Guidance

Department of Health and Social Care group accounting manual 2020 to 2021: additional guidance, version 3

Updated 19 April 2021

Introduction

The 'Department of Health and Social Care (DHSC) group accounting manual 2020 to 2021 (GAM)' was published in April 2020. The GAM sets the accounting policies to be followed by members of the Department's consolidation group and provides principles-based guidance to DHSC group bodies on how to prepare and complete their annual reports and accounts (ARA).

NHS foundation trusts follow the 'NHS Foundation Trust Annual Reporting Manual' 2020 to 2021 for the purpose of preparing annual reports.

This additional guidance updates the GAM, is mandatory, and must be treated as having the same status as the GAM itself.

This document will be updated as additional FAQs arise, so that all additional guidance for 2020 to 2021 will be contained within a single document.

This is the third version of additional guidance to be published for the 2020 to 2021 GAM, with an initial update to the 2020 to 2021 GAM published in January, followed by a further update in March.

This latest version of the additional guidance updates FAQs 6, 10 and 14. Where an FAQ has been updated since its initial publication, the title is supplemented with the term ‘updated’.

FAQ 1: changes in discount rates at 31 March 2021

Background

As advised in the GAM (chapter 4 annex 7), Treasury discount rates are revised each year and are notified by means of a PES paper.

'PES (2020) 12 Revised Discount Rates for General Provisions, Post-Employment Benefits, Financial Instruments and Leases (Under IFRS 16)' was issued on 18 December 2020.

GAM application

By issue of this FAQ, chapter 4 annex 7 and chapter 5 annex 1, note 1.22 of the GAM are updated in accordance with the following text.

Summary of discount rates to be applied as at 31 March 2021

The discount rates to be applied as at 31 March 2021 for general provisions, post-employment benefits and financial instruments are summarised below.

Nominal general provision discount rates

Rate type	Rate	Prior year rate
Short-term	Minus 0.02%	0.51%
Medium-term	0.18%	0.55%
Long-term	1.99%	1.99%
Very long-term	1.99%	1.99%

General provisions inflation rates

Rate type	Rate	Prior year rate
Year 1	1.2%	1.9%
Year 2	1.6%	2.0%
Into perpetuity	2.0%	2.0%

Post-employment benefits discount rate

Rate type	Rate	Prior year rate
Real rate	Minus 0.95%	Minus 0.50%
Nominal rate	1.25%	1.80%
RPI inflation until February 2030	3.22%	3.35%
RPI inflation from February 2030	2.32%	3.35%
CPI inflation	2.22%	2.35%

Financial instrument discount rate

Rate type	Rate	Prior year rate
Real rate	0.7%	0.7%
Nominal rate	3.7%	3.7%

The following detail is provided to assist preparers in utilising the various discount rates.

General provisions

General provisions discount rates are used to discount future cash flows related to provisions recognised in accordance with IAS 37.

Treasury gives rates for short, medium, long-term and very long-term general provisions. These are defined as follows:

• short-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary between 0 and up to and including 5 years from the Statement of Financial Position (SoFP) date
• medium-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary of after 5 and up to and including 10 years from the SoFP date
• long-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary of after 10 years and up to and including 40 years from the SoFP date
• very long-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary exceeding 40 years from the SoFP date

Note – it is the timing of the expected cash flow that governs the discount rate used – the PES papers make no reference to setting discount rates according to the overall term of the arrangement. To arrive at the SoFP balance for a provision with expected cash flows occurring in each year for 60 years, cash flow should first be inflated, then each of the four discount rates will need to be applied. It would not be appropriate to discount cash flows at the very long-term rate in the first 40 years simply because the liability is not expected to be wholly discharged until year 60.

Inflation assumptions

The central inflation assumptions offered above have been provided by HM Treasury. They are based on what is judged to be the most statistically reliable measure of inflation (the Office of Budget Responsibility Consumer Price Index (OBR CPI) forecasts).

The OBR CPI inflation rates should be applied across the following time frames:

• year 1: applied on cash flows up to and including 1 year from the date of the SoFP
• year 2: applied on cash flows from after 1 and up to and including 2 years from the date of the SoFP
• into perpetuity: applied on cash flows from after 2 years from the date of the SoFP

HM Treasury consider the presumption to use OBR CPI inflation rebuttable only in certain instances. It is for each entity to assure itself over the reasonableness of the judgements made against the following criteria provided by HM Treasury as to when it is considered acceptable to rebut the presumption of inflating cashflows using OBR CPI.

Where no legal or other requirement prohibits the application of OBR CPI inflation, entities must satisfy themselves that:

• there is a logical basis for not applying OBR CPI inflation rates, in that the proposed alternative inflation rates would be clearly more applicable to the underlying nature of the cash flows
• the proposed alternative inflation rates must be free from management bias. An indication of this may be an independent or professional assessment of the proposed alternative inflation rates, such as by a committee, third party or other experts
• the inflation rates instead applied should be based on logical and relevant calculations and reasonable underlying assumptions. For example, they may be comparable to existing financial indices or based on historical trends

Where a legal requirement exists prohibiting the application of the OBR CPI rates or requires an adjustment to the rate applied:

• an inflation rate specified by statute or by the courts can be applied instead of OBR CPI inflation
• OBR CPI can be adjusted where this is required by statute or by the courts; for example, in the case of legally enforceable public pension caps
• where OBR CPI cannot be applied by statute or by the courts, but an alternative rate or adjustment is not prescribed, a comparative inflation rate must instead be applied and must fulfil conditions as set out above

The below table is an excerpt from annex C of PES (2020) 12 revised which provides combined OBR CPI inflation and discount rates for up to 50 years after the SoFP date. Annex C offers combined rates for up to and including 200 years. This is available on request from [email protected].

