Financial statements

Statement of comprehensive net expenditure for the year to 31 March 2019

The notes on this page form part of these accounts.

Statement of financial position as at 31 March 2019

Statement of cash flows for the year to 31 March 2019

Statement of changes in Taxpayers' Equity for the year to 31 March 2019

1. Accounting policies

These financial statements have been prepared in line with directions issued by the Secretary of State, under the Care Act 2014and in accordance with the Government Financial Reporting Manual (FReM) issued by HM Treasury. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. 

Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most appropriate to the particular circumstances of the Health Research Authority has been selected for the purpose of giving a true and fair view. The particular policies adopted by the Health Research Authority are described below. They have been applied consistently in dealing with items considered material in relation to the accounts. There have been no revisions of estimation techniques.  

Accruals are estimated based on available documentation, advice from management and from information gained from similar previous events and are the best estimate at the date of these financial statements. 

Asset useful economic lives are reviewed at least annually. The basis for estimating useful economic life include experience of previous similar assets, the condition and performance of the asset and the knowledge of technological advances and obsolescence.

1.1 Accounting conventions

This account is prepared under the historical cost convention, modified to account for the revaluation of fixed assets at their value to the business by reference to current costs.  This is in accordance with directions issued by the Secretary of State for Health and approved by HM Treasury. 

1.2 Income

The transition to IFRS 15 has been completed in accordance with paragraph C3 (b) of the standard, applying the standard retrospectively recognising the cumulative effects at the date of initial application (nil effect).

In the adoption of IFRS 15 a number of practical expedients offered in the Standard have been employed. These are as follows:

• as per paragraph 121 of the standard the HRA will not disclose information regarding performance obligations part of a contract that has an original expected duration of one year or less
• the HRA is to similarly not disclose information where revenue is recognised in line with the practical expedient offered in paragraph B16 of the standard where the right to consideration corresponds directly with value of the performance completed to date
• the FReM has mandated the exercise of the practical expedient offered in C7(a) of the Standard that requires the HRA to reflect the aggregate effect of all contracts modified before the date of initial application.

The main source of funding is Parliamentary grant from the Department of Health and Social Care, which is credited to the general fund. Parliamentary funding is recognised in the financial period in which it is received.

Operating income is income which relates directly to the operating activities of the authority. It principally comprises fees and charges for services provided to the Devolved Administrations, as well as income from NHS and non-NHS organisations. Revenue in respect of services provided is recognised when (or as) performance obligations are satisfied by transferring promised services to the customer, and is measured at the amount of the transaction price allocated to that performance obligation.

Where income is received for a specific performance obligation that is to be satisfied in the following year, that income is deferred.

The value of the benefit received when the HRA accesses funds from the Government’s apprenticeship service are recognised as income in accordance with IAS 20, Accounting for Government Grants. Where these funds are paid directly to an accredited training provider, non-cash income and a corresponding non-cash training expense are recognised, both equal to the cost of the training funded.

1.3 Taxation

The Authority is not liable to pay corporation tax. Expenditure is shown net of recoverable VAT. Irrecoverable VAT is charged to the most appropriate expenditure heading or capitalised if it relates to an asset.

1.4 Tangible assets - Property, Plant and Equipment

(a) Capitalisation

Information Technology asset which are capable of being used for more than one year are capitalised when:

• individually have a cost equal to or greater than £5,000
• collectively have a cost of at least £5,000 and an individual cost of more than £250, where the assets are functionally interdependent, they have broadly simultaneous purchase dates, are anticipated to have simultaneous disposal dates and are under single managerial control
• second-hand IT assets are capitalised at cost, which represents market value, and may be below the thresholds for capitalising new IT assets.

(b) Valuation

Information technology assets are capitalised initially at cost. They are carried on the Statement of Financial Position at cost net of depreciation and impairment, or at depreciated replacement cost where materially different.  

These assets have not been revalued in the accounts due to their low value and short economic life.

