DHSC group accounting manual 2022 to 2023: additional guidance, version 3
Updated 2 June 2023
© Crown copyright 2023
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Introduction
1. The Department of Health and Social Care group accounting manual 2022 to 2023 (GAM) was published in June 2022. 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).
2. NHS foundation trusts follow the NHS foundation trust annual reporting manual 2022 to 2023 for the purpose of preparing annual reports.
3. This additional guidance updates the GAM, is mandatory, and must be treated as having the same status as the GAM itself.
4. This document will be updated as additional FAQs arise, so that all additional guidance for 2022 to 2023 will be contained within a single document.
5. This is the third version of additional guidance to be published for the 2022 to 2023 GAM, with an initial update to the 2022 to 2023 GAM published in January 2023 followed by a further update in April 2023.
6. Where an FAQ has been updated since its initial publication the title of the FAQ is supplemented with the term ‘updated’. This applies to FAQ 3, which has been further updated in this version of the guidance per the minor addition made to the end of paragraph 50 below. FAQ 8 is new in this version of the guidance.
FAQ 1: changes in discount rates at 31 March 2023
Background
7. As advised in the GAM (chapter 4 annex 7), HM Treasury discount rates are revised each year and are notified by means of a public expenditure system (PES) paper.
8. ‘PES (2022) 08 discount rates for general provisions, post-employment benefits, financial instruments and leases (under IFRS 16)’ was issued on 2 December 2022.
GAM application
9. 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 2023
10. The discount rates to be applied as at 31 March 2023 for general provisions, post-employment benefits and financial instruments are summarised below.
Table 1: summary of discount rates as at 31 March 2023
| Rate type | Rate | Prior year rate |
|---|---|---|
| Nominal general provision discount rates | ||
| Short-term | 3.27% | 0.47% |
| Medium-term | 3.20% | 0.70% |
| Long-term | 3.51% | 0.95% |
| Very long-term | 3.00% | 0.66% |
| General provisions inflation rates | ||
| Year 1 | 7.4% | 4.0% |
| Year 2 | 0.6% | 2.6% |
| Into perpetuity | 2.0% | 2.0% |
| Post-employment benefits discount rate | ||
| Real rate | 1.70% | Minus 1.30% |
| Nominal rate | 4.15% | 1.55% |
| CPI Inflation | 2.40% | 2.90% |
| Financial instrument discount rate | ||
| Nominal rate | 1.9% | 1.9% |
| Real rate with reference to RPI until February 2030 | Minus 1.3% | Minus 1.1% |
| Real rate with reference to RPI from February 2030 | Minus 0.2% | Minus 0.2% |
| IFRS 16 Leases Discount Rate (prior year rate is for the 2022 calendar year and current rate is for 2023 calendar year) | ||
| Nominal rate | 3.51% | 0.95% |
11. The following detail is provided to assist preparers in utilising the various discount rates.
General provisions
12. General provisions discount rates are used to discount future cash flows related to provisions recognised in accordance with IAS 37.
13. HM 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 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 statement of financial position 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 statement of financial position 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 statement of financial position date
14. 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
15. The central inflation assumptions offered in table 1 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).
16. 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 statement of financial position
- year 2: applied on cash flows from after 1 and up to and including 2 years from the date of the statement of financial position
- into perpetuity: applied on cash flows from after 2 years from the date of the statement of financial position
17. 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.
18. 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
19. 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
20. The below is an excerpt from annex C of PES (2022) 08 which provides combined OBR CPI inflation and discount rates for up to 50 years after the statement of financial position date. Annex C offers combined rates for up to and including 200 years. This is available on request from [email protected].
