DHSC group accounting manual 2023 to 2024: additional guidance, version 2
Updated 2 April 2024
© Crown copyright 2024
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Introduction
1. The Department of Health and Social Care group accounting manual (GAM) 2023 to 2024 was published in June 2023. 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.
2. NHS foundation trusts follow the NHS foundation trust annual reporting manual 2023 to 2024, 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 further FAQs arise, so that all additional guidance for 2023 to 2024 will be contained within a single document. 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 4 and FAQ 5. FAQ 6 is new in this version of the guidance.
5. This is the second version of additional guidance to be published for the 2023 to 2024 GAM, with the initial version published in January 2024.
FAQ 1: changes in HM Treasury discount rates during 2023 to 2024
Background
6. 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.
7. ‘PES (2023) 10 discount rates for general provisions, post-employment benefits, financial instruments and leases (under IFRS 16)’ was issued on 5 December 2023.
GAM application
8. 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 2024
9. The discount rates to be applied as at 31 March 2024 for general provisions, post-employment benefits and financial instruments are summarised below.
Table 1: summary of discount rates as at 31 March 2024
| Rate type | Rate | Prior year rate |
|---|---|---|
| Nominal general provisions discount rates | ||
| Short-term | 4.26% | 3.27% |
| Medium-term | 4.03% | 3.20% |
| Long-term | 4.72% | 3.51% |
| Very long-term | 4.40% | 3.00% |
| General provisions inflation rates | ||
| Year 1 | 3.6% | 7.4% |
| Year 2 | 1.8% | 0.6% |
| Into perpetuity | 2.0% | 2.0% |
| Post-employment benefits discount rate | ||
| Real rate | 2.45% | 1.70% |
| Nominal rate | 5.10% | 4.15% |
| CPI inflation | 2.55% | 2.40% |
| Financial instrument discount rate | ||
| Nominal rate | 2.05% | 1.9% |
| Real rate with reference to Retail Prices Index (RPI) until February 2030 | Minus 1.05% | Minus 1.3% |
| Real rate with reference to RPI from February 2030 | Minus 0.05% | Minus 0.2% |
10. The following detail is provided to assist preparers in utilising the various discount rates.
General provisions
11. General provisions discount rates are used to discount future cash flows related to provisions recognised in accordance with IAS 37.
12. 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
13. 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 statement of financial position (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 4 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
14. 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 for Budget Responsibility Consumer Prices Index (OBR CPI) forecasts).
15. 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
16. HM Treasury considers 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.
17. 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
18. 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
19. The below is an excerpt from annex C of PES (2023) 10 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 (2023) 10
| Year | Inflation rate | Inflation cumulative | Discount rate | Cumulative combined rate |
|---|---|---|---|---|
| (a) | - | (b) | (c) | (d) d=b*c^a |
| 1 | 3.6% | 103.6% | 4.26% | 99.37% |
| 2 | 1.8% | 105.5% | 4.26% | 97.02% |
| 3 | 2.0% | 107.6% | 4.26% | 94.92% |
| 4 | 2.0% | 109.7% | 4.26% | 92.86% |
| 5 | 2.0% | 111.9% | 4.26% | 90.85% |
| 6 | 2.0% | 114.2% | 4.03% | 90.07% |
| 7 | 2.0% | 116.4% | 4.03% | 88.31% |
| 8 | 2.0% | 118.8% | 4.03% | 86.58% |
| 9 | 2.0% | 121.1% | 4.03% | 84.90% |
