Making it all add up

What is striking about advising clients in the independent schools sector is that while each has its own unique ethos, history and approach to delivering the best for its learners, many of the financial issues are common to all institutions – large and small.

These issues include managing annual school fee levels over the last few ‘austerity’ years and going forward: current pressure is for a larger than inflation increase in fees to cover increasing costs, notably on pensions. Most schools’ largest cost is staff, where recruitment and retention is a key HR issue – since excellence in teaching does not come cheap. In addition, most institutions in the sector are linked to the Scottish Teachers’ Superannuation Scheme, which has required a 2.3 percent hike in employer contributions from 1 September.

For charitable bodies, as these schools generally are, there is a fine balance to be struck: the need to ensure the best education is provided without ‘over-stretching’ or falling into deficit and whilst generating surpluses to help re-invest for the future.

These factors regularly demand the attention of bursars and finance staff and it’s clear that a one-size solution does not fit all. The variety of establishments – featuring single sex and co-education, day students, boarders, international students (and related English as a foreign language considerations) and a remarkable variety of physical estates (many listed and therefore difficult to maintain and develop) – creates bespoke issues. Many institutions use trading subsidiaries to make full use of their assets and generate additional funds – often with non-term accommodation and facility lets. What the institutions are good at is finding solutions whilst continuing to focus clearly and develop student learning opportunities.

An example of this is Glenalmond College in Perthshire, which has a £4m development programme to improve facilities and infrastructure. Many schools are able to raise and generate funds for this type of activity from within existing reserves and specific fundraising activities, but in addition to these sources, the college was able to work with its bank to raise extra funding. This illustrates that the sector operates in a competitive commercial environment and is sufficiently robust to ensure strong support from bankers.

The challenge to maintain and improve student numbers has required schools to look further afield; most boarding schools now use overseas agents to help source overseas students and this can throw up other opportunities – for example, educational partnerships – but also some challenges – the impact of UK VAT accounting on these overseas agent fees. In fact, whilst one might be forgiven for thinking that, as charities, most schools would have little to worry about on the tax front, the opposite is often the case. Finance staff regularly deal with detailed VAT reliefs, Gift Aid and PAYE and benefit-in-kind issues and compliance needs, adding to the daily demands of their finance function.

In addition, there is a growing political pressure to lose the benefit of an 80 percent non-domestic rates relief available to charities – said to be worth around £10m to the sector in Scotland. Should the relief be lost – through the loss of charitable status – it is likely that independent schools would significantly cut back on support to scholarships and fee reliefs and remissions. This support currently provides good evidence that the schools demonstrate and meet the ‘public benefit’ test, a cornerstone of the charity sector, monitored closely by the charity regulator OSCR. Schools will also continue to highlight the benefits they bring to the wider public through community use of their facilities and the significant ‘value-add’ to the wider economy – supporting direct and indirect employment.

These combinations of financial challenges mean that the work of the school bursar or finance team is very seldom ever done and there are no signs of that changing in the near future.

Alan Davis is a partner and education sector head at Henderson Loggie Chartered Accountants W: hlca.co.uk