual Academies Account Direction.

In terms of the reporting framework for financial information, the Companies Act 2006 sets out the statutory form of annual accounts, and the numbers that appear in your annual accounts are governed by the Financial Reporting Council (FRC) which convert the Companies Act requirements into detailed Accounting Standards.

These are supplemented by the Charities SORP ((FRS 102), and the Charity Commission translates these standards into their own form that is suitable for the charity sector. To wrap up the varying legislation, the ESFA created Academies: Accounts Direction which provides auditors and trustees with an idea of the form of content of your academy trust’s financial statements.

For the trustees of an academy trust, it’s important that the underlying legislation which governs the responsibilities of their role is fully understood and adhered to in order to provide confidence that trustees are fully complying with key requirements of the law.

In the next part of our Regulatory Insight series, we outline the responsibilities of members, governors, directors and trustees in more depth.