ARE YOU GETTING THE MOST FROM YOUR ADVISORS IN EDUCATION? As Chartered Accountants and advisors at Grant Thornton Kathy Fidgeon, Director, and Katie Baker, Manager, talk about some of the issues which are impacting their education clients.
We work with a range of institutions from Schools and Academies to Colleges and Universities and have an education team of significant size, expertise and geographical presence. With this base, and as one of the top providers of tax and financial advice in the UK, we have a thorough understanding of the changing face of Education and the challenges that this brings. Here are just some of the key issues which we have been advising on recently. Banking As the banking market continues to evolve, so too does the bank's relationship with the education sector. Historically banks have had a more relaxed lending policy in regard to education, with significant sums being lent at generous rates into what was seen as a very stable and low risk market. Many banks are finding that historical lends into education are generating significant losses, as the cost of borrowing rises and the margins applied are simply not viable. This is leading to an increased awareness and strict implementation of both financial covenants, and also the less objective measures within agreements, such as Material Adverse Change clauses, and Change of Business clauses. Such clauses can be restrictive if you are seeking to expand activities in more innovative ways, as they risk a breach of existing facilities, and a renegotiation of terms. The cost implication of taking these margins to market rates can be significant. Pensions The minimum Employer contribution required to comply with auto enrolment is initially 1% so employers may wish to consider a separate pension vehicle for your auto enrolled population
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to minimise costs. The operational implications of determining categories of workers and tracking employee eligibility should also be taken into account in your planning. Grant Thornton advises clients to consider cost reduction strategies in order to reduce the financial impact of auto enrolment, for example extending or introducing pension salary sacrifice, and assess how well their HR and payroll systems interact in order to manage the operational impact. Salary Sacrifice and Benefits Many education institutions already offer pension schemes, childcare vouchers and cycle to work schemes under salary sacrifice arrangements. Other popular benefits that would also generate tax/NIC savings include:-car parking (where this is on-site, salary sacrifice could help increase the income from car parks), workplace nurseries, gym membership, health screening, annual holiday entitlement and CO2 efficient cars. We recommend that you review your existing arrangements and consider how these could be extended to generate tax/NIC savings for the business and its employees, while providing highly attractive benefits that will support recruitment and retention. These arrangements could also be utilised by senior staff who may be caught by the pension tax regulations. Overseas students The UK government operates a points based route with which students outside the European Economic Area (EEA) can enter the UK to study, and students must score a sufficient number of points to gain entry. For now the tide is running with the Home Office's drive to reduce inward immigration, not those arguing for the economic importance of international education. In the light of the changing rules, and with the NAO's recent
criticism, it is inevitable that the UKBA's new compliance regime will prompt greater scrutiny of HE institutions with Highly Trusted Sponsor status. In our opinion the increasing risks attached to the tier 4 route prompt a number of questions for management as they review the sustainability of future income from overseas students: - How up to date are you with the latest UKBA rules and guidance? - When did the UKBA last inspect your tier 4 sponsor arrangements, and what was the outcome? - Are you getting assurance that you continue to meet the UKBA's current requirements? - Is that assurance sufficiently robust and transparent? - Is compliance with UKBA requirements covered in the scope of work by your internal auditors? How we can help Our performance management team have had huge success in advising education establishments in reassessing their existing cost base, and finding effective ways to make their operations work more efficiently. The current economic climate continues to put financial pressure on the education sector and there is a real need to focus awareness around maximising the opportunities available. Contact either: Kathy Fidgeon on 01865 799 925 / Kathy.e.fidgeon@uk.gt.com, or Katie Baker on 01865 799 865 / Katie.a.baker@uk.gt.com www.grant-thornton.co.uk
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