Related party transactions in an academy trust

The rule: Academy Trust Handbook 2026, paragraphs 5.36 to 5.56

The rules on related party transactions for academy trusts in England are in paragraphs 5.36 to 5.56 of the Academy Trust Handbook 2026, which took effect on 1 October 2026 and replaced the 2025 edition. The handbook is not optional guidance: it says “Compliance with the requirements set out in this document is a condition of the funding agreement between each trust and the Secretary of State for Education.” Since 1 October 2024 trusts report to the Department for Education rather than the Education and Skills Funding Agency, and the DfE’s summary guidance on reporting or seeking approval for related party transactions says “There has been no change to the process you follow to do this.”

Paragraph 5.36 gives the working definition: “Related parties include persons and entities with control or significant influence over the academy trust, and members of the same group (for example, parent and subsidiary companies, key management personnel and close family members).” It adds that “The above description is not comprehensive” and points to section 33 of Financial Reporting Standard 102 and section 9.15 and appendix 1 of the Charities SORP for the full definition. The DfE’s good practice guide on managing conflicts of interests, related party relationships and related party transactions quotes FRS 102: a related party transaction is “a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged”. A free service, a donation and a sale by the trust all count.

Paragraph 5.37 sets the principle: trusts “must be even-handed in their relationships with related parties”. That means trustees meeting their duties as company directors to avoid conflicts of interest and to declare an interest in proposed transactions; every member, trustee, local governor and senior employee completing the register of interests; and, in the handbook’s words, “no member, trustee, local governor, employee or related individual or organisation uses their connection to the trust for personal gain”. No payment goes to a trustee unless the articles permit it or the Charity Commission authorises it. Paragraph 5.39 puts the duty on the board: “The board of trustees must ensure requirements for managing related party transactions are applied across the trust.” Paragraph 5.40 names relationships that “may attract greater public scrutiny”, including transactions with the board chair and the accounting officer and payments to organisations with a profit motive.

Two lists matter, and they are different. The broad accounting definition above decides what the trust reports to the DfE and discloses in its accounts. A narrower list in paragraph 5.46 – members, trustees, their relatives and businesses, anyone with the right to appoint a member or trustee, and sponsors – decides who must charge the trust no more than cost (section 04). Members are covered by both; academy trust members sets out their wider role.

Report, seek approval, or both: which transactions need what

Every related party transaction falls into one of a few boxes. Work out which before anything is signed.

• Report every contract in advance. Paragraph 5.42: “Trusts must report all contracts and other agreements with related parties to DfE in advance of the contract or agreement commencing or being renewed, using DfE’s related party online form.” A renewal is a new report.
• Seek prior approval above £40,000. Paragraph 5.43: trusts must obtain the DfE’s prior approval “for contracts and other agreements for the supply of goods or services to the trust by a related party agreed on or after 1 September 2023, where a contract or other agreement exceeds £40,000 in the same financial year ending 31 August.” The test applies to supplies to the trust, not to sales by it.
• Seek prior approval for anything novel, contentious or repercussive, at any value. Paragraph 5.45: “Trusts must obtain DfE’s prior approval for any contracts and other agreements with related parties that are novel, contentious or repercussive, regardless of value.” The good practice guide’s examples include “payment in advance of need”, “providing business start-up costs to a subsidiary company”, “non-contractual severance payments” and “investments which are considered high risk or unethical”. The handbook asks trusts to consider this rule carefully for transactions involving the board chair or the accounting officer.
• Report, but no approval needed: the educational and religious exceptions. Approval under 5.43 does not apply to supplies by colleges, universities and schools that sponsor the trust, by state-funded schools and colleges including academy trusts, or to services from a religious authority “for essential functions fundamental to the academy trust’s religious character and ethos”. The concession “does not apply to transactions with a subsidiary of such a related party”, and the summary guidance says “These related party transactions must be declared to the DfE using the online form.”
• Income: not reported, but disclosed. The handbook’s 5.42 says “all contracts and other agreements”, with no carve-out; the exemption comes from the DfE’s summary guidance, which says “Academy trusts do not need to report income transactions with related parties.” For an expenditure transaction with a new supplier, the trust must confirm whether it has previously received a donation from that related party.
• Payroll: outside reporting and approval. Paragraph 5.44: contracts and agreements with related parties “do not include salaries and other payments made by the trust to a person under a contract of employment through the trust’s payroll.” Employing a trustee’s relative is still a related party transaction for the accounts, and paragraph 5.49 says the principles of value for money and managing conflicts of interest “still apply”.

