How should a school prepare financially for academy conversion?

From financial systems and staffing to external audit and internal scrutiny, this practical guide explains what school business leaders need to consider before converting to academy status.

At January 2026, 48.2% of schools in England were academies and 60.4% of pupils attended one, according to the Department for Education (DfE).

Although academy conversion is an established process, the financial preparation involved should not be underestimated.

Maintained schools operate within local authority financial arrangements. Academy trusts, by contrast, are charitable companies with responsibility for statutory accounts, independent audit, financial governance and accountability for public funds.

Most schools converting today join an existing multi-academy trust (MAT) rather than establish a new single-academy trust, according to the Confederation of School Trusts’ July 2026 guidance. Both routes require careful financial planning, with important differences in the responsibilities that fall to the school’s existing finance team.

This guide explains the key financial considerations, the changes introduced by the Academy Trust Handbook 2026 and when schools should involve accountants, external auditors and internal scrutiny providers.

What changed in the Academy Trust Handbook on 1 October 2026?

The DfE’s Academy Trust Handbook 2026 came into effect on 1 October 2026. The changes most relevant to schools preparing to convert are:

• Going concern: the accounting officer must notify the board where the trust’s ability to operate as a going concern is at risk, and the trust must notify the DfE (paragraph 2.21).
• Procurement: trusts must consider DfE buying opportunities and record their decision (2.27). They must use the DfE’s supply staffing arrangements unless they have a compliant alternative at no higher rates (2.28), and its Energy for Schools service or an approved energy deal when energy contracts are renewed (2.29). Management information system contracts must move to the DfE’s framework, planned for September 2027 (2.30).
• Chief financial officers: for trusts with more than 3,000 pupils, CFO recruitment from 1 October 2026 should specify a professional accountancy qualification or CIPFA level 7. From 1 September 2027 this becomes a requirement, subject to the Handbook’s notification provisions (1.46).
• Pensions: a trust proposing an alternative to the Teachers’ Pension Scheme or Local Government Pension Scheme must obtain prior DfE approval before communicating the proposal to staff (2.40).
• Multi-academy trust funding: MATs must publish a summary statement explaining how funds are distributed across their schools, by 31 January alongside their accounts (5.32).

School business leaders should familiarise themselves with these requirements during conversion planning, particularly where existing contracts, staffing structures or financial procedures may need to change.

Academy conversion financial checklist

Schools open as academies on the first day of a month, with documentation and administrative deadlines falling in the month before. The DfE publishes important dates for schools converting to academy status, which should be used alongside the school’s own conversion timetable.

Early planning

• Complete a financial health check and prepare a three-year financial forecast.
• Review existing accounting systems and financial reporting arrangements.
• Assess finance team skills, qualifications and capacity.
• Contact the relevant Local Government Pension Scheme (LGPS) administering authority.
• Review VAT arrangements and potential registration requirements.
• Identify existing contracts, leases, assets, liabilities, loans and any deficit or surplus.
• Establish whether financial responsibilities will transfer to a MAT’s central finance team.

During conversion

• Agree which assets, liabilities, contracts and balances will transfer.
• Identify any loans, finance leases or other commitments requiring approval.
• Complete the staff transfer and TUPE processes, including employee liability information within the statutory timescales.
• Agree land, lease and shared-use arrangements.
• Open the academy’s bank account and send the details to the DfE by the published deadline.
• Confirm CFO and accounting officer responsibilities at trust level.
• For a newly established trust, appoint an external auditor and establish internal scrutiny arrangements.

Immediately before conversion

• Reconcile the school’s financial records.
• Agree the treatment of the school’s closing bank balance with the local authority.
• Confirm payroll and supplier payment arrangements.
• Check insurance arrangements and the start date of cover.
• Ensure finance staff understand the new financial procedures.

Following conversion

• Monitor the local authority’s determination and payment of any surplus.
• Produce monthly management accounts at trust level.
• Confirm LGPS employer contribution arrangements.
• Complete the relevant DfE financial returns.
• Implement the internal scrutiny programme.
• Prepare for the trust’s first external audit, or inclusion in the receiving MAT’s annual audit.

