Finance Leases for Academies: IT Infrastructure, Accounting Treatment and DfE Compliance

Overview

Academy trusts are increasingly exploring alternative funding routes to deliver essential IT and digital infrastructure upgrades, particularly where assets are approaching end-of-life and capital reserves are under pressure. Since September 2024, the Department for Education (DfE) has introduced important changes that allow academy trusts to enter into certain finance lease arrangements, subject to conditions.

This article sets out the key regulatory, accounting and practical considerations for academy trusts and their boards when considering finance leases for IT infrastructure.

1. Regulatory Background – DfE Position on Finance Leases

Historically, finance leasing was a restricted area for academy trusts. However, with effect from 1 September 2024, the DfE granted prior consent for academy trusts to enter into finance leases for a defined list of assets, removing the need for individual consent applications for those items.

Assets Typically Covered

The approved list generally includes IT and digital assets such as:

• Servers and network infrastructure
• CCTV and security systems
• Desktop computers, laptops and tablets
• Printers, photocopiers and interactive boards
• Door entry and access control systems

Assets outside this list (for example, buildings or certain professional services) are not covered by the blanket consent and would require specific DfE approval.

Where a trust is subject to a Notice to Improve (NtI), delegated financial authorities are usually withdrawn. In such cases, explicit DfE approval is required for all leasing arrangements, regardless of value or asset type.

2. Procurement and Value for Money

Finance leases must still comply with:

• The Academies Trust Handbook
• The Procurement Act 2023
• Public sector value-for-money principles

Trusts should be able to demonstrate:

• Appropriate market testing (e.g. multiple quotations)
• Use of compliant frameworks (such as DfE-approved ICT frameworks)
• A clear comparison between outright purchase and leasing

While leasing often results in a higher total cost due to interest and finance charges, it can be justified where it supports cashflow management, reserve protection, or delivery of critical infrastructure within operational constraints.

3. Accounting Framework – What Is Changing?

Transition to FRS 102 Section 20

From 1 January 2026, FRS 102 Section 20 (Leases) will come fully into effect for academy trusts. This introduces a model broadly aligned with the “right-of-use” approach.

Although detailed academy-specific guidance is expected to be finalised in the 2026 Academies Accounts Direction (AAD), the emerging position is now reasonably clear.

4. Accounting Treatment of a Finance Lease

Initial Recognition

Where a lease meets the definition of a finance lease:

• A Right-of-Use (RoU) Asset is recognised on the balance sheet
• A corresponding Lease Liability is recognised

Both are initially measured at the present value of future lease payments, using the interest rate implicit in the lease.

Where there is no meaningful residual value, the RoU asset and lease liability will be equal at inception.

Subsequent Accounting

Over the lease term:

• The RoU asset is depreciated (usually straight-line over the lease period)
• The lease liability is unwound, with interest recognised as a finance cost
• Both depreciation and finance costs are reflected through the fixed asset fund movement in the Statement of Financial Activities (SOFA)

5. Impact on Restricted and Capital Funds

A key concern for academy trusts is the impact on revenue reserves and capital balances.

Current DfE-aligned practice indicates:

• The full capital value of the asset does not require an upfront transfer from revenue reserves to capital reserves in year one

Instead, annual transfers are made from revenue reserves to capital reserves equal to:

• RoU asset depreciation
• Plus the finance cost (interest) for the year

This approach avoids an immediate and significant reduction in revenue reserves while maintaining the integrity of the restricted fixed asset fund.

6. Budget Forecast Returns (BFR) and Planning

Finance lease commitments must be reflected in the Budget Forecast Return (BFR):

• In the year the lease is entered into
• And across subsequent forecast years

Trusts should ensure that:

• Lease payments are accurately profiled
• The balance sheet impact is understood by trustees
• Timing of implementation (for example, aligning works with school holidays) is realistically planned

Where regulatory clarity is still evolving, some trusts may choose to defer lease commencement until later in the financial year to reduce implementation risk.

7. Practical Considerations for Trustees and CFOs

When assessing whether a finance lease is appropriate, trusts should consider:

• Total cost compared to outright purchase
• Cashflow and reserve impact
• Length of lease relative to asset life
• Responsibility for maintenance and repairs
• End-of-lease ownership provisions

Board approval should be clearly documented, with a robust rationale covering financial sustainability, compliance and educational benefit.

8. Our Perspective

Finance leasing can be a legitimate and effective tool for academy trusts to deliver essential IT and digital infrastructure, particularly in a constrained funding environment. However, it sits at the intersection of regulation, accounting judgement and public sector governance.

Trusts should take early advice, ensure alignment with DfE expectations, and maintain clear audit trails to support both regularity and value-for-money conclusions.

At Reckoner Audit Limited, we support academy trusts through the full lifecycle of such decisions – from technical accounting assessments and DfE compliance, to audit, forecasting and trustee reporting.