A reported transaction that needs no approval is not forgotten: the summary guidance says the DfE still monitors it “as part of routine oversight for compliance and transparency purposes”, and “Even though approval may not be required for certain transactions it is still important to maintain accurate records and documentation of all transactions with related parties.” The DfE also requires separate approval, flagged on the same form, when a related party is appointed as an accounting officer or chief financial officer who is not an employee of the trust.

The online form, and how the £40,000 test works on a contract

Reports and approval requests go through the DfE’s related party online form, which needs a DfE Sign-in account. The DfE’s guide Using the online form: report or seek approval for related party transactions lists what a new supplier record asks for: the company number for a limited company, the supplier’s address, whether the supplier is the trust’s religious authority or its sponsor, the statement that best describes the relationship, whether it is a subsidiary, associate or joint venture of the trust, and whether the trust has received a donation from it in the past.

The form takes the whole contract. “Each transaction must be submitted for the total value and the full duration of the contract or agreement and not the annual value.” The DfE’s example: “A 3-year agreement or contract with a total value of £60,000, comprising goods and services c.£20,000 per year, must be reported as a single transaction for £60,000.” Transactions “that form part of the same agreement or contract must not be split”.

The approval test is a separate question, and the handbook answers it. Paragraph 5.43 asks whether a contract “exceeds £40,000 in the same financial year ending 31 August”, so on the handbook’s words the three-year £60,000 contract is reported as one £60,000 transaction but needs the DfE’s prior approval only if a single year’s value exceeds £40,000, or if it is novel, contentious or repercussive. The DfE never says its £60,000 example needs approval, and its good practice guide paraphrases the threshold more loosely as “where the transaction exceeds £40,000”. A trust in doubt should ask the DfE through the customer help portal before signing.

The threshold is per transaction, not per supplier: “The £40,000 approval threshold applies to single transactions with the same supplier, the transaction value is not aggregated by supplier.” Two separate £30,000 contracts with the same related party in one year need no approval on value alone, provided they are genuinely separate rather than one contract split in two. The at-cost rule in section 04 works the other way, and adds up every contract with the related party in the year.

Where approval is needed, the form asks for evidence that the trust followed its competitive procurement procedures, applied its scheme of delegation, has an up-to-date register of interests and managed the conflict, and holds a signed statement of assurance on an open-book basis where the at-cost rule applies. A transaction with the trust’s own subsidiary over £40,000 also needs the contract (with a two-year review or renew schedule and a no fault, no cost break clause), the subsidiary’s current financial plan and, if the subsidiary is not a charity, the Charity Commission’s Checklist 1.

• Allow ten working days. The form says “We aim to respond within 10 working days”, and the good practice guide says “DfE requires 10 working days to make an approval decision, therefore sufficient time should be allowed for this.”
• Get the value right first. The form cannot be amended after it is saved and submitted, and “Following DfE approval, academy trusts cannot amend the transaction value.” An estimate is acceptable where costs vary across the contract; a material variance at the year end is reported through the customer help portal.
• Know what you are declaring. The submission declares that it “contains no instances of irregularity, impropriety or improper use of funds” and that the trust “will keep records related to this transaction and make them available for inspection by the DfE”. The accounting officer is responsible for the accuracy of those declarations, “including where these are made by others under delegated authority”.
• Emergencies. Where a trust has had to procure immediately to deal with an emergency, the summary guidance requires it to show it followed its own procurement and delegation procedures and managed the conflict, to report or seek approval retrospectively “as soon as possible after the emergency”, and to give the DfE evidence of the circumstances.
• Late is a breach. Otherwise, “Submitting a retrospective transaction is a breach of the Academy trust handbook, and DfE may consider further action.” The accounting officer should report the breach in the statement on regularity, propriety and compliance in the annual accounts.