Year (a)	Inflation rate	Inflation cumulative (b)	Discount rate (c)	Cumulative combined rate (d) d=b*c^a
1	1.2%	101.2%	0.0%	101.2209%
2	1.6%	102.8%	0.0%	102.8617%
3	2.0%	104.9%	0.0%	104.9406%
4	2.0%	107.0%	0.0%	107.0616%
5	2.0%	109.1%	0.0%	109.2254%
6	2.0%	111.3%	0.2%	110.0922%
7	2.0%	113.5%	0.2%	112.0909%
8	2.0%	115.8%	0.2%	114.1259%
9	2.0%	118.1%	0.2%	116.1978%
10	2.0%	120.5%	0.2%	118.3073%
11	2.0%	122.9%	2.0%	98.8839%
12	2.0%	125.3%	2.0%	98.8892%
13	2.0%	127.8%	2.0%	98.8944%
14	2.0%	130.4%	2.0%	98.8996%
15	2.0%	133.0%	2.0%	98.9048%
16	2.0%	135.7%	2.0%	98.9100%
17	2.0%	138.4%	2.0%	98.9152%
18	2.0%	141.1%	2.0%	98.9204%
19	2.0%	144.0%	2.0%	98.9257%
20	2.0%	146.9%	2.0%	98.9309%
21	2.0%	149.8%	2.0%	98.9361%
22	2.0%	152.8%	2.0%	98.9413%
23	2.0%	155.8%	2.0%	98.9465%
24	2.0%	159.0%	2.0%	98.9517%
25	2.0%	162.1%	2.0%	98.9570%
26	2.0%	165.4%	2.0%	98.9622%
27	2.0%	168.7%	2.0%	98.9674%
28	2.0%	172.1%	2.0%	98.9726%
29	2.0%	175.5%	2.0%	98.9778%
30	2.0%	179.0%	2.0%	98.9831%
31	2.0%	182.6%	2.0%	98.9883%
32	2.0%	186.2%	2.0%	98.9935%
33	2.0%	190.0%	2.0%	98.9987%
34	2.0%	193.8%	2.0%	99.0039%
35	2.0%	197.6%	2.0%	99.0091%
36	2.0%	201.6%	2.0%	99.0144%
37	2.0%	205.6%	2.0%	99.0196%
38	2.0%	209.7%	2.0%	99.0248%
39	2.0%	213.9%	2.0%	99.0300%
40	2.0%	218.2%	2.0%	99.0353%
41	2.0%	222.6%	2.0%	99.0405%
42	2.0%	227.0%	2.0%	99.0457%
43	2.0%	231.6%	2.0%	99.0509%
44	2.0%	236.2%	2.0%	99.0561%
45	2.0%	240.9%	2.0%	99.0614%
46	2.0%	245.7%	2.0%	99.0666%
47	2.0%	250.7%	2.0%	99.0718%
48	2.0%	255.7%	2.0%	99.0770%
49	2.0%	260.8%	2.0%	99.0823%
50	2.0%	266.0%	2.0%	99.0875%

Post-employment benefits provisions

The real discount rate applicable on 31 March 2021 is minus 0.95% (the previous year's rate was minus 0.50%).

The rate is applicable for all provisions for continuing obligations arising from previous employment service.

Financial instruments

The financial instrument discount rate is used for some financial instruments in accordance with the requirements of the Financial Reporting Manual (FReM).

The FReM states (table 6.2):

"Where future cash flows are discounted to measure fair value, entities should use the higher of the rate intrinsic to the financial instrument and the real financial instrument discount rate set by HM Treasury (promulgated in PES papers) as applied to the flows expressed in current prices."

The real financial instrument discount rate to be applied at 31 March 2021 is 0.7% (previously 0.7%). The rate as applied to flows expressed in current prices is RPI + 0.7%, where the financial instrument is index linked to RPI. Where the financial instrument is not linked to an inflationary index, and a nominal rate is required, 3.7% may be used.

Leases

For group entities such as limited companies, that prepare statutory accounts following EU adopted IFRS in accordance with the Companies Act 2006, IFRS 16 was effective from 1 April 2019.

PES (2020) 12 Revised confirms that the HM Treasury incremental borrowing rate (a nominal rate) of 0.91% is to be applied for leases commencing in the 2021 calendar year under IFRS 16. For leases commencing in the 2020 calendar year the incremental borrowing rate is 1.27%. As the DHSC Group account is following IAS 17 for 2020 to 2021, the leasing rates will not be replicated in the 2020 to 2021 GAM.

FAQ 2: injury costs recovery revenue – probability of non-recovery

Background

Paragraphs 4.57 to 4.62 of the GAM describe the treatment of Injury Costs Recovery (ICR) revenue.

When estimating lifetime expected credit losses in relation to ICR receivables, the GAM instructs NHS providers to include an amount within the credit loss allowances for contract receivables to reflect income that is not expected to be recoverable. Each year, the Compensation Recovery Unit (CRU) advises a percentage probability of not receiving the income.

The updated figure for 2020 to 2021 is 22.43%. By issue of this FAQ, paragraphs 4.61 and 4.62 of the GAM are amended to reflect this figure.

GAM application

If it is material, 22.43% of accrued ICR revenue should be used to calculate expected credit losses. However, where NHS providers are in a position to make a reliable estimate of their own percentage, they should use their own local information to inform the expected credit loss position.

The above instruction aligns to the IFRS 9 simplified approach to impairments as mandated by the HM Treasury adaptations and interpretations to the standard.

FAQ 3: minor updates to the 2020 to 2021 GAM

Background

This FAQ collates various clarifications required to update the 2020 to 2021 GAM.

December updates of the 2020 to 2021 FReM

There are various contextual updates in the 2020 to 2021 FReM and additional best practice disclosures regarding diversity, some of which, needs to be reflected in the GAM.

By order of this FAQ the following updates to the GAM are made to reflect minor amendments made in the 2020 to 2021 FReM.

In detailing the general principles of financial reporting the updated 2020 to 2021 FReM makes a number of references to the Financial Reporting Council's July 2018 publication of Guidance on the Strategic Report. A link to this document is now provided in the GAM in paragraph 3.9, with additional detail included in paragraphs 3.10 and 3.11, per the following text.

"Part A of the Financial Reporting Manual (FReM) sets out the purposes, principles and best practice in financial reporting. In establishing these, the FReM makes a number of references to the Financial Reporting Council's July 2018 publication of Guidance on the Strategic Report. Reporting requirements expressed in the FReM and GAM apply these principles to the preparation of annual report and accounts.