| 10 | 2.0% | 123.6% | 4.03% | 83.24% |
| 11 | 2.0% | 126.0% | 4.72% | 75.88% |
| 12 | 2.0% | 128.6% | 4.72% | 73.91% |
| 13 | 2.0% | 131.1% | 4.72% | 71.98% |
| 14 | 2.0% | 133.8% | 4.72% | 70.11% |
| 15 | 2.0% | 136.4% | 4.72% | 68.29% |
| 16 | 2.0% | 139.2% | 4.72% | 66.52% |
| 17 | 2.0% | 141.9% | 4.72% | 64.79% |
| 18 | 2.0% | 144.8% | 4.72% | 63.10% |
| 19 | 2.0% | 147.7% | 4.72% | 61.46% |
| 20 | 2.0% | 150.6% | 4.72% | 59.87% |
| 21 | 2.0% | 153.6% | 4.72% | 58.31% |
| 22 | 2.0% | 156.7% | 4.72% | 56.80% |
| 23 | 2.0% | 159.8% | 4.72% | 55.32% |
| 24 | 2.0% | 163.0% | 4.72% | 53.88% |
| 25 | 2.0% | 166.3% | 4.72% | 52.48% |
| 26 | 2.0% | 169.6% | 4.72% | 51.12% |
| 27 | 2.0% | 173.0% | 4.72% | 49.79% |
| 28 | 2.0% | 176.5% | 4.72% | 48.50% |
| 29 | 2.0% | 180.0% | 4.72% | 47.24% |
| 30 | 2.0% | 183.6% | 4.72% | 46.01% |
| 31 | 2.0% | 187.3% | 4.72% | 44.81% |
| 32 | 2.0% | 191.0% | 4.72% | 43.65% |
| 33 | 2.0% | 194.9% | 4.72% | 42.51% |
| 34 | 2.0% | 198.8% | 4.72% | 41.41% |
| 35 | 2.0% | 202.7% | 4.72% | 40.33% |
| 36 | 2.0% | 206.8% | 4.72% | 39.28% |
| 37 | 2.0% | 210.9% | 4.72% | 38.26% |
| 38 | 2.0% | 215.1% | 4.72% | 37.27% |
| 39 | 2.0% | 219.4% | 4.72% | 36.30% |
| 40 | 2.0% | 223.8% | 4.72% | 35.36% |
| 41 | 2.0% | 228.3% | 4.40% | 39.07% |
| 42 | 2.0% | 232.9% | 4.40% | 38.17% |
| 43 | 2.0% | 237.5% | 4.40% | 37.30% |
| 44 | 2.0% | 242.3% | 4.40% | 36.44% |
| 45 | 2.0% | 247.1% | 4.40% | 35.60% |
| 46 | 2.0% | 252.1% | 4.40% | 34.78% |
| 47 | 2.0% | 257.1% | 4.40% | 33.98% |
| 48 | 2.0% | 262.2% | 4.40% | 33.20% |
| 49 | 2.0% | 267.5% | 4.40% | 32.44% |
| 50 | 2.0% | 272.8% | 4.40% | 31.69% |
Post-employment benefit provisions
20. The real discount rate applicable on 31 March 2024 is 2.45% (the previous year’s rate was 1.70%). This rate is calculated as net of CPI measured at 2.55%.
21. The rate is applicable for all provisions for continuing obligations arising from previous employment service.
22. HM Treasury considers that schemes for which RPI is a material assumption are limited and consequently will no longer provide rates that take account of RPI inflation.
23. A nominal rate to be used for assessing interest costs of scheme liabilities for 2024 to 2025 is set at 5.10%.
Financial instruments
24. The financial instrument discount rate is used for some financial instruments in accordance with the requirements of the financial reporting manual (FReM).
25. 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
26. To reflect the upcoming changes to RPI in 2030 HM Treasury has provided real rates for before and after February 2030. Accordingly, the real financial instrument discount rate to be applied at 31 March 2024 is minus 1.05% (prior year rate minus 1.3%) until February 2030 and minus 0.05% (prior year rate minus 0.2%) after February 2030. These rates can be applied where the instrument is index linked to RPI.
27. While entities should employ their own RPI modelling HM Treasury has provided indicative RPI rates of 3.15% until February 2030 and 2.10% from February 2030.
28. Where the financial instrument is not linked to an inflationary index, and a nominal rate is required, 2.05% (previously 1.9%) may be used.
Leases
29. PES (2022) 08 confirmed that the HM Treasury incremental borrowing rate (a nominal rate) of 3.51% is to be applied for new leases commencing, or relevant lease modifications and/or re-measurements being re-measured in the 2023 calendar year under IFRS 16.
30. For the 2024 calendar year, PES (2023) 10 confirms the incremental borrowing rate as 4.72%. This will be relevant for newly commenced leases, relevant lease modifications (paragraph 45 of IFRS 16) and relevant lease re-measurement scenarios (paragraph 40 of IFRS 16), occurring in 2024.
