News & Articles


Related parties

by Sara Rix

The ESFA highlighted that the second highest number of modified regularity opinions in 2020/21 was in relation to related parties.

Therefore, the ESFA recently reiterated the importance of recognising related party transactions and reporting these through the portal in line with the requirements as set out in the Academies Trust Handbook.

Definition of a related party

In summary a related party is an individual or organisation that has control or significant influence over the academy, a full definition can be found in section 33 of FRS102 or section 9.15 and appendix 1 of SORP. A few examples of related parties are:

  • Members or trustees of the academy trust
  • A close relative or someone within the same household of a member or trustee who may be expected to have influence over a transaction.
  • An individual in a business partnership with a member or trustee.
  • A company where either a trustee/member or close relative holds more than 20% share capital or voting rights.
  • An organisation controlled by a trustee/member or close relative.

Related party 'at cost' rules

The Academies Trust Handbook specifies that, where a related party transaction does occur, any element above £2,500 must be at no more than cost, therefore no profit can be earned. In addition, if there are a number of transactions with the same related party and the cumulative annual total exceeds £2,500 then these ‘at cost’ rules will also apply.

For example, if a related party invoices the academy trust twice during the year for their services, the first invoice being for £2,000 and the second for £1,000, £500 of the second invoice should be at cost as the cumulative total has exceeded £2,500.

There is an overarching principle that no member, trustee or local governor should be able to use their connection to the trust for personal gain.

Accounts disclosure requirements

The SORP 2015 regards all related party transactions as material and therefore all such transactions need to be disclosed within the annual accounts. This allows users of the accounts to gain adequate understanding of the transactions which have derived from related parties and provides transparency on such transactions.

The Academies Accounts Direction specifically requires the following to be disclosed:

  • Names of related parties and a description of the relationship
  • Description of the transaction and the amount
  • Any balance due to/from the related party as at the balance sheet date
  • Any guarantees given/received
  • Any terms and conditions on the transaction.

The academy trust must also disclose how it has followed the procurement process, this is to demonstrate that the transaction was completed fairly.

Where the transaction is above £2,500, the accounts must also include a statement of assurance that the element above this was at no more than cost.

These disclosure requirements do apply to any employment relationships, so if any family members or trustees are employed by the trust this will need to be disclosed in the financial statements although the full details of the amount paid does not need to be included.

Reporting requirement to ESFA

For all new agreements with related parties the academy trusts must report their intention to either enter into or renew a contract with a related party with the ESFA in advance of the contract or agreement occurring.

Where transactions exceed £20,000 (either individually or cumulatively) the trust must seek prior approval from the ESFA ahead of the transaction taking place with related parties.

Both processes are completed using the ESFA’s related party online form through the Information Management Services system (IDAMS). In this case the requirements do not include employment contracts.

You will be asked to upload supporting evidence to demonstrate you have adhered to the requirements of the Academies Financial Handbook this will include the following:

Requirement Evidence
Transaction reported before starting Copy of contract or documentation confirming expected date
Competitive tendering process which is open and fair Documents from the procurement process such as quotes or tenders the number of which is in line with the academy’s procurement process
Oversight and decision making Evidence may include relevant board meetings of the transaction approval or other documents as in line with the academy’s scheme of delegation
Identify and manage conflicts of interest Register of interests in place or minutes where the related party transaction is discussed
At cost policy Evidence to support this includes a statement of assurance

On a practical level, it is important that all documents are gathered beforehand as the form cannot be saved to submit later. The ESFA may request further information, this will be done through IDAMS. Finally the decision will be communicated via the system along with an email notification.

You are required to share any decisions made by the ESFA with the academy trust auditors as this needs to be disclosed in the accounts.

It is important to review business interest declarations and ensure these are completed and updated for any new declarations during the year. This will assist with identifying any related party transactions before the cost is incurred, allowing sufficient time to make the necessary disclosure to the ESFA. It is also recommended to keep a record of all relevant transactions, to assist with identifying any potential future transactions which will need to be reported and keep track of your cumulative total.

This article is from the latest edition of our Education Bulletin. To receive future copies of any of our newsletters directly to your inbox, please visit our preference centre to register your interest.

Find out more
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch:

Our Accreditations and Memberships