Specific reference is made to the application of the concept of materiality to the Performance Report and Accountability Report. Unless explicitly permitted, the concept of materiality cannot be applied to disclosures required:

• by the GAM and consequently the FReM
• by law or by regulation
• promulgated by HM Treasury through PES papers. DHSC group bodies will receive updates regarding additional requirements through the FAQ process

The use of terms such as 'to the extent necessary for an understanding of' or 'principal' do identify instances in which materiality judgements can be made in relation to disclosure requirements within the Performance Report and Accountability Report.

Where additional information is provided per paragraph 3.8 preparers should equally ensure that the disclosure of information meets the principles and practices as detailed in the FReM in force for the appropriate financial year."

The performance analysis disclosures contained in the FReM have been supplemented with an additional best practice disclosure concerning the promotion of equality of service delivery to different groups. The suggested disclosure may enhance the level of non-financial information provided per the minimum requirements of a performance analysis, as detailed in paragraph 3.27 of the GAM.

The following text supplements the bullet point relating to the provision of non-financial information under paragraph 3.27.

• "A summary of how equality of service delivery to different groups has been promoted through the organisation should be considered as part of a best practice disclosure. This is a mandatory disclosure requirement for NHS bodies regardless of whether a performance analysis is omitted from the Performance Report. Disclosure may include, cross referencing separate publications that contain such information, or provision of information regarding:

  • how the entity has had due regard to the aims of the public sector equality duty where applicable
  • customer satisfaction scores broken down by protected characteristics where collected
  • performance against equality of service delivery KPIs and metrics if applicable
  • explanations of activities the entity is undertaking to promote equality of service delivery"

A best practice disclosure relating to diversity and inclusion policies has also been added to the Staff Report. The following text is added as additional requirements to paragraph 3.78 (g) of the GAM, relating to the disclosure of staff policies.

• "As a best practice recommendation, but mandatory for NHS bodies, entities should include details regarding their diversity and inclusion policies, initiatives and longer term ambitions. Disclosure may include cross referencing separate publications that contain such information, or provision of information regarding:

  • how policies and activities undertaken in the year have or will improve the diversity and inclusiveness of the workforce
  • whether the entity has identified any barriers to improving the diversity of its workforce and if so, what actions the entity has or will put in place
  • changes in staff composition impacting on the diversity and inclusiveness of the workforce, including appropriate trend data
  • performance against internal targets set in relation to diversity and inclusiveness of the workforce if applicable"

HM Treasury has introduced an additional adaptation in relation to IFRS 9. This adaptation confirms that balances between a parent department and its component bodies are not covered by the stage 1 and stage 2 expected credit loss exemption, established as part of the original FReM adaptations of IFRS 9.

The following text has therefore been added below paragraph 4.191 and chapter 4 annex 1 of the GAM.

• "Balances between a parent department and its executive agencies and ALBs are not covered by the exception from recognising ECLs noted in the IFRS 9 adaptation above."

Paragraph 4.179 and chapter 5 annex 1 previously referenced the guarantee provided by the department and detailed the subsequent interaction with the exemption in relation to balances held with bodies external and internal to the DHSC Group. This has consequently been updated per the following text.

"While the 3-stage impairment approach is covered in more detail in chapter 4 annex 6: Financial Instruments, the guarantee means that DHSC group bodies must not recognise stage-1 (12 month expected credit losses) and stage-2 (lifetime expected credit losses) impairments against other core government departments, their executive agencies and any ALB's covered by a similar guarantee."

GAM updates and corrections

This FAQ updates the GAM reference to the latest Designation Order, providing a link to the latest instrument, SI 2020 1530, in paragraph 2.27 of the GAM.

This FAQ removes reference to Provider Sustainability Fund income, Financial Recovery Fund and Marginal Rate Emergency Tariff, from the disclosure requirements for other operating income in paragraph 5.63 of the GAM.

FAQ 4: 2020 to 2021 year end reduced reporting requirements

The ongoing COVID-19 pandemic response continues to significantly impact on public sector resources. It is for this reason that the reduced reporting requirements in place for 2019 to 2020 have been carried forward to 2020 to 2021.

By order of this FAQ paragraphs 2.63 to 2.65 that deal with deadlines for laying documents before Parliament are revised to reflect the following text.

"All ARAs must be sent to arrive at the Parliamentary Relations Unit to allow sufficient time for laying. The timetable for submission will be confirmed at a later date. For FTs the timetable for submission will be part of the accounts timetable issued by NHS Improvement.

ARAs will be welcomed for laying before the submission date. It is the responsibility of the entity to ensure its ARA is laid.

Laying reports in good time before a parliamentary recess ensures that there is opportunity for appropriate Parliamentary scrutiny. For 2020 to 2021 there is no expectation that ARAs will be laid before the Parliamentary summer recess."

Chapter 3 of the GAM identifies previously mandatory inclusions to the Annual Report that are designated optional to omit for DHSC Group bodies.

• the performance analysis
• sickness absence data
• staff turnover disclosure

By order of this FAQ minor revisions have been made to chapter 3 and chapter 3 annex 1, to reflect the optional nature of the above disclosures. These are detailed below.

Chapter 3 has been supplemented with the following text in paragraphs 3.2 to 3.4.

"In response to COVID-19 changes to annual reporting requirements have been made for DHSC group bodies in scope of this chapter.

Where reporting requirements are designated 'optional to omit' for a DHSC group body, this is identified in the header introducing the specific requirement and where appropriate in the body of the chapter. All other reporting requirements must continue to be disclosed.

The scope of this optional omission for annual reports does not extend to items that are included in the Annual Report through a specific legal requirement upon the entity to report against."

Under paragraph 3.5 the mandatory inclusions of the Performance Report have been updated per the following text.

"a performance analysis, optional to omit."

Paragraph 3.20 makes reference to the performance analysis which has been updated per the following text.

"The performance report is usually required to have 2 sections: a 'performance overview' and a 'performance analysis'. The performance analysis is optional to omit in 2020 to 2021."

Above paragraph 3.26 the header introducing the mandatory requirements for the performance analysis has been updated per the following text.

"Performance analysis, optional to omit"

FAQ 3 makes a diversity disclosure, that is a best practice recommendation in the performance analysis, a mandatory requirement for NHS bodies. As such for those NHS bodies who omit a performance analysis, the performance overview must include this disclosure.

A bullet point below paragraph 3.25 now includes reference to this disclosure where an entity chooses to omit a performance analysis, per the following text.