FAQ 2: injury costs recovery revenue, probability of non-recovery
Background
31. Paragraphs 4.88 to 4.97 of the GAM describe the treatment of injury costs recovery (ICR) revenue.
32. 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.
33. The figure for 2023 to 2024 is 23.07%. By issue of this FAQ, paragraph 4.95 of the GAM is amended to reflect this figure.
GAM application
34. If it is material, 23.07% 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.
35. The above instruction aligns to the IFRS 9 simplified approach to impairments as mandated by HM Treasury adaptations and interpretations to the standard.
FAQ 3: pension contribution treatment
36. The process established in 2019 to 2020, by which NHS England made contributions towards the pension contribution increases, continues to be employed in 2023 to 2024.
37. NHS England guidance on this process remains in place and per the 2019 to 2020 FAQ 6 (PDF, 198KB), 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 4 (updated): financial reporting manual (FReM) updates impacting the GAM
Background
38. HM Treasury updates the current version of the FReM each December. Not all of these updates impact the guidance provided in the GAM, as for instance there can be presentational changes in the FReM and updates that have already been incorporated into the GAM. The below details the December 2023 updates to the 2023 to 2024 FReM that are required to be reflected in the GAM.
Update to off payroll disclosure footnotes on tables 1 and 2
39. The FReM has removed the footnote explaining the rationale behind the £245 per day threshold on the relevant off-payroll disclosure tables. The GAM will follow this approach therefore removing footnote 1 from off-payroll tables 1 and 2 in chapter 3 annex 4.
Additional IFRS 9 adaptation
40. The FReM has incorporated an additional adaptation for IFRS 9 to revise the initial recognition treatment for financial instruments in which the difference between fair value and transaction price would be deferred. Such a deferral occurs when fair value cannot be evidenced by a quoted price in an active market for an identical instrument, or cannot be based on a valuation technique that uses only data from observable markets, per paragraph B5.1.2A(b) of IFRS 9. Accordingly the below adaptation is incorporated into paragraph 4.280 and chapter 4 annex 1 of the GAM:
Where an entity issues a financial instrument, other than a financial guarantee, at an amount that is different from fair value, where recognising at fair value would not result in a gain or profit and where no active market or observable equivalent exists, such that it would follow B5.1.2A section (b), then the entity should instead measure the instrument at initial recognition at fair value.
Revision to the IAS 32 interpretation
41. Additional content has been provided in the FReM relating to the impairment of public dividend capital (PDC), as part of an update to an existing interpretation for IAS 32. This is only relevant to the issuers of PDC so impacts the department only and removes divergence from the FReM in this regard, which is reflected in chapter 4 annex 3. The below text has been incorporated into paragraph 4.277 and chapter 4 annex 1 of the GAM:
PDC impairments recognised by the department should be presented in the statement of comprehensive net expenditure unless the impairment is a result of implementing a machinery of government change, where it should be presented in the statement of taxpayers equity.
TCFD disclosures update
42. The December 2023 update to the 2023 to 2024 FReM contains requirements in relation to the Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosure application guidance. The relevant disclosure requirements have been incorporated into the 2023 to 2024 GAM in Chapter 3 annex 5. The department consulted on its proposed approach to compiling TCFD disclosures, as part of its recently concluded 2024 to 2025 GAM consultation.
FAQ 5 (updated): GAM reporting updates and corrections
Background
43. This FAQ details a number of reporting updates requiring insertion into the GAM that do not stem from FReM updates.
Pension disclosures for members affected by the public service pensions remedy
44. On 1 April 2015, the government made changes to public service pension schemes which treated members differently based on their age. The public service pensions remedy puts this right and removes the age discrimination for the remedy period, between 1 April 2015 and 31 March 2022. Part 1 of the remedy closed the 1995 to 2008 Scheme on 31 March 2022, with active members becoming members of the 2015 Scheme on 1 April 2022. For Part 2 of the remedy, eligible members had their membership during the remedy period in the 2015 Scheme moved back into the 1995 to 2008 Scheme on 1 October 2023. This is called ‘rollback’.
