Academy related-party sourcing: what approvals?
An English academy trust must report related-party sourcing agreements in advance and obtain prior approval where the handbook requires it. Supply-at-cost rules have a separate scope and cumulative threshold, so reporting alone is insufficient. Prepare the relationship and cost records with Cambridge China Bridge.
Identify the relationship before seeking quotes
Related parties include people and organisations with control or significant influence over the trust, key management personnel and close family members. This is not an exhaustive definition. Ask the trust’s auditor to check the provider’s ownership, management and connections before choosing the reporting and cost treatment.
Record who contracts with the trust, who invoices it and who receives payment. Distinguish the sourcing provider from the factory and freight supplier. Use the school and charity approval pack for the wider purchasing file and the sourcing-agent conflicts guide for supplier relationship questions.
Report in advance and check prior approval
Report every related-party sourcing contract or agreement through the Department for Education’s online form before it starts or is renewed. For agreements made on or after 1 September 2023, prior approval is required where the supply contract exceeds £40,000 in the financial year ending 31 August. The approval threshold applies to individual transactions, rather than aggregated spending with that supplier.
Novel, contentious or repercussive related-party transactions need prior approval regardless of value. Submit the full contract value and duration, rather than only the annual instalment. As a practical control, keep the purchase order and deposit on hold until the trust has completed reporting and obtained any required approval.
Check whether supply-at-cost rules apply
The at-cost category is narrower than the general related-party category. It covers members and trustees, specified relatives and business connections, appointment-right holders and recognised sponsors, including connected bodies. A company can fall within it where the specified member, trustee or relatives hold more than 20% of its shares or voting power. Check the complete handbook category rather than relying on the supplier’s label.
For an in-scope provider, the at-cost requirement applies above £2,500 cumulatively in a financial year. Only the element above £2,500 must be supplied at no more than cost. Cost includes direct costs and a proportionate share of overheads, with no provider profit. A competitive quotation does not establish that the provider is supplying at cost.
Prepare the assurance and approval file
For suppliers within the handbook’s at-cost category, agreements must be procured through an open and fair process, supported by the supplier’s statement that charges do not exceed cost, and based on an open book agreement allowing the supplier to demonstrate this on request.
Ask for factory invoices, China staff time allocated to the order, freight and testing invoices, and the basis for allocating overheads. Reconcile these with the proposed charge and explain rebates or credits. Keep comparable quotations, the selection rationale and conflict-management records together. Agree document access using the original sourcing records guide.
Working out your own order? Send us the product on WhatsApp and we reply the same working day: WhatsApp us
Do not assume an exemption carries through
The handbook provides specific prior-approval concessions for certain educational suppliers and essential religious-authority services. It also treats specified educational supplies and religious-authority services as meeting the at-cost requirement. The educational concessions do not extend to subsidiaries. An ordinary commercial sourcing provider should not assume it inherits an exemption through a school or sponsor connection.
Before commitment, ask the trust’s finance lead to record the reporting route, approval decision and applicable cost category. Recheck the file for renewals and changes to the proposed arrangement. Cambridge China Bridge can prepare factory and sourcing records through its staff in China; the trust should retain control of the approval decision.
Frequently asked questions
Must an academy report a small related-party order?
Yes. Advance reporting applies to related-party sourcing agreements regardless of value, including renewals. The prior-approval and at-cost thresholds are separate.
Is the £40,000 approval threshold cumulative?
No. The Department for Education’s summary guidance applies it to individual transactions with the supplier. Submit the full agreement value and duration. The £2,500 at-cost threshold is cumulative.
Can a related sourcing provider charge a profit?
Where the provider falls within the handbook’s at-cost category, the element above £2,500 cumulative annual spending must exclude provider profit. Direct costs and proportionate overheads can form part of cost.
Does a low-value order ever need prior approval?
Yes. A novel, contentious or repercussive related-party transaction needs prior approval regardless of value. Ask the trust’s finance lead to assess the proposed arrangement before committing.