One caution about the DfE’s own pages. The related party guidance and checklist for preparing evidence for DfE approval were last updated on 1 September 2025, before the 2026 handbook, and the checklist still cites the 2025 handbook’s paragraph numbers: it sends trusts to “ATH 1.45 to 1.48” for the register of interests and “ATH 5.43” for novel, contentious or repercussive transactions, and still tells trusts to contact “the ESFA” for transactions over £10 million. In the 2026 handbook the register is 1.51 to 1.54 and the novel, contentious or repercussive rule is 5.45.

The at-cost rule above £2,500

Paragraph 5.46 requires a trust to “pay no more than ‘cost’ for goods or services” provided by a defined list of people and organisations. The list is narrower than the accounting definition of a related party:

• members or trustees of the academy trust
• a relative of a member or trustee, defined as “a close member of the family or member of the same household, who may be expected to influence, or be influenced by, the person, including, but not limited to, a child, parent, spouse or civil partner”
• anyone carrying on business in partnership with a member, trustee or their relative
• a company in which a member or trustee or their relative, separately or together, holds more than 20% of the share capital or can exercise more than 20% of the voting power at a general meeting, and an organisation any of them controls
• anyone given the right under the trust’s articles to appoint a member or trustee, and any body connected to them
• a sponsor recognised by the Secretary of State, and any body connected to it

Paragraph 5.47 says a body is connected if it controls, is controlled by or is under common control with the person, and control means holding more than 20% of the share capital, having the equivalent right to control management decisions, or having the right to appoint or remove a majority of the board. The rule does not reach the trust’s employees unless they are also on the 5.46 list (5.48), and contracts of employment are outside it.

The threshold is cumulative. Paragraph 5.51: “The ‘at cost’ requirement applies to contracts with a related party exceeding £2,500, cumulatively, in any one financial year. Where a contract takes the trust’s cumulative annual total with the related party beyond £2,500, the element above £2,500 must be at no more than cost.” So if a trustee’s company supplies £4,000 of IT support across a year ending 31 August, the last £1,500 must be charged at no more than cost. Paragraph 5.56 defines cost as “the ‘full cost’ of all the resources used in supplying the goods or services”, which “must not include any profit”: direct costs plus a proportionate share of overheads.

Paragraph 5.55 adds the paperwork. An agreement with anyone on the 5.46 list must be “properly procured through an open and fair process” and be supported by “a statement of assurance from that individual or organisation to the trust confirming their charges do not exceed the cost of the goods or services”, on “the basis of an open book agreement” that lets the trust ask the supplier to show it.

• Legal and audit firms: the rule applies only where the partner managing the service is a member or trustee of the trust (5.52).
• Religious authorities: services to protect and develop a designated academy’s religious character and ethos, which only its religious authority can provide, are regarded as meeting the rule (5.53).
• Sponsors that are colleges, universities or schools, and other state-funded schools and colleges: their goods and services are regarded as meeting the rule, but not those of their subsidiaries (5.54).
• Premises: where staff of a 5.46 person work from the trust’s premises other than on the trust’s work, the two must agree a sum for the use of the premises (5.50).

When an existing supplier becomes a related party, the good practice guide says its existing contracts “can continue until they expire”, but new or renewed contracts must be at cost where the rule applies, and “Clear documentation should be maintained to show when the relationship transpired.”

The paper trail: register, declaration, minutes and accounts

Paragraph 5.41 sets the standard every record is measured against: “The trust must keep sufficient records, and make sufficient disclosures in their accounts, to show that transactions with these parties, and all other related parties, have been conducted in accordance with the high standards of accountability and transparency required within the public sector.” In practice the record has five parts.