• "For NHS bodies that omit a performance analysis, they must provide disclosure as to how equality of service delivery to different groups has been promoted through the organisation, per the requirements of paragraph 3.27 of the GAM."

Subsection (d) of paragraph 3.78, which details the sickness absence data requirements of the Staff Report, has been updated to reflect the following text.

"Sickness absence data, optional to omit - DHSC Group bodies should provide a link to the NHS Digital publication series on NHS Sickness Absence Rates, where applicable."

Subsection (e) (iv) of paragraph 3.78, which details the staff turnover percentage requirement of the Staff Report, has been updated to reflect the following text.

"Entities for which staff turnover percentages are captured as part of a separate publication, such as through NHS Digital's NHS workforce statistics can treat this disclosure as optional to omit, providing a link to, than duplicating, the data disclosed in that publication."

The visual structure of the Annual Report and Accounts provided in chapter 3 annex 1 has been updated to reflect that the performance analysis, sickness absence data and staff turnover percentage are all optional to omit.

FAQ 5: IFRS 16 deferral

HM Treasury has announced that IFRS 16, Leases, as interpreted and adapted by the FReM is to be effective from 1 April 2022. This represents a further one-year deferral.

By order of this FAQ paragraph 4.159, 4.160, chapter 4 annexes 1 and 2 and chapter 5 annex 1 of the GAM have been updated to reflect this further deferral.

FAQ 6: updated – PDC dividend policy revisions

Background

The PDC dividend policy as described in chapters 4 and 5 of the GAM was initially revised in January 2021 in light of the Secretary of State's Guidance under section 42A of the National Health Service Act 2006, published in July 2020. The PDC dividend policy has been further updated during 2020 to 2021.

This latest update inserts additional commentary regarding the impact block contract advance payments has had on the dividend payable, the nature of the dividend relief for PDC financed COVID-19 assets during 2020 to 2021 and confirmation of the exclusion of donated personal protective equipment inventory from the relevant net asset calculation.

By order of this FAQ the PDC dividend policy is further updated per the following text in chapter 4 paragraph 4.203 onwards and reflected in chapter 5, including the example accounting policy note chapter 5 annex 1, note 1.30.

"PDC dividend expense (NHS providers)

The Secretary of State requires that NHS providers pay a PDC dividend based on a charge of 3.5% of actual average relevant net assets, including subsidiaries (but not consolidated NHS charities), during the financial year as determined in the draft/unaudited accounts submitted to NHS Improvement. Any difference between the amount of PDC dividend paid, and dividend expense, for the financial year must be recorded as a receivable or payable in the SoFP.

Once determined for the draft accounts, the PDC dividend expense is not recalculated to take account of any changes in net assets that may be recognised as a result of the audit of the accounts, or due to calculation errors subsequently identified in respect of prior years. The PDC dividend payable (or receivable) is only adjusted in audited accounts to correct for errors in the calculation of the PDC dividend itself made in the draft accounts for that reporting year.

The calculation of relevant net assets is as follows:

Relevant net asset calculation	Value
Total public dividend capital and reserves	X
Less: Net book value of donated and grant funded assets	(X)
Less: Charitable funds (before any consolidation adjustments for charitable funds)	(X)
Less: Net cash balances in GBS accounts (excluding cash balances in GBS accounts that relate to a short-term working capital facility)	(X)
Less: Outstanding PDC Dividend prepayments	(X)
Plus: Outstanding PDC Dividend payables	X
Less: Approved expenditure on COVID-19 capital assets	(X)
Less: Assets under construction for nationally directed schemes	(X)
Add: Cash support for revenue requirements PDC drawn in-year	X
Total relevant net assets	X

The adjustment to net relevant assets calculation in respect of the Government Banking Service (GBS) must be calculated on the basis of average daily cleared balances. In practice therefore, GBS values are not deducted from 1 April and 31 March net relevant assets calculations as spot values at those dates. Rather, average net relevant assets including GBS for the year is calculated, and then the average daily cleared GBS balances deducted from that figure to arrive at the relevant net assets amount for the calculation of the dividend. National Loans Fund deposits are considered to be analogous to GBS balances for the calculation of relevant net assets and must also be calculated on an average daily basis.

The block contract cash advance received in April 2020 has significantly increased providers’ average daily cleared balances in GBS, which in turn has reduced providers’ dividend forecasts. The cash advance should remain included in the average GBS figure calculated.

The rationale behind the changes made to the PDC dividend expense calculation relating to; debt conversion to PDC for 2020 to 2021, COVID-19 assets, assets under construction for nationally directed schemes (AUC relief) and revenue based PDC requirements, are detailed in section 7 of the Secretary of State's Guidance under section 42A of the National Health Service Act 2006.

The guidance explains that dividend relief is part of the wider NHS COVID-19 financial arrangements to provide temporary relief during the pandemic response and is not intended to remain in place for the life of the asset. Therefore providers have been asked to adjust their relevant net assets by the value of PDC issued, rather than the net book value.

For the 2020 to 2021 dividend calculation, providers should adjust their relevant net assets by removing the value of PDC received for COVID-19 assets. Where the net book value may now be lower than the PDC issued, as assets may have been impaired, providers are not required to notify DHSC.

Dividend relief is only applicable to PDC awards accompanied with Memorandum of Understanding (MOUs) containing reference numbers with High Consequence Infectious Disease (HCIDS), Test and Trace Capital (TTCAP) or Vaccinations 2020 to 2021 (VACCS).

No opening adjustments are required for 2019 to 2020 COVID-19 assets, as these will now be part of the 2020 to 2021 relevant net assets with dividend chargeable. Where centrally procured assets, including personal protective equipment inventory, have been donated to NHS providers, these are excluded from the relevant net asset calculation per standard treatment of donated assets.

If the temporary financial arrangements are extended into 2021 to 2022, dividends relief will apply to any new PDC issued for COVID-19 assets. The relief will not apply to assets from previous financial years.

Examples of the calculation are set out below.

