Guidance

Related party transactions: glossary of terms

Updated 1 September 2023

Applies to England

1. Glossary

Term	Description
Agreement	A transaction, contract or agreement for the provision of goods or services or any discrete transaction with a related party. Where an agreement comprises a number of planned transactions, these should be declared as a single submission. We will refer to agreements as transactions throughout the online form.
Arm’s length transaction	A transaction in which each party can act fully in its own self-interest and is not subject to any pressure or duress from the other party. The Charities SORP (2019), paragraph 9.21, states that charities must not make statements that related party transactions were at arm’s length unless this can be substantiated.
At cost	Without profit as the transaction includes direct and (if applicable) indirect costs only. For further details on the at cost requirement please see the Academy Trust Handbook (ATH) 5.49; section 33 of the Financial Reporting Standard 102; and section 9.15 and appendix 1 of the Charities SORP.
Benchmarking	Comparing finances with other schools and academies who have similar characteristics. Schools Financial Benchmarking - GOV.UK (schools-financial-benchmarking.service.gov.uk)
Conflict of interest	If there is a decision to be made where a related party has a personal or other interest, this is a conflict of interest, and the related party won’t be able to comply with their legal duty unless they follow certain steps. Guidance on how to manage a conflict of interest is available. If a trust is uncertain whether a relationship constitutes a related party, you may wish to seek professional advice.
Contract	A binding agreement made between two or more parties, which is intended to be enforceable in law. We will refer to contracts as transactions throughout the online form.
Control	The power to govern the financial and operating policies of an entity in order to obtain benefits from its activities.
Direct costs	The costs of any materials and labour used directly in producing the goods or services.
Income related party transactions	A related party transaction in which the academy trust receives money or something of equivalent value. Examples of income related party transactions include the donation of goods, services, property or money. These transactions do not need to be reported via the online form but must be reported in the academy trust’s annual accounts.
Indirect costs	A proportionate and reasonable share of fixed and variable overheads.
Influence	Influence is the power to participate in the operating and financial policy decisions of an entity, which falls short of ‘control’.
Notice to Improve (NtI)	An NtI describes what a trust must do to address concerns about financial management or governance. The trust must comply with the NtI. Failure to comply will be deemed a funding agreement breach. The funding agreement may be terminated due to non-compliance with an NtI. ATH 6.16 to 6.19.
Novel, Contentious or Repercussive (NCR)	Novel transactions are those of which the academy trust has no experience, or that are outside its range of normal business. Contentious transactions are those that might cause criticism of the trust by Parliament, the public or the media. Repercussive transactions are those likely to cause pressure on other trusts to take a similar approach that therefore have wider financial implications. ATH 5.44.
Open book agreement	A method of procuring goods or services under which contractors are required to provide transparent information on how they have calculated their costs. Where the 'at cost' requirement applies, an open book agreement should be in place.
Procurement	The process of obtaining goods, works and services from third parties and in-house providers. The process of procurement starts with identification of needs through to the end of a services contract, or the end of the useful life of an asset, and includes disposal costs. The Academy Trust Handbook, section 2.25, requires academy trusts to ensure that there is competitive procurement procedure in place. ATH 2.25.
Register of interests	The academy trust’s register of interests must capture the relevant business and financial interests of members, trustees, senior employees and local governors of academies and their family members.
Relative	A close or extended family member.
Scheme of delegation	An annually reviewed document, setting out who the delegated decision makers are for different roles and responsibilities, including financial scrutiny and oversight. ATH 2.4 to 2.5.
Sponsor	An organisation or person supporting an academy or group of academies by working with their academy trust.
Statement of assurance	Where goods or services exceed £2,500  and/or are supplied by an individual or organisation referred to in ATH 5.49, academy trusts must ensure they are provided at no more than cost and that the transaction is supported by a statement of assurance from the related party confirming this. A model statement of assurance is available. ATH 5.58 to 5.59.
Subsidiary	A business entity or corporation that is fully owned or partially controlled by another company, termed as the parent, or holding company. This can also be a joint venture or an associate company.
Supplier Type	Limited company or other type of supplier, for example a charity, local authority or sole trader.
Tender	An official written offer containing a costed proposal to perform the service or provide the goods required, in response to a tendering exercise.
Traded services	Traded services are goods or services which are purchased from the trust’s religious authority, but which are not essential to maintaining the religious character and ethos of the school.
Trustees	The trustees of the academy trust are both charity trustees and company directors. The term ‘trustees’ is used in Department for Education documents to refer to those who sit on the board of directors of an academy trust. In some academy trusts, those on the board are known as ‘directors’. In academies with a religious designation, the term ‘trustees’ is reserved for those on the board of the separate trust that owns the land. For further detail, see ATH 1.8.