1. The register of interests. Paragraph 1.51: “The trust must keep a register of any relevant business and financial interests, for (as a minimum) members, trustees, local governors and senior employees, serving at any point over the past 12 months.” Paragraphs 1.52 and 1.53 list the fields, including directorships, partnerships and employments, other trusteeships and governorships, and relevant interests from close family relationships, including with employees. Paragraph 1.54: “Boards of trustees must keep their register of interests up to date at all times.” Paragraph 1.55 requires the register for members, trustees, local governors and the accounting officer to be published on the trust’s website, “including a nil return where appropriate”. (Paragraph 5.37 refers to “sections 1.50 to 1.53”; the register is at 1.51 to 1.54 in the 2026 edition.) The good practice guide says those responsible for procurement “should review the register of interest to identify conflicts before entering into a contract or agreement with potential supplier.” The general approach is in register of interests for a charity.
2. The declaration, before the deal. Academy trustees “are both charity trustees and company directors” (handbook 1.8), so section 177 of the Companies Act 2006 applies: a director “in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company” must “declare the nature and extent of that interest to the other directors”, and the declaration “must be made before the company enters into the transaction or arrangement.”
3. The meeting and its minutes. The good practice guide calls a standing agenda item for declarations “best practice”, says a conflicted trustee should withdraw while the item is discussed and decided (unless the articles say otherwise), and warns that the articles may stop that trustee counting in the quorum. The minutes should “accurately capture when a conflict of interest has been declared”, “include any subsequent action taken to manage the conflict and the rationale for that action” and be “agreed by the academy trustees or committee members and signed by the chair”. A trust’s conflict of interest policy sets out the routine.
4. The decision record. Section 4.2 of the good practice guide says trusts “should maintain accurate documentation (and retain the evidence) to demonstrate the rationale for entering into a transaction with a related party”: when the decision was made and by whom, the conflict and how it was managed, the related party and the relationship, the nature and purpose of the transaction, how procurement and delegation limits were observed and market value tested, the at-cost checks, and “an audit trail of who in the academy trust has been informed of the related party relationship or conflict of interest and how this has been communicated”. Where a trustee or connected person is paid for goods or services, “a written agreement must be in place” before payment, and “recording details of the proposed arrangements in the board minutes is not sufficient”; trustee payment covers the Charity Commission’s conditions.
5. The accounts. The Academies accounts direction 2025 to 2026 says “All transactions undertaken by an academy trust with related parties must be regarded as material regardless of their size and must be disclosed” (2.173). The note must also confirm whether the transactions were conducted in line with the handbook and the trust’s financial regulations and procurement procedures, a statement that “should not be made unless this can be substantiated” (2.174); state that the element above £2,500 was provided at no more than cost, backed by a statement of assurance from the related party (2.175); and confirm that the DfE was told of the transactions and its approval obtained where required (2.176). “If no related party transactions arose in the period, the note must still disclose this” (2.177).

Where ComplyChat fits, and where it does not

Start with what it is not. ComplyChat is not a register of interests, it does not submit anything to the DfE’s online form, it does not write minutes or hold contracts, and it is not a finance or procurement system. It does not capture email or WhatsApp. Everything in sections 02 to 05 stays where the trust already keeps it.

What it addresses is the step before the paperwork. A trustee mentions to the chief financial officer, by text on a Sunday, that the decorator who has quoted for the summer works is her brother. The chair agrees between meetings that the trust can go ahead with a quote from a member’s company, by a thumbs-up in a group on her own phone. Those messages are the first record of a related party relationship and of how the conflict was managed. The DfE’s checklist says evidence that a conflict was managed could include “minutes of relevant meetings” and “a copy of email approval”, and section 4.2 of the good practice guide asks for an audit trail of who was told and “how this has been communicated”. A message on a personal phone is hard for the trust to produce when the auditor or the DfE asks, and it does not reach the register or the minutes on its own. The rules for agreeing things between meetings are in trustee decisions between meetings.