Example calculation without AUC relief and revenue PDC dividend	£'000
Opening capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	123,000
Less: Opening donated and granted assets net book value	(3,000)
Add: Opening adjustment to remove all interim debt	50,000
Less: Opening adjustment to remove all relevant assets under construction NBV	0
Total Opening relevant net assets [A]	170,000
Closing capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	128,500
Less: Closing donated and granted assets NBV and PDC issued for COVID-19 assets	(15,000)
Less: Relevant assets under construction NBV	0
Add: Cash support for revenue requirements PDC drawn in-year	0
Total Closing relevant net assets [B]	113,500
Average relevant net assets (including GBS and NLF) [(A+B)/2]=[C]	141,750
Less: Average daily cleared/available GBS balances and NLF deposits over the year [D]	(7,500)
Average relevant net assets for PDC dividend calculation [C-D]=[E]	134,250
Total PDC dividend expense [E*3.5%]	4,699

Example calculation with AUC relief	£'000
Opening capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	123,000
Less: Opening donated and granted assets net book value	(3,000)
Add: Opening adjustment to remove all interim debt	50,000
Less: Opening adjustment to remove all relevant assets under construction NBV	(7,000)
Total Opening relevant net assets [A]	163,000
Closing capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	128,500
Less: Closing donated and granted assets NBV and PDC issued for COVID-19 assets	(15,000)
Less: Relevant assets under construction NBV	(7,000)
Add: Cash support for revenue requirements PDC drawn in-year	0
Total Closing relevant net assets [B]	106,500
Average relevant net assets (including GBS and NLF) [(A+B)/2]=[C]	134,750
Less: Average daily cleared/available GBS balances and NLF deposits over the year [D]	(7,500)
Average relevant net assets for PDC dividend calculation [C-D]=[E]	127,250
Total PDC dividend expense [E*3.5%]	4,454

Example calculation with Revenue PDC dividend	£'000
Opening capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	123,000
Less: Opening donated and granted assets net book value	(3,000)
Add: Opening adjustment to remove all interim debt	50,000
Less: Opening adjustment to remove all relevant assets under construction NBV	0
Total Opening relevant net assets [A]	170,000
Closing capital and reserves (including GBS and NLF balances and prior to consolidation of charitable funds)	128,500
Less: Closing donated and granted assets NBV and PDC issued for COVID-19 assets	(15,000)
Less: Relevant assets under construction NBV	0
Add: Cash support for revenue requirements PDC drawn in-year	10,000
Total Closing relevant net assets [B]	123,500
Average relevant net assets (including GBS and NLF) [(A+B)/2]=[C]	146,750
Less: Average daily cleared/available GBS balances and NLF deposits over the year [D]	(7,500)
Average relevant net assets for PDC dividend calculation [C-D]=[E]	139,250
Total PDC dividend expense [E*3.5%]	4,874

Where a provider exists for only part of the financial year, the charge should be pro-rated to reflect the number of months the provider was in existence. Where a provider is formed on or after 1 April, opening net relevant assets should be calculated after the transfer in of assets and liabilities from any predecessor bodies. For providers ceasing to exist on or before 31 March, closing net relevant assets should be calculated before the transfer of assets and liabilities to any successor bodies.

Where an existing provider acquires the services and accompanying net assets/liabilities of a demising provider towards the start or end of a financial year, this may have a distorting effect on the PDC dividend calculation. In such circumstances, closing net relevant assets should exclude the transferred net assets/liabilities, to initially compute average relevant net assets for the continuing provider without the effect of the acquisition. The part year effect of the acquired net assets/liabilities should then be added to the average relevant net assets, before calculating the 3.5% charge. For example, where an acquisition occurred on 1 July 9/12 of the net relevant assets acquired would be included. In the subsequent financial year, opening net relevant assets should relate to the full asset base of the enlarged provider."

The mechanics of transferring PDC to one or more receiving bodies is described in paragraph 4.258 of the GAM. By order of this FAQ the instruction to engage the DHSC provider finance team to action transfers of PDC balances is also added to paragraph 4.258

FAQ 7: COVID-19 reporting update

Background

The primary leases for Nightingale facilities are between NHSE and the venue owner. There are secondary documents involving the host trusts, which are either between the trust and NHSE, or are between the trust and NHSE and/or the venue operator.

The Nightingale premises will not be recognised as assets on trusts’ balance sheets, and no significant operating lease payments or commitments will be disclosed.  Nonetheless, we consider the facilities to be material by nature given the effect of the pandemic, and users of accounts will expect adequate explanation in the host trusts’ accounts.

By order of this FAQ the minimum requirements of the performance overview in paragraph 3.25 of the GAM, is supplemented with the following additional bullet point.

• “Where a trust hosts a Nightingale facility, whilst these arrangements will be immaterial to the financial statements, as trusts either make no or peppercorn payments, it is material by nature to the users of the accounts, therefore requiring adequate explanation of the arrangement.  As such trusts must disclose:

  • the nature of the hosting arrangement, such as when the facility was established and its maximum occupancy, and

  • pertinent detail regarding the impact of hosting the facility as disclosed in the trusts Provider Finance Return forms.”

FAQ 8: pension contribution treatment

Background

The process established in 2019 to 2020 by which NHS England made contributions towards the pension contribution increases continues to be employed in 2020 to 2021.   

NHSE and NHSI guidance on this process remains in place and per the 2019 to 2020 FAQ 6, accounting for the employer contribution in full and on a gross basis is in line with application of IAS 19, no adjustment will be made to disclose pension costs in Chapter 5 of the GAM.

FAQ 9: going concern guidance

Background

Additional clarity is being provided in the GAM as to when material uncertainties in relation to the going concern of the entity arise. 

The inability to prepare accounts on a going concern basis, or requirement to disclose a material uncertainty will only arise for DHSC group bodies in exceptional and limited circumstances, that will be determined in agreement with the relevant national body or DHSC sponsor team, given the FReM requires entities to consider whether services will continue to be provided, even where the entity is demising.

By order of this FAQ paragraphs 4.12 to 4.17 of the GAM is replaced by the following text:

“The FReM notes that in applying paragraphs 25 to 26 of IAS 1, preparers of financial statements should be aware of the following interpretations of Going Concern for the public sector context.

For non-trading entities in the public sector, the anticipated continuation of the provision of a service in the future, as evidenced by inclusion of financial provision for that service in published documents, is normally sufficient evidence of going concern. 