How should a school prepare its budget and balances before conversion?

Start with a detailed assessment of the school’s current financial position and expected performance after conversion, ideally before the conversion date is finalised.

Budget and financial forecasting

Academy trusts must submit three-year budget forecasts to the DfE, so school business leaders should build forecasts that reflect anticipated funding, pupil numbers, staffing and operating costs.

Pupil number assumptions deserve particular scrutiny. The DfE’s July 2026 national pupil projections show the state-funded school population falling from 7.81 million in 2026 to 7.08 million by 2031, a drop of 9.3%, with nursery and primary numbers down 10.7%.

Where the school is joining a MAT, forecasts should also allow for the trust’s central service charges.

Assets, liabilities and contractual commitments

Identify and document the assets and liabilities that may transfer, including creditors, debtors, equipment, leases and contracts. The commercial transfer agreement sets out what moves to the trust.

Borrowing needs particular care. According to the DfE’s guidance on surplus and deficit balances, loans made by the local authority to the school normally transfer to the trust, which repays them from its revenue budget unless they are paid off at conversion. Other borrowing, including finance leases, needs Secretary of State approval before it is taken out, and repayments should be checked for affordability alongside any deficit.

Staffing costs

Staffing is typically a school’s largest area of expenditure. Review salaries, pension contributions, contractual commitments and potential restructuring costs. Where staff transfer under TUPE, the consultation and employee information requirements must be followed.

Estates and property

Review building condition, maintenance backlogs, planned capital expenditure and land arrangements. Property transfer arrangements vary with the school’s legal status: community schools commonly involve a long lease from the local authority, while other categories may involve different freehold or leasehold structures. Land arrangements are a common cause of delay, so agree them early.

Cash flow

The DfE pays the general annual grant by BACS on the first working day of each month, in broadly equal monthly instalments. Check that working capital covers payroll and supplier commitments until payments begin.

What happens to a school’s surplus or deficit balance?

Surplus. On a voluntary conversion, section 7 of the Academies Act 2010 requires the local authority to determine whether the school has a surplus and pay it to the trust. A surplus is any unspent amount the authority made available to the governing body, including budget share carried forward.

Under the Academy Conversions (Transfer of School Surpluses) Regulations 2013, the authority must notify the trust of the amount within four months of the conversion date. If the trust disagrees, it can ask the Secretary of State for a review within one month. The authority must then pay within one month of the trust agreeing the figure or the review window closing. The surplus therefore arrives after conversion and should not be counted on for day-one cash. It is separate from the closing balance in the school’s own bank account, which the school agrees with the local authority and transfers to the trust.

Where the Secretary of State directs a school eligible for intervention to become a sponsored academy without an application from its governing body, the surplus stays with the local authority unless the authority agrees to transfer it.

Deficit. Deficits are not covered by the Act or the regulations in the same way. For converter academies, DfE policy is to reimburse the local authority and recover the amount from the academy through abatement of its general annual grant. For sponsored academies, the deficit stays with the local authority. The DfE’s guidance defines which category applies, and some schools that apply voluntarily are treated as sponsored if the DfE considers they need a sponsor’s support.

Do you need new accounting software to become an academy?

Not necessarily, but schools must establish whether their existing systems can support the reporting that applies after conversion.

Under the Handbook, academy trusts must prepare monthly management accounts comprising an income and expenditure account with variances against budget, a cash flow forecast and a balance sheet, shared with the chair of trustees each month (2.18 and 2.19). This applies at trust level. For a school joining a MAT, the central finance team may already produce them, and the priority is making sure the school’s information integrates accurately.

Review whether your systems can handle:

• restricted and unrestricted fund accounting
• fixed asset registers and depreciation
• purchase order approval and delegated financial authorities
• monthly bank reconciliations
• payroll and pension reporting
• budget monitoring and cash flow forecasting
• the information required for DfE financial returns

The DfE’s academies chart of accounts provides a standard structure for academy financial reporting.

