TABLE OF CONTENTS. Contacts for Section 8 3

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1 SECTION 8 CAPITAL EXPENDITURE TABLE OF CONTENTS Page Contacts for Section Introduction Sources of funding for capital projects Definition of capital expenditure Notification of capital works Commissioning and undertaking capital works Construction Industry Scheme Value Added Tax and Voluntary Aided schools Financial administration 9 Appendix A Guidance notes for financial administration of capital projects 11 Appendix B Schools Loan Scheme 15 Part IV: Section 8 Page 1 RESO3524 Issue 3 : April 2003

2 Part IV: Section 8 Page 2 RESO3524 Issue 3 : April 2003

3 SECTION 8 CAPITAL EXPENDITURE CONTACTS Planning Managers North Pauline Davies South Sarah Vize West Paul Wray East Julie Evans Asset Management Plan and John Procter Repairs and Maintenance (all schools Keith Hutt other than Voluntary Aided) Planning Division General advice, guidance and DfES Darlington funding for premises related works VA Team website vacontacts for Voluntary Aided Schools Roman Catholic Schools Sally Livesey Education Officer Westminster Diocese Church of England Schools Alick Burge School Buildings Officer St Albans Diocese Funding for Capital Projects Paul Wray (all schools other than Voluntary Planning Division Aided Schools) Health and Safety and Security Claire Saunders Funding Health, Safety and Risk Manager Planning Division Schools Loan Scheme Peter Hudson School Funding Unit Finance Planner software Financial Services for Schools Website trade/fss Copies of The Standards Fund: Sarah Moor A guide for Schools School Funding Unit Part IV: Section 8 Page 3 RESO3524 Issue 3 : April 2003

4 Capital Accounting Issues Eileen O Dowd County Capital Programme Co-ordinator Mouchel Property Services School s Surveyor List of Approved Contractors Chris May Financial Strategy Group Processing invoices via ITNET Eileen Rice and Contractors CIS Certificates Margaret Fisher ITNET Acounts Payable ITNET Authorised Signatory Margaret Dewell listing for Schools ITNET Payroll Services Supplies of A529 and A14 County Supplies Department finance stationery Construction Industry Scheme Edward Deville Taxation Service Corporate Services Value Added Tax Alex Fitzpatrick Gary Elmes Taxation Service Corporate Services Part IV: Section 8 Page 4 RESO3524 Issue 3 : April 2003

5 SECTION 8 CAPITAL EXPENDITURE 8.1 Introduction Funding for capital projects is accessed through the County Council s capital programme or the Voluntary Aided Schools capital programme. Hertfordshire s Asset Management Plan (AMP) has been developed in line with DfES requirements in consultation with headteachers and governors to co-ordinate the different needs for capital investment and to provide an agreed basis for capital spending priorities for Hertfordshire schools. 8.2 Sources of funding for capital projects Funding for capital projects comes from the following sources: The County Council DfES Voluntary Aided schools capital Standards Fund grants including devolved Formula Capital and Seed Challenge grant Schools Loan Scheme operated by the Authority Other DfES grants including Modernisation and Schools Access Initiative The County Council s Capital Programme As part of the AMP, condition surveys were initially carried out at all schools in 1999 and are repeated as a part of a three year rolling programme. New surveys were undertaken in Suitability and sufficiency data was also collected in 2002 and the new condition survey data is used to ensure that resources are allocated and spent against agreed priorities. The Planning Division administers the AMP and further information and guidance is available from Keith Hutt (see contacts for this Section). Voluntary Aided schools Capital Programme Under new funding arrangements introduced in April 2002, the governors of Voluntary Aided schools have responsibility for the entirety of the school s buildings, premises and sites, with the exception of the playing fields and related buildings. Capital funding in excess of the de minimis level of 2,000 in relation to Voluntary Aided schools is accessed via the DfES in Darlington. Part IV: Section 8 Page 5 RESO3524 Issue 3 : April 2003