A trading entity needs to consider whether it is appropriate to continue to prepare its financial statements on a going concern basis where it is being, or is likely to be, wound up.

Sponsored entities whose statements of financial position show total net liabilities must prepare their financial statements on the going concern basis unless, after discussion with their sponsor division or relevant national body, the going concern basis is deemed inappropriate.

Where an entity ceases to exist, it must consider whether or not its services will continue to be provided (using the same assets, by another public sector entity) in determining whether to use the concept of going concern in its final set of financial statements.  

While an entity will disclose its demise in various areas of its Annual Report and Accounts such as in the Performance Report and cross reference this in its going concern disclosure, this event does not prevent the accounts being prepared on a going concern basis or give rise to a material uncertainty in relation to the going concern of the entity.

DHSC group bodies must therefore prepare their accounts on a going concern basis unless informed by the relevant national body or DHSC sponsor of the intention for dissolution without transfer of services or function to another entity. 

Where a DHSC group body is aware of material uncertainties in respect of events or conditions that may bring into question the going concern ability of the entity, these uncertainties must be disclosed.  

As the continued provision of service approach, per paragraph 4.16, applies to DHSC group bodies, material uncertainties requiring disclosure, will only arise in very exceptional circumstances.

Should a DHSC group body have concerns about its ‘going concern’ status (and this will only be the case if there is a prospect of services ceasing altogether), or whether a material uncertainty is required to be disclosed (which will only arise in exceptional circumstances), it must raise the issue with its sponsor division or relevant national body as soon as possible.

Consideration of risks to the financial sustainability of the organisation is a separate matter to the application of the going concern concept. Determining the financial sustainability of the organisation requires an assessment of its anticipated resources in the medium term.  Any identified significant risk to financial sustainability is likely to form part of the risks disclosures included in the wider performance report, but is a separate matter from the going concern assessment.”

The minimum requirement of a performance overview includes a requirement to explain the adoption of the going concern basis where this might be called into doubt. 

As a result of the above clarification in Chapter 4 of the GAM, the guidance around this minimum requirement of the performance overview is revised per the following text:

an explanation of the adoption of the going concern basis (see paragraphs 4.12 to 4.22) where this might be called into doubt (expected in extremely limited circumstances).

FAQ 10: updated – off-payroll reporting update

Background

‘PES (2021) 01 Guidance on the Preparation of 2020-21 Annual Report and Accounts’ has revised requirements and guidance in relation to the disclosure of off-payroll engagements.  Accordingly the guidance in Chapter 3 Annex 4 is revised to reflect the new guidance. The latest update of this FAQ corrects minor errors in relation to table 2.

By order of this FAQ Chapter 3 Annex 4 is revised to reflect the following text.

“Chapter 3 Annex 4 – ‘off-payroll’ engagements

Introduction

A HM Treasury requirement for public sector bodies to report arrangements whereby individuals are paid through their own companies (and so are responsible for their own tax and NI arrangements, not being classed as employees) has been promulgated in Public Expenditure System (PES) guidance. 

HM Treasury’s guidance on this is summarised below.

Reformed off-payroll working rules

The government has reformed the Intermediaries legislation, introducing Chapter 10 Part 2 Income Taxes (Earnings and Pensions) Act 2003 (ITEPA 2003) supporting Chapter 8 Part 2 ITEPA 2003, often known as IR35.

The legislation for the off-payroll working rules within the public sector applies to payments made on or after 6 April 2017.

Under the reformed off-payroll working rules, departments must determine whether the rules apply when engaging a worker through a Personal Service Company (PSC).

See guidance and more information about Off-payroll working rules (IR35) for public authorities.

The cross-government Tax Centre of Excellence (TCoE) has similarly offered guidance on common themes and offer links to additional Cabinet Office and HMRC guidance. This guidance is accessible to all on the TCoE website.

DHSC group bodies will already be operating the new rules to provide employment status determinations for all of their off-payroll engagements.

Bodies will have also established a periodic re-assessment mechanism from 6 October 2017, in line with the revised reporting requirements of Table 2, covered below.

Inclusion in annual reports

DHSC group bodies must include the disclosures set out below within the staff report section of their ARA (or within the financial statements if they wish, but if so, clearly signposted from the staff report). 

There is no requirement to have the disclosure audited (although inclusion in the financial statements will bring the disclosure into the scope of audit), and DHSC will not require information for consolidation purposes from NHS trusts, NHS foundation trusts and CCGs.

DHSC will, however, disclose comparable figures in respect of its own core and agency business, and consolidated figures from DHSC ALBs, together with a note that individual DHSC group bodies are required to make disclosures in the remuneration report section of their ARA. 

DHSC group bodies should be aware that this information is provided in the public interest and may be expected to be requested under the Freedom of Information Act 2000.

Guidance

Following the Review of the tax arrangements of public sector appointees published by the Chief Secretary to the Treasury on 23 May 2012, departments and their arm’s length bodies (this is taken to include all those bodies included within the DHSC reporting boundary) must publish information on their highly paid and/or senior off-payroll engagements.

Payments to GP practices for the services of employees and GPs are deemed to be ‘off-payroll’ engagements, and are therefore subject to these disclosure requirements.

HM Treasury guidance confirms that the reported data should include (where paid £245 or more per day per day) those appointments to which the off-payroll legislation applies whereby the department and their ALBs are required to undertake IR35 assessments under Chapter 10 ITEPA 2003.

This applies as defined to: ‘a worker (or contractor), not employed by the client department, the supplier or any other organisation within the supply chain, that instead provides their services through their own limited company or another type of intermediary to the client.  An intermediary will usually be the worker’s own personal service company but could also be a partnership or an individual.’

Reported data should also include those appointments that are not on the entities payroll and where the off-payroll legislation does not apply. For example, the legislation does not apply to sole traders or workers that are employed by and on the payroll of an umbrella company, agency or other organisation in the supply chain.

Off-payroll appointments should be included regardless of the commercial route through which they are engaged. The disclosures are not limited to workers engaged via the Public Sector Resourcing Framework and should include procurements of resource / workers through other frameworks such as, but not limited to, Digital Outcomes and Specialists, G-cloud, Non-Medical Non-Clinical and all other commercial routes aside.

