On 25 June 2025, the Department for Education (DfE) published the second edition of the College Financial Handbook (CFH), which is effective from 1 August 2025 and subsequently updated 23 July 2025. The Handbook provides essential guidance for colleges, and compliance with its requirements is a condition of the accountability agreement between each college and the DfE.

The post 16 Audit Code of Practice (ACoP) has been replaced with a Framework and Guide for External Auditors and Reporting Accountants of Colleges. The college requirements which were included in ACoP are now part of the CFH. These include:

• Audit committee governance – roles, responsibilities, membership and operation of the audit committee (CFH paragraphs 3.1 to 3.15).
• External audit – letters of engagement and the process for changing external auditors (CFH paragraphs 4.9 to 4.11).
• The Accounting Officer’s statement of regularity, propriety and compliance must be included in the college’s annual report and accounts. This declaration confirms the Officer has fulfilled their responsibilities to Parliament for managing resources during the year (CFH paragraph 4.12).
• The requirement for Corporations to prepare an annual regularity self-assessment questionnaire to support college Accounting Officers in drafting their statement of regularity, propriety and compliance (CFH paragraph 4.13).

The Handbook provides an overarching framework for implementation of effective financial management and other controls, consistent with colleges’ obligations as public-funded bodies. It also reflects the principles in HM Treasury’s Managing Public Money (MPM), and explains when colleges must obtain prior approval from the DfE for certain financial transactions. Moreover, the Handbook states that the DfE may intervene if there are concerns about a college’s compliance with the CFH.

For clarity, throughout the Handbook:

• ‘Must’ means statutory, contractual and other regulatory requirements such as, but not limited to, charitable rules and public sector spending rules. A “must” is effectively a rule.
• ‘Should’ means minimum good practice that colleges should apply, unless they can demonstrate that an alternative approach better suits their circumstances. A “should”, although it appears optional, effectively is a rule unless the college can demonstrate that an alternative approach will better suit the circumstance.

Key updates in the College Financial Handbook 2025

The 2025 edition of the CFH contains new signposts to supplementary guidance, helping colleges navigate specific areas in more detail. It also includes a useful summary of the freedoms and delegations (although section 5.41 acknowledges the summary is not a substitute for the full handbook.

Part 7 provides a list of further reading, including policies, legislation and resources referenced throughout the document.

Accounting Officer duties and definitions of regularity and propriety

The handbook updates the Accounting Officer duties and the definitions of regularity, propriety, value for money and feasibility, to better reflect MPM. For clarity, it also has a ‘find out more box’ with definitions from the MPM.

The CFH also clarifies that Accounting Officers must advise the Corporation if any action it is considering is incompatible with the accountability agreement, the Handbook or the college’s governing document.

Procurement

CFH provides colleges with guidance on procurement, noting that colleges must ensure that a competitive procurement procedure is in place and incorporated into the college’s financial framework.  The handbook also ensures that procurement rules and thresholds in the Procurement Act 2023 and its associated regulations are followed.

Governance code

From 1 August 2026, the UK Corporate Governance Code will no longer be one of the DfE’s prescribed codes. Colleges will need to comply with either the Charity Governance Code or the AoC Further Education Code of Good Governance. Colleges currently using the UK Corporate Code exclusively should begin transitioning to new arrangements.

Novel, Contentious or Repercussive (NCR) transactions

The CFH now references the March 2025 good practice guide on NCR transactions, which is intended to help the sector think about the concepts of NCR transactions.

The overall requirements for NCR transactions are set out in the Handbook (the colleges’ rulebook).

Cyber crime and ransom guidance for colleges

CFH also reminds colleges that they must not pay any cyber ransom demands. DfE supports the National Crime Agency’s recommendation not to encourage, endorse or condone the payment of ransom demands. The CFH also points out that paying ransoms doesn’t guarantee the restoration of access or services, and could even result in repeat incidents.

July 2025 update – senior pay controls

For new college appointments, DfE approval is required before advertising any role with remuneration above £174,000 (or pro rata for part-time), or performance-related pay above £25,000. For existing staff, approval must be sought for any adjustment that takes total pay above the threshold, unless the role previously had HM Treasury approval and the increase is 2% or less. Colleges must notify DfE if using this flexibility within one month of appointment. For current roles above £174,000, approval is required for pay awards above 6%. If pay rises above £174,000 due to a 6% or lower increase, approval is not required.

Delegated authorities and special payments

There is no change to the existing rule on special staff severance payments. The requirement remains that any such payment equivalent to three months’ gross salary or more (before income tax or other deductions) must receive prior approval from the DfE before any binding offer is made to staff. This rule continues to apply under the CFH 2025.

Looking ahead, there may be alignment with the Academy Trust Handbook in future updates - potentially removing this requirement altogether.

If you would like any further information on any of the topics covered in this article, please contact Richard Lewis, Head of Further Education, or your usual RSM representative.

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