6 Further information and guidance is available from the relevant contacts to this Section and the DfES publication, Funding for premises-related work at Voluntary Aided (VA) Schools in England, DfES/0276/2002. Standards Fund Devolved Formula Capital This funding is notified to schools (other than Voluntary Aided schools) on an annual basis as part of the Standards Fund grant allocations issued together with the schools budget share information. Guidance and information about the use of this source of capital funding is published annually in The Standards Fund: A guide for schools. Standards Fund Seed Challenge This funding is allocated to schools on a bid basis. The Planning Division notifies schools annually of the criteria and process for bidding. All schools, including Voluntary Aided schools, may apply for funding of up to 50% of the cost of primary and special school projects, and up to 33% of the cost of secondary school projects. At least 75% of the balance of funding for the capital project must be new funding, not derived from recycled grant income or savings from revenue funding. However, if the proposed project meets DfES annual priorities, the new money element is waived. Further guidance and information about the use of this funding is published annually in The Standards Fund: A guide for schools. Schools Loan Scheme This loan scheme is available to schools within the HCC s pooled banking arrangements with National Westminster Bank, and full details are appended to this Section as Appendix B. Under the Scheme for Financing Schools, this is the only source of borrowing that schools may enter into without the permission of the Secretary of State. 8.3 Definition of capital expenditure The classification of capital and revenue expenditure is complex, and the accounting treatment is different for each category of expenditure. Capital expenditure is, broadly, expenditure on the following items that will be of use or benefit in providing services, beyond the financial year: the acquisition, construction, preparation, enhancement or replacement of buildings the acquisition, renewal or replacement of plant, machinery and major items of equipment the purchase of land. Part IV: Section 8 Page 6 RESO3524 Issue 3 : April 2003

7 Enhancement (referred to in the previous paragraph) is: the substantial lengthening of the useful life of an asset and/or a substantial increase in the extent to which the asset can or will be used for school purposes. 8.4 Notification of capital works The Scheme for Financing Schools requires that schools should inform the County Capital Programme Co-ordinator of all capital projects funded from LEA sources, including Standards Fund grants, prior to the commencement of a capital scheme. The school should also inform the Area Planning Manager if the scheme exceeds 15,000. For further advice and guidance please see contacts for this Section. 8.5 Commissioning and undertaking capital works Schools may commission works through one of the County Council s Property Services providers (currently Mouchel or Mace), and in doing so may be confident that the contractor engaged complies with all of the legislative and HCC requirements for contractors. Schools are responsible for negotiating the fees for specific projects. Schools using other contractors must ensure that they fully comply with the legislative and HCC requirements for contractors. Please see the contacts for this Section for details of the HCC Approved List of Contractors. 8.6 Construction Industry Scheme (CIS) All Community and Foundation schools are required to comply with CIS. However, Voluntary Aided schools are, for the time being, excluded from CIS in respect of building work that is the legal and contractual responsibility of the Governing Body. Further detail about this aspect of CIS is provided in Part IV, Section 14 of this Handbook. Where CIS applies, payment of invoices to contractors or subcontractors for all works with a labour element above 1,000 (excluding VAT and materials) must be made through the Authority s accounts payable agent, ITNET. Where building contractors other than the County Council s Property Services are commissioned for capital works, the school must check (prior to engagement and commencement of the contract) that the contractor has the required CIS certification, and that ITNET holds a copy of the contractor s certificate. See the relevant contact to this Section for further details about processing information via ITNET. Additional information about CIS is published in the Premises and Sites Manual, Section 17 and in Part IV, Section 14 of this Handbook. Part IV: Section 8 Page 7 RESO3524 Issue 3 : April 2003

8 8.7 Value Added Tax and Voluntary Aided schools Under new funding arrangements introduced in April 2002, the governors of Voluntary Aided schools have responsibility for the entirety of the school s buildings, premises and sites, with the exception of the playing fields and related buildings. Capital funding in relation to Voluntary Aided schools is accessed via the DfES in Darlington. The circumstances in which VAT can be recovered are identified in the following table: VAT Recovery Decision Table Source of funds Responsibility for works LEA Governors School budget share received via the LEA YES YES Capital grant administered and received via the LEA YES YES Donations YES NO Governing Body/Diocese/Trustees YES NO Grants received directly from the DfES NO NO The following points should be noted: The VAT incurred in undertaking a project is recoverable to the extent that the above criteria are met. Any project where the LEA is responsible for the works must be conducted through the School s General (Public) Account. Those capital works that are wholly the responsibility of the Governing Body and on which no VAT can be recovered should not be processed through the School s General (Public) Account. Works expenditure funded from LEA sources of capital funding must in all circumstances be processed through the LEA s central accounting systems. See guidance notes in Appendix A to this Section. VAT recovery, where permitted, is subject to the possession of satisfactory documentary evidence. See Section 12 Value Added Tax for further guidance. Where the governors have contracted for works that are entirely their responsibility and part of the cost is being met from school budget share or capital grant administered by the LEA, satisfactory documentary evidence will be required. This will include copies of VAT invoices addressed to either the Governing Body, Diocese or Trustees, together with additional documentation that clearly links payment from school budget share funding or capital grant funding administered by the LEA. Part IV: Section 8 Page 8 RESO3524 Issue 3 : April 2003

