College financial handbook

What has changed in the 2026 edition?

Chief Financial Officer recruitment

For larger colleges from 1 August 2027, any recruitment processes for a chief financial officer (CFO) must specify that the person should hold a professional accountancy qualification and be a member of a professional accountancy body. If a college is planning to appoint a new CFO who is not a qualified accountant, the DfE must be informed in advance, including an explanation of why the college is not appointing a qualified accountant.  Any CFO recruitment exercise commencing on or after 1 August 2026 should specify that the person should be a qualified accountant. These requirements are for colleges with over 3,000 students.

Colleges should therefore consider their recruitment strategies for CFOs, being mindful of this new requirement for accountancy qualifications and a clear focus on the requirement for financial expertise.

In addition, the board of governors should “identify and ensure” that it has the skills and experience it needs, “including sufficient and effective financial knowledge and expertise”, to hold the executive to account. Governors must also consider the development of the members of the relevant committees operated within the college, such as finance committees and audit and risk committees, to ensure they are appropriately trained to fulfil that role.

Senior pay controls

Colleges remain subject to central government senior pay controls for any role that meets HM Treasury’s senior pay threshold.

The requirement to seek new approval for existing staff whose role has had previous approval from the Treasury has changed slightly. New approval does not have to be obtained where the total remuneration and performance related pay are the same or below what the incumbent receives, or involves an increase of 5% or less (this percentage has increased from 2%), and the previous Treasury approval placed no condition on the incumbent or subsequent recruitments.

As is currently the case, colleges must notify the department of their use of this flexibility within one month of their appointment being made.

In addition, for existing employees whose remuneration already exceeds £174,000, approval is required for any pay award above 6% through the senior pay controls application process, before the pay increase is confirmed.

Pension schemes – consultation with the DfE

The 2026 handbook emphasises the requirement for colleges to comply with pension scheme regulations and the “New Fair Deal for staff pensions guidance” (published in 2013) by HM Treasury which can be found here. The guidance sets out expectations around the management of pension issues in the context of outsourcing, whereby when staff who are members of a public service pension scheme are compulsorily transferred out of the public sector, those transferred staff will retain access to that public service pension scheme. Colleges must also continue to ensure that all eligible staff have access to either the Teachers’ Pension Scheme (TPS) or the Local Government Pension Scheme (LGPS), as relevant to their role, including staff transferring to the college from another employer. With effect from 1 August 2026, any college which may be proposing to introduce a new pension scheme, which is not the TPS or the LGPS, must consult with the DfE before any details are shared with their employees.

Electric vehicle salary sacrifice schemes

The 2026 handbook confirms that colleges can operate electric vehicle (EV) salary sacrifice schemes without requiring prior DfE approval, provided they have comprehensive mitigations in place to ensure there are no liability risks or costs to the college, including if there is a change of circumstances to the employee’s position, and colleges must clearly document those mitigations. This means that EV salary sacrifice schemes can again form part of benefit packages for staff, which may assist with recruitment and retention objectives.

The new associated guidance identifies specific mitigations colleges should have in place, including: retaining a proportion of National Insurance and employer pension contribution savings to fund a reserve or insurance against the cost or cashflow impact of leases ending early (limited to the period of potential liability); carefully managing the scale of the scheme, including limiting participation and capping EVs per employee; conducting an annual review of the scheme with findings reported to the board; and ensuring the employee agreement clearly sets out the employee’s obligations and liabilities on early termination. It also expects arrangements to minimise the administrative burden on the college, such that the scheme provider — rather than the college — is responsible for contacting the employee directly to seek any remedy under the lease agreement.

Risk registers

Colleges must manage risks to ensure its effective operation. It is recommended by the DfE that board assurance frameworks are used to enable a strategic overview of risks and, as a minimum, a risk register must be developed and regularly maintained. The 2026 handbook has also introduced a good practice list for risk registers, including linking risks to strategic objectives, using a consistent scoring mechanism for likelihood versus impact, assigning an owner to each risk, distinguishing existing controls and mitigating actions from residual risk, and regularly reviewing and removing risks that are no longer relevant. The board of governors must retain overall ownership of risk management and must conduct a full review of the risk register at least annually.

Change in governance codes

The UK Corporate Governance Code has been removed from the selection of governance codes that colleges can choose to comply with. This was foreshadowed in the 2025 handbook, and now leaves colleges to choose between the Further Education Code of Good Governance (developed by the Association of Colleges) and the Charity Governance Code (as endorsed by the Charity Commission). This effect of this change will be minimal since the vast majority of colleges already align with the AoC or the Charity code in any event.

Special staff severance payments

The 2026 handbook contains the following changes with regard to special severance payments for staff leaving college employment:

• Colleges must not use special severance payments as an alternative to proper management action, to avoid difficult decision, disciplinary processes, unwelcome publicity or reputational damage.

•  Colleges must also ensure that all relevant internal policies and procedures are followed, and all alternative actions are fully explored and documented.

• Pursuant to the guidance on public sector exit payments, Treasury approval is required if the payment is novel, contentious or repercussive regardless of value. This now includes a situation where lawyers have assessed the colleges chances of successfully defending the matter in a court or tribunal as more than 50%, as this would automatically be considered contentious.

• As with the 2025 handbook, colleges must demonstrate value for money by applying the same scrutiny to a payment under £50,000 as those over this limit, and have a justified business case. The 2026 handbook states that settlements must not be offered unless they satisfy the conditions in the handbook, whereas the 2025 handbook provides that settlements must not be accepted unless they satisfied the provisions.

The changes to the handbook are significant, particularly the new requirement for approval for any payment where legal advice says that there is a great than 50% chance of the college successfully defending a claim.

The 2026 handbook directs colleges to follow the Treasury’s guidance on public sector exit payments, and the DfE’s special severance payments guidance, which will be “published in due course”. The DfE guidance will no doubt be useful but it is unclear when it will materialise.

Use of confidentiality clauses

The 2026 handbook reflects the amendments made to the 2025 handbook, whereby in respect of special severance payments, confidentiality clauses are always novel, contentious or repercussive and so must not be used unless the college has obtained prior DfE approval. In addition, for any severance payment (special or otherwise), a confidentiality clause must not prevent an individual’s right to make disclosures in the public interest (whistleblowing) under the Public Interest Disclosure Act 1998, and must not be used to prevent the DfE from obtaining sufficient information from colleges to fully assess such payments under its regulatory role.

Cyber security

Colleges must renew their Cyber Essentials certification annually and maintain certification status. In addition colleges must not pay any ransom or extortion demands, including cyber ransomware.

Next steps

Colleges have a relatively small window to ensure they are ready for the changes contained in the 2026 financial handbook, which will be effective from 1 August 2026.