Table 2: 50 year excerpt from Annex C PES (2022) 08
| Year | Inflation rate | Inflation cumulative | Discount rate | Cumulative combined rate |
|---|---|---|---|---|
| - | (a) | (b) | (c) | (d) d=b*c^a |
| 1 | 7.4% | 107.4% | 3.27% | 104.00% |
| 2 | 0.6% | 108.0% | 3.27% | 101.32% |
| 3 | 2.0% | 110.2% | 3.27% | 100.08% |
| 4 | 2.0% | 112.4% | 3.27% | 98.85% |
| 5 | 2.0% | 114.7% | 3.27% | 97.64% |
| 6 | 2.0% | 117.0% | 3.20% | 96.80% |
| 7 | 2.0% | 119.3% | 3.20% | 95.67% |
| 8 | 2.0% | 121.7% | 3.20% | 94.56% |
| 9 | 2.0% | 124.1% | 3.20% | 93.45% |
| 10 | 2.0% | 126.6% | 3.20% | 92.37% |
| 11 | 2.0% | 129.1% | 3.51% | 88.35% |
| 12 | 2.0% | 131.7% | 3.51% | 87.06% |
| 13 | 2.0% | 134.3% | 3.51% | 85.79% |
| 14 | 2.0% | 137.0% | 3.51% | 84.54% |
| 15 | 2.0% | 139.8% | 3.51% | 83.30% |
| 16 | 2.0% | 142.6% | 3.51% | 82.09% |
| 17 | 2.0% | 145.4% | 3.51% | 80.89% |
| 18 | 2.0% | 148.3% | 3.51% | 79.71% |
| 19 | 2.0% | 151.3% | 3.51% | 78.55% |
| 20 | 2.0% | 154.3% | 3.51% | 77.40% |
| 21 | 2.0% | 157.4% | 3.51% | 76.27% |
| 22 | 2.0% | 160.5% | 3.51% | 75.16% |
| 23 | 2.0% | 163.8% | 3.51% | 74.06% |
| 24 | 2.0% | 167.0% | 3.51% | 72.98% |
| 25 | 2.0% | 170.4% | 3.51% | 71.92% |
| 26 | 2.0% | 173.8% | 3.51% | 70.87% |
| 27 | 2.0% | 177.3% | 3.51% | 69.84% |
| 28 | 2.0% | 180.8% | 3.51% | 68.82% |
| 29 | 2.0% | 184.4% | 3.51% | 67.81% |
| 30 | 2.0% | 188.1% | 3.51% | 66.82% |
| 31 | 2.0% | 191.9% | 3.51% | 65.85% |
| 32 | 2.0% | 195.7% | 3.51% | 64.89% |
| 33 | 2.0% | 199.6% | 3.51% | 63.94% |
| 34 | 2.0% | 203.6% | 3.51% | 63.01% |
| 35 | 2.0% | 207.7% | 3.51% | 62.09% |
| 36 | 2.0% | 211.8% | 3.51% | 61.18% |
| 37 | 2.0% | 216.1% | 3.51% | 60.29% |
| 38 | 2.0% | 220.4% | 3.51% | 59.41% |
| 39 | 2.0% | 224.8% | 3.51% | 58.54% |
| 40 | 2.0% | 229.3% | 3.51% | 57.69% |
| 41 | 2.0% | 233.9% | 3.00% | 69.58% |
| 42 | 2.0% | 238.6% | 3.00% | 68.90% |
| 43 | 2.0% | 243.3% | 3.00% | 68.23% |
| 44 | 2.0% | 248.2% | 3.00% | 67.57% |
| 45 | 2.0% | 253.2% | 3.00% | 66.91% |
| 46 | 2.0% | 258.2% | 3.00% | 66.26% |
| 47 | 2.0% | 263.4% | 3.00% | 65.62% |
| 48 | 2.0% | 268.7% | 3.00% | 64.98% |
| 49 | 2.0% | 274.0% | 3.00% | 64.35% |
| 50 | 2.0% | 279.5% | 3.00% | 63.72% |
Post-employment benefits provisions
21. The real discount rate applicable on 31 March 2023 is 1.70% (the previous year’s rate was minus 1.30%). This rate is calculated as net of CPI measured at 2.40%.
22. The rate is applicable for all provisions for continuing obligations arising from previous employment service.
23. HM Treasury consider that schemes for which RPI is a material assumption are limited and consequently will no longer provide rates that take account of RPI inflation.
24. A nominal rate to be used for assessing interest costs of scheme liabilities is set at 4.15%.
Financial instruments
25. The financial instrument discount rate is used for some financial instruments in accordance with the requirements of the financial reporting manual (FReM).
26. The FReM states:
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.
