“Clear” that multi-academy trust should have been paying tax on its phonics product income, accounting expert states

Wandle Learning Trust faces fresh questions over its Little Wandle product.

Academy trusts need to think very carefully before getting involved in “trading” activity, a prominent accountant who works in the sector has told Education Uncovered.

Phil Reynolds, an accounting consultant who also works as chief financial officer at a small multi-academy trust, was speaking after this website revealed that a south London-based chain had launched an “investigation into its tax status” after gaining more than £12m in income over three years from a phonics product it sells to schools.

The Wandle Learning Trust, which is associated with the Little Wandle phonics programme, reported in its annual accounts that it had wrongly not registered itself for VAT in previous years, and that it was now facing a “historical VAT liability” and a fine. The accounts stated that it is likely that, as a result, the trust “will face late filing penalties from HMRC, which are deemed not a proper use of public funding”. The accounts added: “Whilst legal and financial advice had been sought in previous years, no definitive action has been recommended until very recently.”

 

Little Wandle has shot to prominence since being developed during the pandemic by two headteachers, one of whom is now co-chief executive of the five-school Wandle Learning Trust (WLT), based in Wandsworth. Little Wandle’s publicity says it now operates in more than 5,000 schools.

The Little Wandle product appears to have been available to schools since 2021, with income reported in the accounts of the Wandle Learning Trust since 2020-21, though the 2023-24 accounts are the first time the VAT issue appears to have been mentioned. The trust’s auditors, Price Bailey LLP, and WLT’s accounting officer, Christian Kingsley, who is also head of its secondary school, have been the same throughout the period 2020-24.

Until April last year*, businesses with turnover of at least £85,000 in any 12-month period had to be registered for VAT.

I sought comment from accountants on the revelations in its financial statements. Mr Reynolds responded, saying it was “pretty clear” that the trust was undertaking business activity, and would therefore need to pay tax on that activity.

He said: “For me, I do not think there’s any doubt what they are doing. They are trading – it’s a business. So I’m surprised they said they needed to get legal advice…I do some training sessions around tax and I cover off VAT, and VAT is an area that you just can’t take risks with…

“[As someone in this position] you have to take a step back, and ask: what are you here for? Are you here for education, or are you a business? More and more trusts are going to get themselves caught by this. [Because] they are under financial pressure, aren’t they?”

But he said academy trusts would be very wise to think through tax implications before they got involved in trading activity at any scale, including in this case. A decision, he suggested, may have been needed much earlier over whether the trading activity – in this case the selling of the phonics product – carried on within the trust, or in a separate company. (The Wandle Learning Trust appears not to operate a separate company for Little Wandle).

He said: “I think it comes down to the advice: it comes down to schools probably developing this thing and getting carried away. When, again, you should be speaking to an accountant. [In this case] any trusted adviser or accountant would be saying ‘whoa, hold on’, before you get carried away. The issue you’ve probably got is that they are going to have to make a decision as to whether they retain this trade within the trust, or put it out to a subsidiary company.

“If you do [the latter], that would be a whole headache in itself. Whilst it would be good from a segregation perspective… the issue is that if you’ve got employees working in the trust but also working for this subsidiary, then there would be some cross-charges there that would be VAT-able.”

He suggested that the whole area, therefore, was complicated.

He added: “That’s why I say to people [who may be thinking about ventures with potential to make money] who get a bit excited that you need to get your ducks in a row. If you start doing it all wrong, unwinding it all might be tricky.

“The things you really need to think about are:

-Don’t stray away from your moral core purpose;

-You need a clear strategy and plan;

- You need to think about [the risk to] your reputation and public perception if it goes wrong.

-Plan ahead: you are going to have separate staff and different directors and ownership [for running the business compared as well as] running a school.”

Mr Reynolds added that any commercial transaction which generated income from a school, such as renting out a hall, or a car park, needed to be thought about, although the issue of VAT would only kick in when the income threshold was reached.

Mr Reynolds added that the Wandle Learning Trust might face other issues in relation to its income from Little Wandle. He said the trust would need to pay corporation tax on profits, as well as having to pay back any VAT owed, and penalties for late payment. He added that the Education and Skills Funding Agency – the government organisation which oversees academy finance – could take an interest in how the trust had used grant money, asking whether any funds intended for schools had been used to develop the Little Wandle product.

Little Wandle’s origins and funding

 

On this issue of financial backing, sources have said that the developers of Little Wandle – Wandle Learning Trust co-chief executive Mark Siswick and Rachel Davis, the long-serving head of Little Sutton primary school in Sutton Coldfield, Birmingham - were given funding from the DfE to develop it. However, the precise details are not known.

The product grew out of “Letters and Sounds”, a 2007 publication from the Primary National Strategy at the-then Department for Education and Skills which had sought to set out the “principles and practice of high quality phonics” programmes.

In an article published in 2021 in the magazine “Teaching Reading and Writing,” Ms Davis and Mr Siswick wrote that in 2020 the DfE had “commissioned” the production of Letters and Sounds phonics videos, out of which Little Wandle then grew. That would suggest some funding from the government, at this time.

They wrote: “The seeds of what would eventually become Little Wandle Letters and Sounds Revised were sown back in March 2020, with a commission from the DfE to create daily Letters and Sounds phonics videos for schools to share during lockdown.”

However, by the following year – May 2021 – the DfE had, they wrote, “pull[ed] out of the revised Letters and Sounds programme it had commissioned our schools to produce. Their support and funding ceased almost immediately”.

They added: “With the Department out of the picture, we felt we had no choice but to plough our own investment into continuing the work.”

What this “investment” consisted of – was it Ms Davis and Mr Siswick’s own cash, or that of their schools? – remains unclear.

Rival companies last year expressed concern over Little Wandle having been promoted, including on its website** as “not for profit”. As the Wandle Learning Trust’s latest accounts seem to underline, the issue of whether boundaries are too blurred, between a publicly-funded set of schools and a phonics sales operation which by its nature and income appears more commercially-orientated, seems key.

What are the risks of schools becoming involved in at least quasi-commercial activity, and is such activity best-placed to operate within a state-funded school group, or elsewhere?

The Wandle Learning Trust has never responded to requests for comment from this website.

 

*The VAT threshold has since risen to £90,000.

**The “not-for-profit” claimed was still mentioned on Little Wandle’s website as of this week. Under information about the product’s prices – up to £2,000 per primary school, seemingly per year – and under the logo “Little Wandle Letters and Sounds Revised” – it is stated: “As a not-for-profit organisation, we make significant investment in expanding and enhancing our programme.” But what is the “organisation” being referred to, here, and is it really not making a “profit”?