Those not to be included in the reported data include workers that are controlled and directed by external suppliers in the course of providing the department with a contracted-out service, workers who are seconded to the department and on the payroll of the supplying organisation and consultants that are providing consultancy services to the department that do not go beyond provision of advice.

As part of the remuneration report section of their ARA DHSC group bodies must present the data described below in the following sections.

Length of all highly paid off-payroll engagements

For all highly paid off-payroll engagements as of 31 March 2021, greater than £245 per day:

• the total number of existing engagements as of 31 March 2021

• the number that have existed for less than 1 year at time of reporting

• the number that have existed for between 1 and 2 years at time of reporting

• the number that have existed for between 2 and 3 years at time of reporting

• the number that have existed for between 3 and 4 years at time of reporting

• the number that have existed for 4 or more years at time of reporting

Disclosure must be in the format shown in Table 1: length of all highly paid off-payroll engagements below.

 Off-payroll workers engaged at any point during the financial year

For all off-payroll appointments engaged at any point between 1 April 2020 and 31 March 2021, greater than £245 per day:

• the number of off-payroll workers engaged between April 2020 and March 2021

• the number not subject to off-payroll legislation

• the number subject to off-payroll legislation and determined as in-scope of IR35

• the number subject to off-payroll legislation and determined as out-of-scope of IR35

• the number of engagements reassessed for compliance or assurance purposes during the year

• of which the number of engagements that saw a change to IR35 status following review

Disclosure must be in the format shown in Table 2: off-payroll workers engaged at any point during the financial year below.

Off-payroll worker tax liabilities and or HMRC penalties imposed as a result of non- compliance with off-payroll worker legislation must be disclosed as a loss per the requirements outlined in the table below paragraph 3.82. References to such losses must also be disclosed beneath Table 2.

Board member/senior management engagements

For any off-payroll engagements of board/governing body members and/or senior officials with significant financial responsibility between 1 April 2020 and 31 March 2021 reporting entities must also disclose:

• the number of off-payroll engagements of board/governing body members and/or senior officials with significant financial responsibility

• details of the exceptional circumstances that led to each of these engagements

• details of the length of time each of these exceptional engagements lasted

• the total number of individuals both on and off-payroll that have been deemed ‘board members and/or senior officials with significant financial responsibility’ during the financial year. This total figure must include engagements which are ON PAYROLL as well as those off-payroll.

Disclosure must be in the format shown in Table 3: off-payroll board member/senior official engagements below.

Table 1: Length of all highly paid off-payroll engagements

For all off-payroll engagements as of 31 March 2021, for more than £245^{[footnote 1]} per day:

	Number
Number of existing engagements as of 31 March 2021
The number that have existed for less than 1 year at the time of reporting
The number that have existed for between 1 and 2 years at the time of reporting
The number that have existed for between 2 and 3 years at the time of reporting
The number that have existed for between 3 and 4 years at the time of reporting
The number that have existed for 4 or more years at the time of reporting

Table 2: off-payroll workers engaged at any point during the financial year

For all off-payroll engagements between 1 April 2020 and 31 March 2021, for more than £245^{[footnote 1]} per day

	Number
Number of temporary off-payroll workers engaged between 1 April 2020 and 31 March 2021
Of which:
Number not subject to off-payroll legislation (see note)
Number subject to off-payroll legislation and determined as in-scope of IR35 (see note)
Number subject to off-payroll legislation and determined as out of scope of IR35 (see note)
Number of engagements reassessed for compliance or assurance purposes during the year
Of which, number of engagements that saw a change to IR35 status following review

Note: A worker that provides their services through their own limited company or another type of intermediary to the client will be subject to off-payroll legislation and the department must undertake an assessment to determine whether that worker is in-scope of Intermediaries legislation (IR35) or out-of-scope for tax purposes.

Table 3: off-payroll board member/senior official engagements

For any off-payroll engagements of board members and/or senior officials with significant financial responsibility, between 1 April 2020 and 31 March 2021:

	Number
Number of off-payroll engagements of board members, and/or senior officers with significant financial responsibility, during the financial year (see note 1)
Total number of individuals on payroll and off-payroll that have been deemed ‘board members, and/or, senior officials with significant financial responsibility’, during the financial year. This figure must include both on payroll and off-payroll engagements (see note 2)

Note 1: there should only be a very small number of off-payroll engagements of board members and/or senior officials with significant financial responsibility, permitted only in exceptional circumstances and for no more than 6 months.

Note 2: as both on payroll and off-payroll engagements are included in the total figure, no entries here should be blank or zero. In any cases where individuals are included within the first row of this table the department should set out:

• details of the exceptional circumstances that led to each of these engagements

• details of the length of time each of these exceptional engagements lasted”

FAQ 11: chapter 2 annex 6 update

Background

References to annual audit letters in the GAM require update to reference annual audit reports. By order of this FAQ Chapter 2 Annex 6 will now reflect the following text.

“Chapter 2 Annex 6 – CCG and NHS trusts auditor’s annual reports

The Code of Audit Practice places a requirement on all CCG and NHS trust auditors to issue an annual report. 

The auditor’s annual report is intended to be a public document, and CCGs and NHS trusts must ensure the document is made available to members of the public free of charge. 

The auditor’s annual report is separate and distinct from the ISA 260 in which the auditor reports to those charged with governance, for which there is no requirement to make publicly available.

DHSC expects publication on the individual CCG / NHS trust website to be the easiest way to ensure the auditor’s annual report is made available. 

The report should not be made available prior to publication of the entity’s annual reports and accounts.”

FAQ 12: revision to partially completed spells guidance in the GAM

Background

This FAQ updates guidance provided in Chapter 4 of the GAM in relation to partially completed treatment spells.

By order of this FAQ paragraphs 4.63 to 4.65 of the GAM is replaced by the following text.

“Where NHS providers and commissioners transact via block contract arrangements, the provider’s entitlement to income does not vary based on the treatment of individual patients.  As such, no partially completed spells balances are expected to arise at the year end.

Chapter 4 annex 10 of the GAM provides guidance on accounting where the maternity pathway is in operation.  Where this is not in operation as a payment mechanism, this guidance will not apply and no prepayments / deferrals will arise.”

