What is the purpose of IFRS 16?

The implementation of IFRS 16 removes the distinction between finance leases and operating leases. This means that all leases will now show as borrowing on the school balance sheet, but also list the leased items as assets.

For many years, schools have not been able to enter into any transaction that would be classed as borrowing without prior approval by the Secretary of State. This has not actually changed but to mitigate this the DfE has provided a list of assets that have been pre-approved which includes IT equipment.

Why is it changing?

The implementation of IFRS 16 is not an altruistic move by the DfE to make life easier for schools it is an international accounting standard that all organisations must implement and so the DfE have to follow suit.

When does IFRS 16 come into effect?

IRFS 16 has been adopted by local authorities and NHS trusts for 2 years now. The IFRS 16 Maintained Schools Finance Lease Class Consent 2024 was signed on the 26th of March giving the necessary consent for schools to borrow against certain kit. This came into effect on 1st April 2024 for all maintained schools. We are expecting the Academy Trust Handbook to be updated with immediate effect but this may be retrospective when the updated handbook is released for 1st September 2024.

DfE guidelines

The reference in DfE guidelines to local authority leases prior to 1st April 2022 and academy trust leases prior to 1st September 2022 not requiring Secretary of State approval is not a retrospective approval of finance leases prior to the implementation of IFRS 16. It is simply the approval of the re-categorisation of these lease agreements as finance leases once IFRS 16 has been implemented.

Can schools enter into any lease now?

The adoption of IFRS 16 will not enable local authority schools and academy trusts to take out any lease agreements without doing the correct due diligence. The School Financial Value Standard requires the school to ensure that the lease agreement is providing them with the best value for money.

Conclusion

With the adoption of IFRS 16, schools have additional options available to them to choose lease terms that are more bespoke to the asset type, yet still economical.

As an example, we have seen an increase in schools wanting to adopt schemes to allow pupils to use 1:1 devices in the classroom. Yet if their infrastructure is inadequate, without investment in this underlying technology a device scheme will fail. Schools and trusts now have the ability to finance a wider range of equipment (such as infrastructure hardware) which previously may not have ‘qualified’ under operating lease legislation and may be spread over longer periods, which equates to lower yearly rentals.

Residual-based leases will still play a significant role in schools financing. Schools that have benefited from adopting leasing and returning kit will still have this option, taking advantage of warranties, and providing the most up-to-date equipment for their students.

It is still important to be diligent when entering any form of lease as more funders are likely to enter the market. Documentation should still be written specifically for the education sector and knowledge of the legislation is key.



Leasing your technology from RM and edde

Leasing can be a great way for schools to secure the equipment you need to provide your students with a first-class education. Get in touch if you'd like to discuss possible leasing agreements for your school or trust – whether you are looking to fund a larger-scale infrastructure upgrade, to introduce a 1:1 device scheme, or have other technology requirements such as interactive whiteboards.

Devices such as the HP Chromebook 11 can be leased from as little as £6.17/month, or £9.99/month as part of RM StudyKIT – providing a protective case, next-business-day warranty and insurance cover whilst at school, home and on the move. Where ChromeOS isn't the ideal fit for your school age range, RM StudyKIT also offers a range of options of Microsoft Windows and Apple iPadOS devices.

The implementation of IFRS 16 opens up the potential to spread the costs of larger infrastructure projects over time. Your network requirements will be unique to your school, but taking indicative costs of wired and wireless infrastructure (inclusive of hardware, licensing and installation) a typical primary school could be facing upfront costs of £15,000-£20,000 and for a secondary school this could be £90,000-£100,000 or more. Spreading this expense over five years can be of particular advantage where cash flow considerations are key.

 

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