What’s new in this year’s College Financial Handbook? What colleges need to know to stay compliant

The Department for Education (DfE) published a new College Financial Handbook which took effect on 1 August 2025 (CFH 2025). This replaces the College Financial Handbook 2024 (CFH 2024).

There are a number of updates from the CFH 2024, which those involved in college finance and governance should familiarise themselves with. Key updates include:

• further clarity on the role and expectations of the accounting officer;
• increases to the financial thresholds for remuneration where DfE consent is required when making appointments and pay awards;
• updates to audit requirements to reflect existing provisions of audit code of practice for colleges;
• clarity on investments;
• updates on cyber security; and
• notification that from 1 August 2026 the UK Corporate Governance Code will no longer be one of the DfE’s prescribed codes and from that date colleges will need to comply with one of the other DfE prescribed governance codes instead (i.e. the Charity Governance Code or the AoC Further Education Code of Good Governance).

There are also broader changes reflecting the closure of the Education and Skills Funding Agency and the transfer of its functions to the DfE, as well as new references to updated legislation and guidance and other tidying up changes.

An overview of the key changes is set out below. If there are any queries on the CFH 2025 or college governance, please contact Tom Morrison, Partner, Joint Head of Education Sector.

Overview of the changes

The CFH is a key regulatory document which colleges must comply with under their accountability agreements with the Secretary of State for Education setting out financial responsibilities, prescribing when consents for financial transactions are required, and when the DfE may take actions where the CFH is not complied with. 

The key changes this year are as follows: 

• (Para 1.3) - the accounting officer’s requirements for the management of public funds have been clarified around the key requirements of ‘regularity’, ‘propriety’, ‘value for money’ (which includes ‘economy’, ‘efficiency’ and ‘effectiveness’) and ‘feasibility’. Each of these terms is now more clearly defined and referenced in Managing Public Money or HM Treasury’s The Green Book: appraisal and evaluation in central government. Accounting officers should familiarise themselves with these requirements.
• (Paras 1.7 and 1.8) – the accounting officer is now required to take personal responsibility for assuring the board that there is compliance with the college’s governing document (as well as the accountability agreement and CFH which was already a requirement of the CFH 2024). It is also now explicit that this requirement includes where such action would conflict with the duties of the accounting officer to ensure regularity, propriety, value for money and feasibility. Additional guidance is now also included signposting accounting officers to key sections of Managing Public Money (see chapter 3 and annex 3.1) which relate to the duties of the accounting officer to raise concerns and the consequences of raising concerns. Again, accounting officers should familiarise themselves with these updates.
• (Para 2.7) – there is now a requirement that the board must set and regularly review the college’s position for holding reserves (previously the board should do this).
• (Para 2.19) - additional wording has been included which expressly permits colleges to invest to generate income. This must be in the best interest of the college and is subject to any restrictions which may be set out in the college’s instrument and articles of government. Further information on investments is also referred to in Charity Commission Guidance and the FE and sixth-form college corporations: governance guide.
• (Para 2.21) – the procurement basics section has been updated to make clear that colleges must ensure that procurement rules and thresholds, in the Procurement Act 2023 (where agreements are in scope) and Find a Tender service, are observed and that professional advice is obtained if appropriate.
• (Paras 2.25 and 2.27) – the requirements for when DfE must support remuneration proposals, prior to applications being reviewed and agreed by Chief Secretary to the Treasury (through HM Treasury), have been amended. The remuneration threshold for new appointments where approval is required have increased from ‘at or above £150,000’ to ‘above £174,000’ and the pro rata equivalent for part-time staff or performance-related pay has increased from ‘above £17,500’ to ‘above £25,000’. These increased thresholds also apply to adjustments to the total remuneration or terms and conditions of existing staff where approval must also be sought. It is now though noted that such approval is not needed if:
  • the total remuneration and performance related pay are the same or below what the incumbent receives, or involves an increase of no more than 2%, and
  • the previous HMT approval placed no conditions on the incumbent or subsequent recruitments (paragraphs 2.3 – 2.6 of the HMT Guidance for approval for senior pay)

Although colleges are still required to notify the DfE within a month of the appointment being made if this exception is relied on.

In addition, the CFH also now states that if the remuneration of an existing appointment already exceeds £174,000, approval is now required for any pay award above 6%, through the Senior Pay Controls application process, before the pay increase is confirmed. If current remuneration is at or below £174,000, approval is required when a pay award of over 6% takes it to or above that figure but approval is not required if a pay increase of up to and including 6% takes the remuneration above £174,000.

• (Para 2.43) – the CFH makes clear that the UK Corporate Governance Code will cease to be one of the DfE’s prescribed codes from 1 August 2026. Colleges will need to comply with at least one of the Charity Governance Code or the AoC Further Education Code of Good Governance instead. If any colleges have only adopted the UK Corporate Governance Code, processes will need to be put in place to adopt an alternate code before the deadline.
• (Para 2.45) – it has been clarified that colleges must ensure that both governors and senior employees do not accept benefits from third parties and declare any interest in proposed transactions or arrangements.
• (Paras 3.1 to 3.15 and 4.9 to 4.13) – extensive updates have been included relating to the role, responsibilities and membership of the audit committee, the appointment of external auditors, the accounting officer’s review of regularity and the self-assessment questionnaire. The changes should be considered in full although are principally to reflect existing requirements of audit code of practice for colleges and therefore should be familiar.
• (Para 5.3) – as per the CFH 2024, certain financial transactions still prior approval of the DfE and/or Charity Commission but the CFH 2025 is now more explicit that colleges should allow sufficient time for such approvals to be considered, particularly as the DfE may need to refer some matters to HM Treasury. A link is now also included to the FE transaction approval request form when seeking permission for transactions above delegated limits.
• (Para 5.5) – further information is included in the CFH 2025 on novel, contentious and repercussive transactions, these reflect and link to updated DfE guidance on these transactions which was published in March 2025.
• (Para 5.7) – the description of special staff severance payments has been tidied up to note that leaving employment includes whether a person leaves by resigning, retiring, being dismissed, or reaching an agreed termination of employment. The wording on ex gratia payments has also been clarified to also reference other types of special payment but still highlighting that such payments always require DfE approval.
• (Para 5.36) – the wording on borrowing still states that DfE prior approval is required for new borrowing from the private sector but now clarifies that this includes, ‘where the college is a subsidiary of a Registered Higher Education Provider and that body plans to lend to the college’.
• (Para 6.4) – the CFH 2025 has added that colleges are required to retain records as per HMRC statutory guidance, and if registered with Companies House, any Companies House record-keeping requirements.
• (Para 6.15) – a new obligation has been included that colleges must achieve Cyber Essentials certification, with further guidance referenced on cyber security.