27. To reflect the upcoming changes to RPI in 2030 HM Treasury have provided real rates for before and after February 2030. Accordingly, the real financial instrument discount rate to be applied at 31 March 2023 is minus 1.3% (prior year rate minus 1.1%) until February 2030 and minus 0.2% (prior year rate minus 0.2%) after February 2030. These rates can be applied where the instrument is index linked to RPI.
28. While entities should employ their own RPI modelling HM Treasury have provided indicative RPI rates of 3.2% until February 2030 and 2.1% from February 2030.
29. Where the financial instrument is not linked to an inflationary index, and a nominal rate is required, 1.9% (previously 1.9%) may be used.
Leases
30. PES (2021) 10 confirmed that the HM Treasury incremental borrowing rate (a nominal rate) of 0.95% is to be applied for leases commencing, transitioning or being remeasured in the 2022 calendar year under IFRS 16.
31. For the 2023 calendar year, PES (2022) 08 confirms the incremental borrowing rate as 3.51%. This will be relevant for newly commenced leases, relevant lease modifications (paragraph 45 of IFRS 16) and relevant lease remeasurement scenarios (paragraph 40 of IFRS 16), occurring in 2023.
FAQ 2: injury costs recovery revenue, probability of non-recovery
Background
32. Paragraphs 4.88 to 4.97 of the GAM describe the treatment of injury costs recovery (ICR) revenue.
33. 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.
34. The figure for 2022 to 2023 is 24.86%. By issue of this FAQ, paragraph 4.95 of the GAM is amended to reflect this figure.
GAM application
35. If it is material, 24.86% 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.
36. 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 updated: reporting updates and other minor updates to the 2022 to 2023 GAM
Background
37. This FAQ collates various clarifications required to update the 2022 to 2023 GAM, reporting updates stemming from the health and care act and in year updates to the 2022 to 2023 FReM that are required to be reflected in the GAM.
GAM corrections
38. This FAQ serves to remove drafting notes that were present in chapter 2 of the initial publication of the 2022 to 2023 GAM and updates references to the appropriate financial year where relevant.
39. The original publication of the 2022 to 2023 GAM did not detail all of the IFRS 16 HM Treasury interpretations and adaptations in chapter 4 annex 1. Consequently this FAQ ensures the interpretations and adaptations detailed in paragraphs 4.242 and 4.243 of the GAM, are fully replicated in chapter 4 annex 1 of the GAM. Furthermore, detail relating to the international financial reporting standards interpretation committee decisions and the standards interpretations committee decisions, that provided additional guidance to the application of the preceding leasing standard, are also removed from chapter 4 annex 1 of the GAM.
GAM updates
Health and care act updates
40. This FAQ inserts integrated care board (ICB) terminology throughout the 2022 to 2023 GAM. Given the part year existence of clinical commissioning groups (CCGs), and subsequent relevance to their 2022 to 2023 close down accounts, terminology relating to CCGs remains throughout the 2022 to 2023 GAM. This FAQ consequently updates the listing of entity references in chapter 1 of the GAM, below paragraph 1.18, stemming from updates in the health and care act 2022. The listing confirms that references to operating labels such as NHS England and NHS Improvement were dropped on 1 July 2022.
41. This FAQ provides an updated accounts direction for NHS trusts stemming from the health and care act in chapter 2 annex 4 of the GAM, removes the direction relating to the NHS Trust Development Authority previously detailed within chapter 2 annex 4 and updates the accounts direction structure in chapter 2 annex 3 by including ICB direction detail, removing the detail regarding Monitor’s direction and updating the powers by which the NHS trust accounts direction is made.
42. This FAQ provides updates to the performance reporting requirements of NHS bodies in light of implementation of the health and care act 2022.