9 8.8 Financial administration Appendix A to this Section provides information and guidance about processing invoices for capital works, and additional information about the recovery of VAT for Voluntary Aided schools. Part IV: Section 8 Page 9 RESO3524 Issue 3 : April 2003

10 Part IV: Section 8 Page 10 RESO3524 Issue 3 : April 2003

11 APPENDIX A SECTION 8 GUIDANCE NOTES FOR FINANCIAL ADMINISTRATION OF CAPITAL PROJECTS FINANCIAL ADMINISTRATION All expenditure in relation to capital works funded from LEA sources must be processed through HCC s central accounting system. This is to ensure: that capital expenditure can be separately monitored to fully comply with capital grant conditions and other capital accounting requirements; and compliance with Construction Industry Scheme regulations. Therefore, all capital projects must be notified to the County Capital Programme Co-ordinator so that schools capital expenditure can be monitored and accurately recorded in the County Council s accounts. All capital works orders and invoices processed via ITNET Accounts Payable require coding instructions. The codes used will ensure that capital expenditure can be identified and incorporated into the County Council s accounts. This eliminates the need for schools to complete a separate capital expenditure report. For certain capital projects, specific capital codes are issued by the County Capital Programme Co-ordinator, and these should be used when coding capital works orders and processing invoices. Please see coding instructions below and list of contacts to this Section for further information. Official finance forms for commissioning capital works and processing invoices should be used, and are available from County Supplies. The forms are: Official Works Orders - County Supplies Re-Order No For commissioning capital works (and general repairs and maintenance works) A529S (pink) - County Supplies Re-Order No For approving the payment of invoices processed through ITNET Accounts Payable for capital expenditure other than sub-contractors fees A529R (yellow) - County Supplies Re-Order No For approving the payment of invoices processed through ITNET Accounts Payable for sub-contractors fees Part IV: Section 8 Page 11 RESO3524 Issue 2 : April 2002

12 A14 - County Supplies Re-Order No For authorising payment of invoices processed through ITNET Accounts Payable Please refer to Part IV, Section 10, Appendix A for sample forms and further information about the approval and authorisation of A529 and A14 forms. ITNET Accounts Payable can only make payments to contractors where they hold a copy of the contractor's CIS certificate. Therefore, schools that commission works with building contractors that are not on the County Council s Approved Contractors List must contact ITNET to determine if the required CIS certificate is registered with ITNET prior to the commencement of the project and the engagement of the contractor. ITNET will contact the contractor if they do not hold a copy of the CIS certificate, and this may delay payment. PROCESSING INVOICES AND CODING WORKS ORDERS The financial forms described above require coding instructions for cost centre, account code and, for some capital projects, a sub-ledger code. The cost centre is unique to the school, the account code indicates the type of capital expenditure and the sub-ledger code, where required, indicates the specific capital project. Cost Centre This is a seven-character alpha/numeric code. The first four characters indicate the school type followed by the three-digit school number. School Type: E010 Nursery E320 Primary, Infant and First E330 Middle and Secondary E070 Special School Number: Must be shown as three digits. For example, School number 1 will be shown as 001. Therefore, cost centre code for school number 1 is E Account Code Schools should use an appropriate account code from the following list: TSF Seed Challenge Construction TSF Seed Challenge Equipment TSF Seed Challenge ICT Equipment TSF Seed Challenge Fees Part IV: Section 8 Page 12 RESO3524 Issue 3 : April 2003

