Published
By CPC Helpdesk
Master vendor on the Leasing Services DPS, UniLink have kindly provided the following guest feature, which examines some changes to the ways that schools may use leasing.
In the past, schools have only ever been allowed to use operating leases. This is a lease where risk of ownership of an asset is transferred to a lessor. The classification was evaluated by way of set accounting criteria.
This approach was manageable for most assets that schools used in their day-to-day operation, but did cause some limitation on longer life assets.
This rule was crucial in stopping schools entering into agreements that constituted borrowing (i.e. not an operating lease) and therefore beyond the powers of a school i.e. schools cannot borrow.
IFRS16
IFRS16 is a new international accounting standard being introduced, which will change the way that local authorities recognise leases in their accounts.
With IFRS16 there will no longer be a distinction between finance leases and operating leases. This means that all leases will be accounted for as borrowing on the local authority balance sheet.
Why is IFRS16 being implemented?
The implementation of IFRS16 is across all UK sectors and now adopted by the UK public sector. Therefore, the DfE & ESFA have had to adapt to that change.
Can schools still use leasing?
All leases are now borrowing, but schools do not have the power to use borrowing. However, the DfE have recognised this anomaly and provided a policy to allow schools to continue using leasing lawfully.
The IFRS16 Maintained Schools Finance Lease Class Consent 2024 gives consent for schools to use leases for specific assets used in a school’s day-to-day operation and came into effect on 1st April 2024. Academies will follow suit when the updated financial handbook is released on 1st September 2024.
DfE guidelines
The IFRS16 Maintained Schools Finance Lease Class Consent 2024 document lists the types of assets that have been granted general consent for leasing by the Secretary of State for Education under the Education Act 2002.
Academies
To level the playing field, the same consent has been granted to academies from 1st September 2024.
Leases for academy trusts can still be classified as either operating or finance leases under the Financial Reporting Standard 102 (FRS102) accounting standards used by academies.
Academy trusts may continue taking out operating leases as usual. The Secretary of State for Education has granted prior consent for the types of leased assets listed to allow academy trusts to take out finance leases. The Academies Financial Handbook 2024 should clarify this and academies must continue to operate under these rules.
Learn more about changes to leasing agreements for academy trusts here.
What can schools now do?
Schools now have the flexibility to use a range of leasing options that suit the need and operational requirements of the school. For example, it will allow longer life assets to be funded over a longer period more aligned with their usage. The changes still allow schools if they wish, to use leasing to keep equipment refreshed and up to date and continue outsourcing ownership risk using an operating lease model.
Schools must continue to undertake due diligence of options and ensure value for money as required in the School Financial Value Standards (SFVS) document that must be completed annually by the school governors or trustees.
Seek advice
Schools now have a wide range of options available to them, such as longer lease periods. However, this should not be the only criteria for choosing the type of lease. For example, a finance lease would not be the right choice on desktops computers where a school’s ICT policy is to replace ICT equipment every three years.
Schools are likely to also be bombarded by suppliers and finance providers offering many options, making it very difficult for schools to make the right choice.
Contact UniLink Finance who will provide independent advice and option appraisal. UniLink have a record of over 25 years in the education sector and will be able to discuss all the options available to you and provide valuable appraisal around those options to ensure you make the right decision for your schools. UniLink are also an approved supplier to CPC and manage CPC’s Leasing DPS. To discuss more, contact Phil Harrison via [email protected] or 07973 797 087.