The current trend for schools to convert to academies moves responsibility for insurance to a Governing Body or Trustees.  Systems Assurance talks to Neil Warburton, Managing Director and founding member of Charterfields Ltd, international asset valuers.
Charterfields’ exposure in this market shows there is a common misconception that values for property can be assessed in-house, utilising costs from recent school projects, generic cost guides, or by updating legacy values. 


Figures produced using these methods are often inaccurate for a number of key reasons:-
• declared values using modern construction data can be significantly lower than actual costs to reinstate older buildings of a more substantial construction. This is particularly an issue in the event of a partial loss, where the damaged part of a building may need to be rebuilt in the same style as that remaining;
• using modern construction cost data will not take account of any additional cost factors incurred when reinstating historic or listed buildings that may form the whole or part of a risk; and
• guide estimates of reinstatement cost may not take account of additional costs required to be reflected, owing perhaps to the topography of a site, professional fees to be incurred during the construction process,
debris removal needed to leave a clear site in the event of a loss, and external works such as sports pitches, circulation areas and car parks.


Similarly, assessing suitable values in-house for contents can be fraught with pitfalls as:-
• recent cost information may reflect discounts that may not be available in the future;
• costs may include for items which should more sensibly be included within the assessment of property interests, such as laboratory benching, sprung flooring or under-floor heating;
• generic cost guides which provide a ‘rate per student’ will not take account of any ‘over and above’ facilities that may exist due to the nature of the academy, such as an extensive library, IT suites or musical instruments, nor third party or ‘gifted’ assets; and 
• the accuracy of legacy values may be questionable owing to the lack of recent assessments having been undertaken.


VAT Headache Could Lead To Under-Insurance
Generally, even non-VAT registered academies are able to reclaim VAT incurred on elements of expenditure when it relates to the provision of free education under the provisions of the VAT Act 1994.
However, the issue of tax recovery becomes complicated, and exemptions may not apply, if a school building or asset is also used for a business purpose (i.e. not relating to the provision of free education).
Therefore, not all buildings or facilities may be exempt in the event of a loss and an allowance might need including within a declared value to reflect this potential liability for non-VAT registered entities.
Where buildings or assets have mixed uses,(used for both business and non-business use), only the portion of the cost relating to the nonbusiness use is exempt. Examples of cases falling under a VAT review would be sports halls rented out for public use, the shared use of swimming pools or income generating car parks.
For academies that are VAT registered, full tax recovery should be possible under normal accounting procedures. However, to protect an insured’s position, we review VAT exposure when undertaking insurance valuations to help recognise and eliminate potential underinsurance.


Financial Valuation – Advice Is Often Needed
As well as becoming responsible for insurance cover, many new academies need to prepare financial accounts for the first time, reporting market based values for balance sheet purposes for land, buildings and contents.
Through our team of qualified and RICS registered valuers, Charterfields is one of the few insurance valuation consultants able to offer this additional support, providing Governing Bodies, Trustees and their accountants with a combined service, avoiding the need to engage multi advisers and generating cost savings on
professional fees.


Free Initial Advice – VHC Academia
We are pleased to offer our valuation healthcheck (VHC) service to academia clients. This enables issues of value to be quickly spotted at no initial cost and can be designed to cover all material risks and elements of BII.


Contact Neil Warburton and his team.