What FE Colleges Should Be Reviewing Following the College Financial Handbook 2026

The Department for Education’s new College Financial Handbook 2026 has landed and, while much of it builds on existing requirements, there are several changes that deserve the attention of HR teams, senior leaders and governors.

From increased scrutiny of severance payments to new expectations around CFO appointments, the updated guidance signals the DfE’s continued focus on financial accountability and governance across the further education sector.

The good news? Most colleges won’t need to make wholesale changes. However, now is a good time to sense-check existing processes and identify any areas where additional planning, training or approvals may be needed.

Severance payments remain firmly under the spotlight

The DfE has long taken a cautious approach to special severance payments, and the new handbook reinforces that position.

Approval will still be required in several circumstances, including where an exit package of £100,000 or more includes a special severance payment, where an employee earns more than £174,000, or where a payment is deemed to be novel, contentious or repercussive.

Perhaps the most significant development is the DfE’s clarification of what it considers “novel, contentious or repercussive”. Colleges may now find themselves needing approval in situations where legal advice suggests they have a better than 50% chance of successfully defending a claim.

This may feel counterintuitive. After all, where a college has a strong legal position, a settlement can often represent a sensible commercial decision. However, the change highlights the DfE’s desire for visibility and oversight where public funds are involved.

As a result, colleges should identify potential settlement discussions early and factor approval requirements into any exit strategy.

Stronger expectations around financial leadership

While the handbook does not introduce an immediate requirement for CFOs to hold professional accountancy qualifications, it does set a clear direction of travel.

From August 2027, colleges recruiting a Chief Financial Officer will be expected to seek candidates who hold recognised accountancy qualifications and are members of a professional accountancy body. Any departure from this expectation will need to be discussed with the DfE in advance.

This change is unlikely to affect day-to-day HR operations right away, but it could influence succession planning, recruitment strategies and future leadership appointments.

At the same time, the DfE has doubled down on its expectation that boards have access to sufficient financial expertise. For some colleges, that may mean reviewing governor training programmes or considering whether additional financial experience is needed around the board table.

A more practical approach to senior pay approvals

One welcome change is a degree of flexibility around senior appointments.

Where Treasury approval has already been obtained for a role, colleges may not need to repeat the process when filling the same position, provided remuneration remains broadly unchanged and certain conditions are met.

This should help reduce unnecessary administrative hurdles and speed up recruitment processes for senior posts.

The key point is that the DfE still expects to be informed, so colleges should ensure notification requirements are built into recruitment workflows.

Electric vehicle schemes get the green light

The growing popularity of electric vehicle salary sacrifice schemes has left some colleges uncertain about approval requirements.

The handbook provides helpful clarification. Colleges can offer these schemes without seeking prior approval, provided appropriate safeguards are in place and no financial liability ultimately sits with the college.

For HR and reward teams, this offers greater confidence when considering benefits packages designed to support employee wellbeing, recruitment and sustainability objectives.

Pension changes? Speak to the DfE first

The DfE has also strengthened its message around pension provision. Any college considering an alternative to the Teachers’ Pension Scheme or Local Government Pension Scheme must consult the DfE before proposals are shared with employees.

For colleges exploring workforce restructuring or reviewing benefits packages, this is an important reminder to engage with stakeholders early and avoid inadvertently creating compliance issues further down the line.

The bigger picture

Taken together, these changes are less about introducing entirely new obligations and more about reinforcing accountability, transparency and financial oversight.

For HR professionals, governors and college leaders, the message is clear: involve the right people early, document decisions carefully and don’t assume existing processes will automatically meet the latest expectations.

A proactive review now could help avoid delays, governance challenges and unexpected approval requirements later.

How we can help

Our education and employment specialists regularly advise FE colleges on governance, senior executive appointments, workforce change, severance arrangements and regulatory compliance. If you’d like to discuss how the College Financial Handbook 2026 will affect your organisation contact us.

This content is provided for general informational purposes only and does not constitute legal advice. It is not intended to address the circumstances of any individual or entity, nor should it be relied upon as a substitute for specific advice from a qualified solicitor. The information reflects the legal position as at the date specified and may be subject to change. If you require advice on a specific matter, please contact us directly.