43. For NHS trusts additional performance reporting requirements have been detailed in a re-formatted paragraph 3.27 of the GAM, in which it is confirmed that NHS trusts need to review the extent to which the trust has exercised its functions consistently and in accordance with:
- joint forward plans published in relation to the ICB and its partners (for 2022 to 2023 this may be the relevant forward plans of the CCGs for that ICB)
- joint capital resource plans for the ICB and its partners
- NHSE’s views set out in the latest statement about how functions relating to inequalities information should be exercised - additional guidance has been provided regarding how this requirement should be met for the 2022 to 2023 financial year
44. For ICBs the annual reporting requirements, detailed in 14Z58 of the 2006 NHS act as inserted by the health and care act 2022, are included in 3.28 of the GAM. As well as reflecting the above bulleted requirements, additional requirements relate to:
- explaining how the ICB has discharged its general duties
- reviewing any steps the board has taken to implement any joint local health and wellbeing strategy
- specific disclosure requirements relating to mental health spend incurred - additional clarification of the approach to the 2022 to 2023 disclosure has been provided
45. This FAQ updates chapter 4 annex 9 paragraph 4.849 and 4.850 and inserts a new appendix to chapter 2 relating to ICB performance with chapter 2 appendix 1 retitled CCG performance. Chapter 2 appendix 1 confirms that the additional disclosures in chapter 2 appendix 1 are only applicable to CCGs in paragraph 2.120.
Other GAM updates
46. This FAQ removes the performance overview reporting requirement regarding trusts hosting a nightingale facility previously detailed in paragraph 3.34 of the GAM.
47. This FAQ provides a number of clarifications in relation to the guidance for the remuneration and staff report in chapter 3 of the GAM. The GAM is now explicit as to:
- when prior year comparatives are not relevant in paragraph 3.71
- the range of staff remuneration disclosed should include the highest paid director but exclude pension benefits in paragraph 3.117
- how agency and other temporary employees should be incorporated in fair pay disclosures in paragraph 3.108
- following the approach taken in the Greenbury guidance to calculate pension figures for part year disclosures in paragraph 3.166
48. This FAQ serves to make various updates to the 2022 to 2023 GAM that were raised as part of the 2023 to 2024 GAM consultation and are equally relevant updates to make to the 2022 to 2023 GAM. This includes:
- removal of reference to sustainability and transformation partnerships in paragraph 4.39
- removal of unnecessary text in the opening paragraph of chapter 4 annex 10
- adding greater specificity around the type of variable payments included in a lease liability in chapter 4 annex 11, paragraph 4.957
- cross referencing lease disclosure requirements detailed in chapter 4 annex 11 in chapter 5, paragraph 5.144
December updates of the 2022 to 2023 FReM
49. There are various updates in the 2022 to 2023 FReM that are required to be reflected in the GAM.
50. The FReM and therefore the GAM will be deferring application of IFRS 16 measurement principles to public private partnership (PPP) liabilities until 2023 to 2024. Consequently entities will continue to account for such liabilities on the basis employed through 2021 to 2022, which is reflected in paragraphs 4.245 to 4.249 and chapter 4 annex 5 of the GAM, principally be removing reference to IFRS 16 in these sections and noting the deferral in paragraph 4.248, and reinstating the accounting policy note for such liabilities as it was detailed for the 2021 to 2022 financial year in note 1.19.2. References to IFRS 16 have also been removed from paragraphs 5.228 and 5.234.
51. Further contextualisation of the finalised HM Treasury guidance regarding the approach to measuring PPP liabilities on an IFRS 16 basis is aimed to be provided by DHSC and NHSE during 2023.
52. The FReM now requires a statement to be provided about use of the government functional standards to be provided in the parliamentary accountability and audit report. As the expectation is that department’s and arm’s length bodies have incorporated these functional standards within their activities, the GAM will replicate this requirement in the table outlining the necessary disclosures of a parliamentary report and notes that this disclosure is not subject to audit in paragraph 3.131 of the GAM.
53. Further detail was added to the FReM in regards to the disclosure of other financial commitments. While this disclosure is already present within the GAM per paragraph 5.222 the FReM now provides further direction around this disclosure as well as confirming that individually material other financial commitments should be separately disclosed along with a brief description of the nature of the commitments. Consequently this disclosure requirement in relation to other financial commitments is revised per paragraphs 5.222 and 5.223 of the GAM.
FAQ 4: IFRS 16 mandated disclosures
54. To ensure sufficient assurance can be provided over the figures disclosed in summarisation schedules driving intra group eliminations, DHSC group bodies are required to include counterparty disclosure detail in their accounts where material.