FAQ 13: guidance concerning reimbursement and top-up income

Background

In 2020 to 2021 NHS providers have received reimbursement and top-up income in addition to amounts included in block contracts and system envelopes.  This income is earned based on either incurring costs or other aspects of financial performance.  This FAQ addresses the appropriate treatment per IFRS 15.

By order of this FAQ the following text is inserted in to the GAM at paragraph 4.65.

“Reimbursement and top-up income

In 2020 to 2021 NHS providers have received reimbursement and top-up income in addition to amounts included in block contracts and system envelopes. This income is earned based on either incurring costs or other aspects of financial performance.  In line with IFRS 15, such income should be accounted for as variable consideration per paragraph 51. 

In accordance with paragraph 50 of the Standard an entity is required to estimate the amount of consideration to which it will be entitled, in exchange for transferring promised goods or services.  It is noted in paragraph 53 (b) of the Standard that the ‘most likely amount’ method of predicting consideration to which an entity will be entitled to, may be an appropriate method of estimation if there are only two possible outcomes; achieving a performance bonus or not.  The method of estimation employed must be applied consistently throughout the contract.

In calculating the transaction price, which includes determination of the appropriate level of variable consideration, NHS providers must take note of paragraphs 56 to 59 of IFRS 15. The estimated variable consideration can only be included in the transaction price, to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur when the uncertainty around the variable consideration is resolved.  Reassessment of the variable consideration is required under paragraph 59 of the Standard, to ensure that the entity faithfully represents changes in circumstances both during and at the end of the reporting period.  This process enables changes in the transaction price to occur.

It is noted in paragraph 87 of the Standard that the resolution of uncertain events can change the amount of consideration expected to be received after contract inception.  Where entitlement to monies under these arrangements depends on other aspects of the entity’s financial performance, the entity should assess whether its financial performance has changed significantly since the indicative entitlement to income was communicated.

The entity can then accrue for revenue in line with paragraph 88 of the Standard which confirms amounts allocated to a satisfied performance obligation shall be recognised as revenue in the period in which the transaction price changes.              

At the financial year end, NHS providers will recognise a contract receivable for any amounts not received in cash.”

FAQ 14: updated – COVID-19 accounting updates

Background

As part of the pandemic response the department (and other government Departments (OGDs) in the case of vaccines) has engaged in the central procurement of various items such as ventilators and other medical equipment, personal protective equipment, testing kits and vaccines which are being distributed to entities in the Health and Social Care sector (internal and external to the DHSC Group), OGDs and other external entities for no consideration.

This FAQ inserts principles based guidance as to how these transactions should be accounted for by DHSC group bodies in the body of Chapter 4 of the GAM.  NHS England and NHS Improvement (NHSE and NHSI) describe the practical operationalisation of these approaches in the published guidance for 2020 to 2021 accounts. 

By order of this FAQ the following text is inserted below paragraph 4.87.

“Donation of centrally procured items for COVID-19 pandemic response

A number of items have been centrally procured by DHSC and other national bodies and provided to trusts free of charge. Such items include personal protective equipment, ventilators and other medical equipment.

Items received by trusts should be considered a transfer of resources akin to a ‘government grant relating to income’ in IAS 20 and follow established accounting for donated assets.

Therefore, a non-cash gain is recognised equivalent to the value of the items received for no consideration. Items such as ventilators and other medical equipment should be capitalised on receipt, consistent with this policies of this manual and where such equipment is below capitalisation thresholds, an amount equivalent to the non-cash gain is taken to expenses. For personal protective equipment the treatment by trusts should be consistent with the approach to accounting for consumables i.e. held as inventory or may be charged to expenses where not material. 

Normally, where grants are provided by DHSC to a group body, as the entity’s controlling party, group bodies should regard those grants as financing. The FReM however allows for the Department to approve alternative treatment.

NHSE and NHSI have issued further detailed guidance for accounts to describe the practical operationalisation of the approach and provide accounting information as to how appropriate valuations and market prices have been derived and their impact for impairment purposes at year end.

In relation to donations of items and equipment in relation to the pandemic response, such arrangements should not be classified as a gift per Annex 4.12 of Managing Public Money.

Transactions which do not score as gifts includes grants in kind that are part of a planned programme of HMG support for an organisation. The central procurement and onward distribution of items as part of the pandemic response are clearly part of planned programme of HMG support. 

Moreover, the government receives value in the furtherance of its policy objective in its the pandemic response and the purchase and distribution of items for the pandemic response, is funded through the Estimate and thus per A4.12.2 of Managing Public Money such donations do not constitute a gift.”

By order of this FAQ the following text is inserted below paragraph 4.179.

“Accounting for pandemic response items as inventories

Prior to donation to trusts, the department and in some instances other national bodies will be holding centrally procured items such as ventilators and other medical equipment, personal protective equipment, testing kits, medicines and vaccines as inventory prior to distribution or donation to NHS bodies.

The treatment of centrally procured items such as personal protective equipment as inventories is detailed in paragraph 4.90.

Draw down by trusts from the intensive care medicine stockpile should not be accounted for as inventories locally where it is immaterial to do so. In instances in which draw down from the intensive care stockpile is material the approach will align to that for personal protective equipment as detailed in paragraph 4.90 and NHSE and NHSI supporting guidance referenced in paragraph 4.92.

Stocks of COVID-19 vaccines distributed to NHS bodies should not be accounted for as inventory of an NHS body. The vaccines are held for a short period of time prior to use by NHS bodies and NHS bodies are directed by the Department as to how the vaccines are used. NHS bodies are therefore agents in this scenario and will not account for the inventory or its consumption, rather this is accounted for by PHE who receive the vaccines for nil consideration from the Department for Business, Energy and Industrial Strategy.

Other transactions associated with the vaccination programme (for example, costs incurred directly by trusts) should be accounted for based on the substance of the transaction.

Similarly testing kits provided to NHS bodies for nil consideration are not to be accounted for as inventory by NHS bodies. In alignment with vaccines, testing kits are held for a short time by NHS bodies who are directed as to their use by the department who determines the policy over how tests are administered and to whom, with NHS bodies reimbursed for associated costs. Consequently testing kits are not directly consumed in the production process for NHS bodies, ie the treatment of patients, thus not giving rise to inventory.”

1. The £245 threshold is set to approximate the minimum point of the pay scale for a Senior Civil Servant. ↩ ↩²