Strengthening financial controls

Academy trusts must maintain internal financial controls, including clear delegated authorities, segregation of duties, a risk register and a written scheme of delegation approved by the board (2.4 and 2.7). Schools joining a MAT will usually need to align with the trust’s processes, which may change purchasing procedures, authorisation limits and reporting responsibilities.

What happens to VAT, pensions and insurance on conversion?

VAT

Academies can recover VAT on purchases that are not for the purposes of any business they carry on, under section 33B of the VAT Act 1994. VAT on costs used for both business and non-business purposes is apportioned. HMRC’s manual treats free education, and closely related goods and services sold at or below cost for pupils, as non-business activity.

An academy that is not VAT-registered claims using form VAT126. A VAT-registered academy includes its claim in its VAT return.

Income-generating activity, such as lettings or catering for non-pupils or above cost, may count as business activity and require VAT to be apportioned. Establish your VAT position, including whether registration is needed, before conversion, and take specialist advice where necessary.

Pensions

Trusts must give eligible staff access to the Teachers’ Pension Scheme or the Local Government Pension Scheme (2.39). A trust automatically becomes an LGPS scheme employer, normally in the fund the school already uses, so contact the fund as soon as possible. Its actuary will assess the school’s share of assets and liabilities, there may be a deficit or surplus on transfer, and the employer contribution rate can change after conversion. The actuarial fee may fall to the school.

The DfE’s former conversion support grant ended on 1 January 2025, so reflect adviser and actuary costs in the financial plan.

Insurance

Trusts must hold adequate insurance or be members of the DfE’s risk protection arrangement. The DfE’s conversion guidance says cover starts automatically on conversion unless the school opts out through its project lead. The Handbook asks trusts to consider the arrangement and record their decision (2.45 and 2.46).

What does a CFO do in an academy trust, and who is the accounting officer?

Every academy trust must appoint a chief financial officer (CFO), who is responsible for the trust’s detailed financial procedures and should attend finance and audit and risk committee meetings (1.44). The CFO should be employed by the trust, and a trust proposing to appoint a non-employed CFO in exceptional circumstances must obtain prior DfE approval.

The accounting officer is a separate role, normally the principal in a single-academy trust or the chief executive in a MAT (1.33). The Handbook says the two roles should not be held by the same person (1.34).

Does academy conversion mean recruiting additional finance staff?

Not necessarily. For schools joining a MAT, many functions may already be managed centrally. Schools establishing a new trust may need more capacity or external support.

Before conversion, assess your team’s knowledge of:

• charity accounting and statutory financial reporting
• VAT, payroll and pensions
• budget forecasting and cash flow
• financial controls and risk management
• procurement and financial governance
• DfE reporting requirements

Where there are gaps, consider training, redistributing responsibilities, recruitment or specialist advice.

When should a converting school appoint an external auditor, and do you need an accountant too?

When is an external auditor required?

Every academy trust must appoint an external auditor to give an opinion on whether the accounts give a true and fair view and, as reporting accountant, to provide a regularity assurance conclusion (4.5). Members appoint the auditor, other than where the Companies Act permits the trustees to do so.

A school establishing a new trust should select its auditor during conversion planning, so the trust knows what records and evidence it must keep from the start. A school joining a MAT will find the trust already has an auditor, and should work with the central finance team to ensure records, opening balances and supporting documents are available for the trust’s audit.

How often must an academy trust change its auditor?

The Handbook says trusts should retender their external audit contract at least every five years. That is a tender requirement, not a rotation rule, and the Handbook does not prohibit reappointing the existing auditor after a tender.

When the audit and risk committee assesses an auditor, it must consider points including sector expertise, understanding of the trust, timely escalation of issues, the quality of recommendations, authority to challenge management and use of technology (4.15). They are sensible questions to put to any firm you are considering.