13 75752 Devolved Formula Capital Construction Devolved Formula Capital Equipment Devolved Formula Capital Fees TSF School Security Construction TSF School Security Equipment TSF School Security Fees Other Capital Construction Other Capital Equipment Other Capital ICT Equipment Other Capital Fees Sub-Ledger These codes are issued by the County Capital Programme Co-ordinator. VAT and Voluntary Aided Schools Voluntary Aided schools may recover VAT incurred for capital works, subject to the conditions shown in subsection 8.7. Partial recovery of VAT for capital works would only be expected to arise where both of the following apply: the works are the joint responsibility of the LEA and the governors; and funds are being transferred into the school s General (Public) Account to meet the total cost of works (inclusive of VAT) which are not the responsibility of the LEA, and are not being funded by the LEA. Those capital works that are wholly the responsibility of the Governing Body and on which no VAT can be recovered should not be processed through the school s General (Public) Account. Recovering VAT for Voluntary Aided Schools Where VAT can be recovered in full - invoices must be submitted in the name of the school and processed following the instructions detailed in the coding section below. The VAT element will be recovered centrally, and the school will only be charged the net value of the invoice. Where a portion of the VAT cannot be recovered - the expenditure concerned must be coded gross and shown separately from any expenditure on which VAT can be recovered. Invoices must be submitted together with an A529 coding slip showing separate entries as follows: Part IV: Section 8 Page 13 RESO3524 Issue 2 : April 2002

14 For the portion of expenditure for which VAT cannot be recovered. The gross amount of that expenditure (inclusive of VAT) should be entered in the Net Amount column with the VAT category box completed with an O (Outside Scope). For the portion of expenditure for which VAT can be recovered. The net amount of that expenditure (exclusive of VAT) should be entered in the Net Amount column with the VAT category box left blank The cost centre, account and subledger codes for all entries should be completed in accordance with the coding instructions above. Where works are commissioned through the County Council s Property Services provider - the Official Works Order Form must clearly show the breakdown of the source of funds. Charging for capital works and transfer of funding Following payment of invoices processed via ITNET, capital expenditure will be charged to the school on the monthly billing statement. Part IV: Section 8 Page 14 RESO3524 Issue 2 : April 2002

15 APPENDIX B SECTION 8 SCHOOLS LOAN SCHEME HERTFORDSHIRE SCHOOLS LOAN SCHEME RULES AND CONDITIONS Who can apply for a loan? The Scheme is open to all Primary, Secondary, Nursery and Special Schools within the County Council s pooled banking arrangements, currently with National Westminster Bank. Voluntary aided schools will not be eligible for loans to carry out works which fall within the governors responsibility for buildings. What can a loan be used for? Schools can apply for a loan to cover the cost (in full or in part) of any project which: is of a capital nature i.e. will provide a substantial benefit to the school for longer than one year such as building or grounds improvements, major equipment purchases, furniture purchase or replacement, health and safety or security projects; does not conflict with the LEA s plans for school sites and buildings; will not cause the school to incur significant ongoing revenue commitments which it cannot reasonably afford; can be an enhancement to an LEA-funded capital scheme. In what circumstances might a loan be refused? A loan may be refused if, in the LEA s view: a school already has sufficient resources at its disposal to proceed with the scheme/purchase a scheme is of a speculative nature and relies on future income generation to cover running costs a scheme could have an adverse effect on the LEA s future planning for the provision of school places, because of implications for changes in the school s standard number/admission limit, nursery places etc, or because it could lead to the creation of surplus places in the area Part IV: Section 8 Page 15 RESO3524 Issue 2 : April 2002

16 a scheme has significant annual running costs and there is an expectation that the LEA will meet/contribute to these but is not prepared to do so the repayments on the level of loan requested could pose the school significant financial difficulties a building project does not comply with our project approval system, which seeks to ensure that relevant regulations are met. If the fund is oversubscribed by eligible applications, what will be the priorities for deciding which loans are approved? The following order of priorities (drawn from the LEA s capital strategy) will be used. Priority 1 Priority 2 Priority 3 Priority 4 Priority 5 Health and Safety and security projects Work to remedy deficiencies in accommodation and provide further school places where basic need is not provable Work to replace or upgrade accommodation which is sub-standard in terms of sufficiency, condition and suitability Providing an opportunity for schools to receive voluntary or private sector funding by enabling the school to use the loan as its matching funding Purchase of information technology or other large curriculum-related equipment. How much can a school borrow? Loans will be limited to between 1% and 5% of the school s current budget share, the upper limit to include the outstanding balance of any earlier loan(s). No other form of borrowing is permitted under the terms of the Scheme for Financing Schools. What are the repayment terms? The maximum period of a loan will be 5 years (3 years for equipment purchases). The minimum period will be 2 years. Schools can select any repayment period within this range, in multiples of quarter-years. The amount of the loan will be repaid in equal quarterly instalments. The first quarterly repayment will be made at the end of the first quarter following the loan start date. Interest will also be charged quarterly (at the same time as loan repayment instalments) based on the balance of the loan outstanding and calculated at base rate (currently 3.75%). Part IV: Section 8 Page 16 RESO3524 Issue 2 : April 2002

