A focus on capital income and expenditure

The 2021 Kreston Academies Benchmark Report includes data on capital income. There was additional School Condition Allocation Funding (SCA) for 20/21 which equated to 46% of the standard allocation for each MAT. 

This helped pushed the average total income per pupil in a MAT up by 7.8% to £7,532 (2019 - £6,985).

There was also additional Condition Improvement Fund Income of £182M for the sector which helped push up the average total income per pupil as follows:

Secondary £5,030 (2019 £4,931) up by 2%
Primary £3,724 (2019 £3,657) up by 1.8%

Of course these movements are not entirely due to capital grants as there was a loss of other income and additional funding for both teachers’ pay and pensions included in total income.

We know from discussion with our clients that a significant proportion of this income was not spent by the 31 August 2020. This is not surprising given the late notification of the income and the time that it takes to put robust governance in place to properly allocate the spend and undertake procurement.

The spending deadlines for the SCA and Devolved Formula Capital are important as unspent grant must be returned. The time limits to spend this funding before the risk of a clawback occurring are:

• SCA: 2 financial years to March, with year one being the year payment is made.
• DFC: 3 financial years to March, with year one being the year payment is made.

The most critical deadline is for those of you in receipt of SCA in 2019/20 – i.e monies physically received between April 2019 and March 2020 and recognised as income in your August 2019 accounts, must be spent by 31.3.21 (unless you agree an extension with the ESFA).

One of the things we get regular questions on is the use of SCA, here are three of the most common ones:

1. IT - expenditure on IT kit such as computers, laptops, tablets etc would not be eligible for SCA (but are eligible for DFC), but it’s less clear whether ICT infrastructure (servers and other network components, wifi, cabling) would be eligible and each situation needs to be considered individually.
2. Own employee costs such as an estates manager, for the element applicable to SCA spend, would normally be acceptable. 
3. Feasibility studies to look at potential SCA building projects could be acceptable (although you should also consider if such spend would be novel or contentious).

Accounting for capital funding

Linked to SCA is the accounting for capital funding.  The recognition of capital funding is a regular year end adjustment that we see when preparing statutory accounts.  So, some brief reminders:

1. If you have entitlement to funding, it is probable that you will receive it and the amount can be measured with reasonable certainty, that income should be recognised in your accounts in full, irrespective of whether the money has been physically received.  So, for example, the SCA that you were entitled to for 20-21 should have been fully recognised in your August 2020 accounts.  In other words, you should have accrued for any funding not received by the y/e; 
2. Conversely, the fact that you have not spent your funding by the year end, does not mean that you should defer the recognition of the income.  In effect, the accounts will show funds not spent as carried forward fund balances, represented by cash or debtors;
3. The third point to mention is regarding church schools.  The most common treatment where the trust spends money on capital works on diocesan buildings would be to recognise the capital expenditure as a grant made to the Diocese.  That is because, most of the time, trusts will not be recognising Diocesan property on their own balance sheets.  

There is an alternative option, and that is to capitalise the value of works done – similar to leasehold improvements.  However, given that most of the time, premises are occupied under a two-year licence then you would normally need to depreciate over two years.  So in many ways, it’s just easier to treat the expenditure as a grant out in the year the expenditure is incurred.

Governance around capital income and expenditure is an important element of the work of the relevant committee. Each Trust must have a plan of what the grant will be spent on, which should include a contingency fund as spend will rarely go according to plan. The scheme of delegation must be really clear on the approval process for emergency spending too. Capital income must be separate from the other operational income streams and must be reported on separately in the management information as separate funds.