Does a converting school need an accountant?

Trusts are not automatically required to appoint a separate accountant, but they must have appropriately qualified and experienced finance staff (1.45). Specialist accountancy support can help during conversion with:

• opening balances and accounting records
• accounting policies
• financial forecasts
• VAT and tax arrangements
• statutory accounts
• financial systems and reporting procedures

The first accounts will need to reflect what transferred on conversion, so agree what is transferring, with the supporting evidence, before conversion day.

If a trust buys other services from its auditor, the audit and regularity engagement must be in writing and must not cover other services. Any additional work needs a separate letter of engagement specifying the work and fee (4.6). The Handbook also lists relationships with auditors beyond the statutory audit among those that attract greater public scrutiny (5.40).

What are the statutory accounts deadlines?

Trusts have a financial year ending on 31 August. The audited accounts must:

• reach the DfE by 31 December
• be published on the trust’s website by 31 January
• be filed at Companies House by 31 May

Schools joining a MAT will generally be included in the trust’s established reporting. New trusts should confirm the requirements for their first accounting period.

Does every academy trust need an internal auditor?

Every trust needs a programme of independent internal scrutiny, but not necessarily a dedicated internal auditor. Internal scrutiny is separate from the external audit. It gives trustees independent assurance that financial and non-financial controls, risk management and governance procedures are working (3.1).

How can internal scrutiny be delivered?

The Handbook permits several approaches:

• an in-house internal auditor
• a bought-in internal audit service
• an appropriately qualified or experienced non-employed trustee
• independent peer review by the CFO of another trust

Trusts with annual revenue income above £50 million must use an in-house or bought-in internal audit service, or a combination of both, although specialist expertise may also be used where appropriate (3.17). The work must be independent and cannot be done by senior leadership or the finance team (3.15).

Who oversees internal scrutiny?

Every trust must establish an audit and risk committee. It must be a dedicated committee for trusts above £50 million. Other trusts may combine it with another committee, such as finance (3.6). At least one member should have recent or relevant accountancy or audit assurance experience (3.10). The committee oversees the programme, considers findings and reports to the board.

The DfE’s internal scrutiny guidance provides further good practice. A school joining a MAT will normally fall under the trust’s existing arrangements, although its own controls may be included in the programme.

What must an academy trust report once it has converted?

The DfE’s academies financial returns page sets the annual deadlines. The dates below are for the 2026 cycle.

Timing	Requirement
Monthly	Management accounts shared with the chair of trustees
Annually	Budget forecast return, approved by the board. It applies to trusts active on 1 May 2026, closed on 24 September 2026, and the date changes each year
31 August	Financial year end
31 December	Audited accounts, audit findings report, accounts submission cover and internal scrutiny report submitted to the DfE
31 January	Audited accounts published on the trust’s website, with the funding distribution statement for MATs
26 January 2027	Academies accounts return for 2025/26, which only the external auditor can submit
31 May	Accounts filed at Companies House

Newly established trusts and schools joining existing trusts should confirm which returns apply during their first reporting period. The DfE has also confirmed that its land and buildings collection tool will not be published in autumn 2026. Trusts should keep estates and asset records up to date and watch for future announcements.

Academy conversion finance FAQs

Speak to our academy trust team

Preparing for academy conversion involves much more than transferring financial records from a local authority. Schools need to understand their future reporting obligations, ensure financial systems and controls are appropriate, and establish whether additional finance expertise or professional support will be needed.

Early planning can help identify problems, avoid disruption and ensure the school’s financial arrangements are ready for the transition.

UHY Williamson Croft provides audit and assurance services to academy trusts from its Manchester and Liverpool offices.

Whether your school is considering conversion, preparing to join an existing multi-academy trust or reviewing its external audit arrangements, our education and academies specialists can help you understand the financial implications.

Contact Tor Stringfellow below or the academy trusts team at UHY Williamson Croft to discuss your school’s requirements. You can also read about our audit and assurance services or get in touch.