45. Where a member is affected by rollback the benefits in respect of their rolled back pensionable service during the remedy period are valued as being in the 1995 to 2008 Scheme. Where this results in negative real increase in pension, lump sum or cash equivalent transfer value (CETV) to be disclosed in the remuneration report tables, the negative figures must not be shown and a zero must be substituted. This is consistent with the guidance for negative figures in the single total figure table in the GAM and the guidance for calculating components of both tables 1 and 2 in NHS Business Services Authority’s Greenbury guidance.
46. Where rollback relating to the public service pensions remedy requires a zero to be disclosed a footnote should be included stating:
xxxxx is affected by the public service pensions remedy and their membership between 1 April 2015 and 31 March 2022 was moved back into the 1995 to 2008 Scheme on 1 October 2023. Negative values are not disclosed in this table but are substituted with a zero.
47. The above guidance is accordingly inserted into the GAM at paragraphs 3.104 to 3.106 and 3.160 and 3.162.
NHS code of governance disclosures for NHS trusts
48. In October 2022 NHS England published a new code of governance for NHS provider trusts. This applies to NHS trusts and NHS foundation trusts for the first time and is applicable from 1 April 2023. The governance disclosure requirements set out in schedule A, and which are applicable to NHS trusts, are accordingly cross referenced under paragraph 3.52 of the GAM.
Asset transfer policy withdrawal
49. The asset transfer policy through which former primary care trust assets were transferred back to NHS providers from NHS Property Services was withdrawn on 27 January 2023. Consequently, reference to the policy being in force are removed from the GAM. Reference to modified absorption accounting remains in the GAM but currently there are no types of transfer by absorption that should be applying the modified absorption accounting approach.
Public dividend capital (PDC) dividend policy update
50. The PDC dividend policy outlined from paragraph 4.296 has been updated to reflect the content of the policy consulted on as part of the 2024 to 2025 GAM consultation process that has recently concluded.
Clarification on measurement of PFI contractual commitments
51. Paragraph 5.233 now confirms that group bodies must disclose the total contractual commitments measured at current prices at the reporting date to ensure a consistent approach is taken to this disclosure requirement.
Update of partially completed spells guidance
52. Guidance in relation to partially completed spells that was contained in the GAM prior to the 2020 to 2021 financial year has been reinstated in paragraph 4.98.
GAM corrections
53. The requirement to provide detail regarding the promotion of equality of service delivery carries an incorrect reference regarding the omission of the performance analysis as part of paragraph 3.38. This FAQ confirms that this incorrect reference is removed from the GAM. Minor updates of links in paragraphs 1.2 and 1.3 have also been made and date references in paragraph 4.414 and under section 1 of chapter 5 annex 1 have been amended.
FAQ 6: accounting for the 2023 to 2024 component of the consultants pay offer
54. The pay settlement offer for consultants announced by the Secretary of State on 5 March 2024 included revised pay terms for the 2023 to 2024 financial year. This offer retrospectively increases the basic pay due to all consultants.
55. IAS 19 paragraph 11(a) confirms the accounting treatment for short-term employment benefits, such as wages, salaries and social security contributions which are expected to be paid within 12 months after the end of the reporting period, in which the employees render the related services, by recognising accrued expenses.
56. IAS 19 is applied to employee benefits per paragraph 4, so applies to relevant benefits where formal plans or agreements are in place, where legislative or industrial arrangements require, or where informal practices have given rise to constructive obligations where no realistic alternative than to pay exist. The department judges that there is no realistic alternative to making this payment in respect of services rendered during 2023 to 2024, so it is appropriate to accrue expenses relating to the 2023 to 2024 component of the pay offer in the 2023 to 2024 financial year.
57. The department considers that the acceptance or rejection of the offer in April 2024 would constitute an adjusting event, as it would provide evidence of conditions that existed at the end of the reporting period. Therefore the accrual will be required to be adjusted per IAS 10 if the expected settlement value of the short-term employee benefits for 2023 to 2024 changes prior to the accounts being authorised for issue.
58. The department judges that there is sufficient certainty over the value and timing of the payments to be made to recognise the costs as accrued expenses, as opposed to recognition as a provision.