55. These disclosures relating to right of use assets, lease liabilities and receivables and plant property and equipment derecognised as part of an intra group finance lease arrangement, all require additional counterparty splits to be given, where material, for the totals disclosed as intra group.
56. It is the content of the disclosure that is mandated and preparers are free to present the disclosure in a manner consistent with the presentation of other notes in the accounts. These disclosures are presented from paragraph 4.1065 in chapter 4 annex 11 of the GAM. The tables as presented in the GAM are illustrative only and are presented solely to demonstrate the relevant notes where there should be an additional column to show amounts relating to DHSC group bodies.
FAQ 5: accounting for the 2022 to 2023 component of the agenda for change pay offer
57. The pay settlement offer announced by the Secretary of State and agenda for change unions on 16 March 2023 contained revised pay terms for the 2022 to 2023 and 2023 to 2024 financial year for staff on agenda for change terms. The 2022 to 2023 component of the offer, the element relevant to the 2022 to 2023 accounts, contained a non-consolidated payment of 2% plus a backlog bonus of at least £1,250 per member of staff that will only be applicable for employees in post on 31 March 2023.
58. Per IAS 19 paragraph 19, DHSC judges that the offer constitutes a present legal or constructive obligation for agenda for change employers to make such payments, for which a reliable estimate of the obligation can be made. Accordingly the 2022 to 2023 component of the settlement offer should be accrued as an expense within the 2022 to 2023 accounts, by agenda for change employers, per paragraph of 11 of IAS 19. For NHS bodies, NHS England will provide a likely estimate of the obligation.
59. IAS 10 paragraph 9(d) requires entities adjust the measurement of accruals relating to profit sharing or bonus payments provided the obligation existed at the period end. As DHSC judges an obligation to exist the accrual will be required to be adjusted per IAS 10 if the expected settlement value of the short term employee benefits for 2022 to 2023 changes prior to the accounts being authorised for issue.
60. If the entity has ‘senior managers’ in the remuneration report single total figure table employed on agenda for change terms, the 2022 to 2023 non-consolidated award should be disclosed as salary. For the fair pay disclosure, the additional non-consolidated award will be included in the definitions of salary and remuneration.
FAQ 6: public dividend capital (PDC) dividend update
61. The PDC dividend policy has been updated to reflect the policy in the latest Secretary of State’s guidance under section 42A of the National Health Service Act 2006. Consequently all reference to COVID-19 support has been removed from the policy as referenced in FAQ 7 of the 2021 to 2022 GAM additional guidance.
FAQ 7: pension contribution treatment
62. The process established in 2019 to 2020 by which NHS England made contributions towards the pension contribution increases continues to be employed in 2022 to 2023.
63. NHSE guidance on this process remains in place and per the 2019 to 2020 additional guidance 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 8: Cost equivalent transfer values calculations for 2022 to 2023 accounts
64. HM Treasury published public expenditure system (PES) (2023) 04 on 25 May 2023 to provide clarification on the approach to use to calculate cash equivalent transfer values (CETVs) for the 2022 to 2023 accounts given the conclusion of their consultation on the matter on 30 March 2023 and revised guidance issued on 27 April 2023.
65. The PES confirms that for the 2022 to 2023 accounts cycle, the original guidance, which was in place until 27 April 2023, should continue to be used for the 2022 to 2023 accounts. As such entities should continue to follow the BSA Greenbury guidance in calculation and disclosure of CETVs.
66. All CETVs calculated for the 2022 to 2023 accounts have applied the original guidance so no action needs to be taken in respect of requesting new CETV calculations as a result of this clarification by HM Treasury.
67. The PES provides a narrative disclosure to add to disclosure of CETVs to aid the users’ understanding of this matter, which is detailed below and added to the GAM above paragraph 3.151 where the layout of table 2 is presented. By order of this FAQ, entities are required to include the below disclosure below their pensions table, table 2, in their remuneration report.
‘CETV figures are calculated using the guidance on discount rates for calculating unfunded public service pension contribution rates that was extant at 31 March 2023. HM Treasury published updated guidance on 27 April 2023; this guidance will be used in the calculation of 2023 to 24 CETV figures.’