17 Therefore, if the interest rate stays static, the amount of interest chargeable each quarter will reduce as the loan is repaid. The interest rate will, however, vary in line with bank base rate changes. (Base rate is the interest rate schools in the pooled banking arrangements receive on their general account balances.) Repayments and interest will be charged to schools through the monthly traded services direct debit prints. Therefore, for loans starting on 1 July the first repayment and interest charges will fall due on 30 September, and will be debited to school accounts on 15 October (or nearest banking day) via the October traded services print. What are the administrative requirements? A formal decision by the Governing Body to seek a loan is required. The LEA s Loan Application Form must be used, and this must be signed by the Headteacher and Chairman of Governors. Subject to LEA approval, the school is then bound by the terms and conditions of the scheme, and repayments of principal and interest will be charged automatically to the school s budget. Each loan application must be accompanied by a three year financial forecast, including the pupil number data used to produce this forecast. These reports can be generated by the Finance Planner software, which is available from Financial Services for Schools. See contacts to this Section. If at any time the school ceases to be subject to the LEA s school funding scheme or the LEA s pooled banking arrangements, immediate repayment of the outstanding balance and interest will be required. If an application is approved, the LEA will notify the school in writing of that approval. The LEA will not pay the amount of the loan into the school s bank account, but will issue a central expenditure code or codes which the school must use in the processing of any invoices relating to the loan project. Once coded, invoices should be sent in to ITnet for payment. These will be charged centrally and not against the school s bank account. However, should the total of payments exceed the loan approval, the excess amount will be recharged to the school s own bank account. Loan repayments and interest will be calculated on the total amount of the loan approval from the approved start date. The repayments and interest are not affected by the rate at which a school may choose to take up the amount of loan approval. There will not be specific arrangements to enable schools to increase the size of a loan, for example in relation to an increase in the costs of a building project. Any approval to increase the value of a loan would be at the discretion of the Assistant Director (Resources) and would depend on the level of additional funding sought and the availability of resources from the fund. Part IV: Section 8 Page 17 RESO3524 Issue 2 : April 2002

18 What if the school cannot meet the repayments? This will not arise. The LEA will deduct repayments and interest charges automatically from the school. The Governing Body must ensure when applying for a loan, and when it sets its budget each year, that provision is made to meet those charges. The annual budget plan must include such provision, and it will continue to be illegal for a Governing Body to set a deficit budget. How will loan requests be assessed by the LEA? Loan requests will be considered by appropriate officers, and loans will be authorised by the Assistant Director (Resources). If the fund is oversubscribed by eligible applications, requests will also be considered by a Management Committee set up by the Resources Management Partnership Group, who will assess the relative priorities of the bids in the light of the criteria and priorities set out above. What is the timetable for loan applications and approvals? The start date of a loan may be on 1 April, 1 July, 1 October or 1 January. Schools may make loan applications at any time, and should specify the preferred start date for the loan. A minimum of one month should be allowed between the date of receipt of the application and the start date of the loan. In the event that the fund is oversubscribed, and an assessment of relative priorities by the Management Committee is required, two months should be allowed for this approval process. Please bear in mind that the school will be charged for repayments and interest from the approved start date of the loan. The loans fund will comprise approximately 25% of the total of schools balances within the National Westminster Bank pooling arrangements, as at the end of the previous financial year. Depending on demand, up to 40% of the fund (approximately 1.7m) will be available for loan in any one year. Application forms may be obtained from Peter Hudson, School Funding Unit, County Hall, Hertford. Telephone Part IV: Section 8 Page 18 RESO3524 Issue 2 : April 2002