ComplyChat is designed to keep those conversations in channels the trust runs. Trustees, members of staff and other people added by their mobile number talk in channels the trust controls; a mobile number verified by SMS is an identity, so a trustee needs no account on the trust’s systems; everyone added is told the channel is on the record and can object or leave; and messages are recorded on the server as they are sent. On paid plans, once the trust’s tenant is connected, conversations are kept under the retention schedules within its own Microsoft 365 subscription. ComplyChat is working towards Cyber Essentials and ISO 27001 certification and holds neither yet.

A question for the next board meeting: when a trustee last told someone about a business interest between meetings, where was that said, and could the trust show it to its auditor?

Questions people ask

What are the rules for related party transactions in an academy trust?

Academy trusts in England must report every contract or agreement with a related party to the DfE before it starts or is renewed (Academy Trust Handbook 2026, 5.42), get the DfE’s prior approval for goods or services supplied by a related party above £40,000 in a financial year (5.43) or of any value if novel, contentious or repercussive (5.45), and pay no more than cost for the element above £2,500 a year supplied by members, trustees and those connected to them (5.46 and 5.51). The whole section runs from 5.36 to 5.56.

Are related party transactions allowed?

Yes, with conditions. The Academy Trust Handbook 2026 requires trusts to be “even-handed” in their relationships with related parties (5.37): report in advance, seek approval above the thresholds, apply the at-cost rule and keep sufficient records to show public-sector standards were met (5.41). Paying a trustee also needs authority in the articles or from the Charity Commission (5.37).

Does the £40,000 limit apply to the whole contract or to each year?

The approval test in paragraph 5.43 is whether a contract “exceeds £40,000 in the same financial year ending 31 August”. The online form records the contract at its total value and full duration, so a three-year £60,000 contract at about £20,000 a year is reported as one £60,000 transaction, but on the handbook’s words needs prior approval only if a single year exceeds £40,000. Trusts in doubt should ask the DfE before signing. The threshold is per transaction, “not aggregated by supplier”.

What should be included in the record of a related party transaction?

The DfE’s good practice guide (section 4.2) says the record should show when the decision was made and by whom, the conflict of interest and how it was managed, the related party and the relationship, the nature and purpose of the transaction, how procurement and delegation limits were observed, the at-cost checks, and who in the trust was told and how. The online form also asks for the supplier’s company number, address, relationship to the trust and any past donation.

What are some examples of related party transactions?

The DfE’s good practice guide (section 3.2) lists buying IT, training, consultancy or tradespeople’s services from a related party, membership fees paid to a related party, investments in a related entity and employing a related party, and on the income side donations from a related party, sales to one and payments by one for the use of the trust’s premises or facilities.

What is the policy on related party transactions for 2026?

The Academy Trust Handbook 2026, effective from 1 October 2026, sets the rules in paragraphs 5.36 to 5.56: advance reporting of all related party agreements, DfE approval above £40,000 in a financial year or where novel, contentious or repercussive, and the at-cost rule above £2,500. The register of interests is at 1.51 to 1.54. The DfE’s supporting guidance was last updated on 1 September 2025, and its checklist still cites the 2025 paragraph numbers.

Official guidance and your next step

The rules are in paragraphs 5.36 to 5.56 and 1.51 to 1.55 of the Academy Trust Handbook 2026, a condition of every academy trust’s funding agreement, and in section 177 of the Companies Act 2006. The DfE explains them in its summary guidance, its good practice guide, its guide to using the online form and its checklist, all last updated on 1 September 2025, before the 2026 handbook; the checklist still cites the 2025 handbook’s paragraph numbers. Disclosure in the accounts is set by the Academies accounts direction 2025 to 2026. The wider handbook is summarised in the Academy Trust Handbook 2026. Quotations are from the pages named as published on 3 November 2026.

This guide covers academy trusts in England and is not legal or accounting advice; the DfE’s good practice guide suggests trusts with complex arrangements take advice from their auditor or another qualified professional.

Then do one thing: take the trust’s list of suppliers paid this financial year and set it beside the register of interests. Any name that appears on both should already be on the DfE’s online form; if one is not, that is where to start.