Show me the money: income generation by academy trusts

Many academy trusts raise additional funds to supplement government funding. This article covers points to consider when looking at income generation.

Academy trusts often decide, or have little alternative but to seek ways, to raise additional funds, to supplement the money they recieve from the Government. There are several points to consider when looking at generating additional income, as set out below.

Where could more money come from?

Academy trusts may find additional funds from a variety of sources, including:

• Donations or voluntary contributions from parents, ex pupils and others (e.g. by maintaining an active network of alumni).  Done correctly this also opens up the possibility of claiming Gift Aid on the donation.
• Grant funding, for example from Sport England to pay for or contribute towards the cost of new sports or other facilities.
• Providing consultancy services to other schools, e.g. school improvement and school support. Some schools which have been through significant restructuring or capital projects can offer project management and other advice and assistance.
• Holding fundraising events, such as parents' quiz nights, summer fetes etc, perhaps with a raffle or lottery running alongside.
• Undertaking trading, for example:
  • Selling school items, such as branded merchandise, photographs and uniform.  This includes receiving commission from a preferred supplier who you introduce to parents;
  • Letting out facilities, for example to community groups, nurseries, breakfast clubs, afterschool clubs and sports clubs.  Some schools may have conferencing facilities, fitness suites or leisure centres; or
  • Trading with the general public, such as catering alongside facilities which are hired out the general public.

What activities can an academy trust legally do to raise money?

As a charitable company, the starting point is that an academy trust must comply with its objects, as set out in its articles of association.  The model objects for an academy trust are, generally speaking, to advance education.  This means that, in the first instance, everything which an academy trust does must be to advance education.

Some academy trusts have an additional charitable object, the provision of recreational and leisure facilities for the benefit of the local community, in the interests of social welfare.  This gives those academy trusts more flexibility in the activities they can do to raise funds: they can undertake activities which further education, and also activities which are about providing facilities for the wider community.

Attracting grants and donations for spending on school facilities clearly falls within the model academy trust objects, even if it does not have recreational and leisure option. The real difficulties arise when an academy trust starts to do trading activities i.e. offering goods or services in return for a fee. 

Trading by academy trusts

Where trading has an educational purpose, or is ancillary to an educational purpose (such as charging pupils for school meals), it is classed as 'primary purpose trading'.  Such activities can be carried out by an academy trust, as it furthers the charitable objects.

However, if the academy trust does activities that are not in furtherance of its objects, such as selling branded school merchandise (mugs, pens etc), this is termed 'non-primary purpose trading'.  Profits arising from non-primary purpose trading is chargeable to corporation tax, unless it falls under a certain threshold known as 'the small scale exemption'.

The small scale exemption means that an academy trust can do a small amount of non-primary purpose(i.e. non-charitable) trading, provided that the income generated falls under a certain amount, which for academy trusts is generally £50,000 pa.

An academy trust with the object of providing recreational and leisure facilities has more flexibility in the trading activities it can do.  It would be permitted to rent out areas of school sites to community groups as primary purpose, without this being caught by the prohibition on taxable trading. 

In contrast, an academy trust without this recreational object, which hires out areas to community groups, would not be furthering its object to advance education.  It would therefore potentially be doing non-primary purpose trading.

It is important to note that the amount of trading undertaken takes into account all of the schools within an academy trust.  It is not done on a school by school basis.

If an academy trust is undertaking a significant amount of non-primary purpose trading, and the income exceeds £50,000, it would need to set up a trading subsidiary if it wished to continue to undertake this activity.

It is therefore important that academy trusts regularly review the trading activity that is being carried out in its schools, to ensure it is staying within the rules.

Chris Billington, Head of Wrigleys Education team, comments: "many schools were familiar with an extended school programme where school engaged in wide range of activities.  From the start of the academies programme this freedom has been strictly paired back and academies have had to become familiar with charity regulation".

Income generation: other points to be aware of

Fundraising Regulator

As exempt charities, academy trusts should be aware of the Fundraising Regulator.  This is a new body, established in January 2016, to regulate fundraising activities by charities.  

It has a Code of Fundraising Practice, which charities are encouraged to comply with when undertaking fundraising activities.  The Code includes sections on fundraising involving children, which will be of particular relevance to academy trusts (link here).

The Regulator also operates the Fundraising Preference Service, which permits members of the public to opt out of fundraising communications from particular charities.

Data protection

Schools should also be aware of data protection issues, particularly if they are contacting ex-pupils or parents to raise funds. 

The website of the Information Commissioner's Office has a special section devoted to charities (link here), which covers the rules relating to data protection and fundraising.

You could also listen to our podcasts on the upcoming changes to data protection legislation, available here, or have a look at our earlier article on how the changes will impact on schools and academy trusts.

Academy Funding Agreement

The DfE template prohibits academies spending GAG on anything other than education of its pupils.  Accordingly academies cannot use GAG as start up funding for other activities, whether or not is it an educational or charitable purpose and even if the aim is to create a greater financial return for the benefit of pupils.

In addition, any activity which places at risk the academy trust's charitable status, such as non-charitable trading, may be a breach of the funding agreement.

Lotteries

If you are running a lottery or raffle, please be aware that there is specific legislation which governs this kind of activity.  You can find out more on the Gambling Commission's website (link here).

Further information

This is a complex area of law and this article only touches on some of the general issues.  It does not constitute legal advice, and anyone interested in the topics raised is welcome to contact a member of our academies team to discuss their particular situation.

The following guidance may also be of interest:

• Joint guidance from the Charity Commission and HMRC on charities and trading
• Charity Commission guidance CC35 (Trustees, trading and tax)
• HMRC guidance on charities, trading and tax
• Fundraising Regulator and the Code of Fundraising Practice
• Information Commissioner's Office: information for charities (data protection)
• Gambling Commission (raffles and lotteries)