(c) Depreciation

The HRA Information Technology Assets comprise of video conference equipment, which make up the Tangible Information Technology, and laptops. The expected useful life of the assets are assessed as being different due to the changes in technology advancements and so are depreciated over different economic lives as follows:

(d) Assets under construction

Assets are held under construction where the assets have not been built to specification and distributed to staff for their use.

1.5 Intangible Assets

(a) Capitalisation

Intangible assets are capitalised initially at cost. 

(b) Valuation

Intangible assets are carried in the Statement of Financial Position at cost net of amortisation and impairment, or at amortised replacement cost where materially different. These assets have not been revalued in the accounts due to their short economic life. 

(c) Amortisation

All intangible assets, with the exception of those under construction, are amortised over their expected useful economic life. Amortisation is charged on each individual component of intangible assets.

The HRA Intangible assets comprise of software licences for the e-learning system and the licence fee for the current IRAS system. The development expenditure relating to the HRA Research Information Systems are currently grouped under Information Technology.  The estimated lives of these assets have been assessed and are set out below. They are amortised on a straight-line basis over the estimated life of the asset.

Purchased computer software licences are amortised over the shorter of the term of the licence and their useful economic lives.

(d) Assets under construction

Assets are held under construction where development work has been undertaken but further work is required to bring the assets into use

(e) Impairment

An annual review is undertaken of all assets to consider any changes in the useful economic life. Impairments that arise from a clear consumption of economic benefits or of service potential in the asset are charged to operating expenses. The new economic lives are not reflected in the section above, but information is disclosed in note 6.2.

1.6 Cash and cash equivalents

Cash is the balance held with the Government Banking Service.  The Health Research Authority does not hold any petty cash.

1.7 Employee benefits

Short term employee benefits

Salaries, wages and employment-related payments are recognised in the period in which the service is received from employees. The cost of leave earned but not taken by employees at the end of the period is recognised in the financial statements to the extent that employees are permitted to carry forward leave into the following period and employee records support this.

Retirement benefit costs

Past and present employees are covered by the provisions of the two NHS Pensions Schemes. The schemes are an unfunded, defined benefit scheme that covers NHS employers, General Practices and other bodies, allowed under the direction of the Secretary of State, in England and Wales. The schemes are not designed to be run in a way that would enable NHS bodies to identify their share of the underlying scheme assets and liabilities.

Therefore, the scheme is accounted for as if it were a defined contribution scheme: the cost to the NHS body of participating in the scheme is taken as equal to the contributions payable to the scheme for the accounting period. 

For early retirements other than those due to ill health the additional pension liabilities are not funded by the scheme. The full amount of the liability for the additional costs is charged to expenditure at the time the Authority commits itself to the retirement, regardless of the method of payment.

1.8 Leases

Operating leases as the lessee

All leases are classified as operating leases.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Lease incentives are recognised initially as a liability and subsequently as a reduction of rentals on a straight-line basis over the lease term.

Where arrangements are in place that imply a lease arrangement the costs have been charged as an expense on a straight-line basis and disclosed as part of note 11.

Contingent rentals are recognised as an expense in the period in which they are incurred.

Operating leases as the lessor

Rental income from operating leases is recognised as income on a straight-line basis over the term of the lease. 

1.9 Financial instruments

Financial assets and financial liabilities recognition.

Financial assets and financial liabilities arise where the Health Research Authority is party to the contractual provisions of a financial instrument, and as a result has a legal right to receive or a legal obligation to pay cash or another financial instrument. This definition of a contract includes legislation and regulations which give rise to arrangements that in all other respects would be a financial instrument and do not give rise to transactions classified as tax by ONS.

This includes the purchase or sale of non-financial items, such as goods and services, which are entered into in accordance with normal requirements of the Health Research Authority and are recognised when, and to the extent which, performance occurs, i.e. when receipt or delivery of the goods or services is made.

The Authority's receivables comprise of cash at bank, NHS and Non-NHS receivables, prepayments, accrued income and other receivables.

The Authority's financial liabilities comprise: NHS Payables, other payables and accruals.

1.9.1 Classification and measurement

After initial recognition, financial assets and financial liabilities are measured at amortised cost. These are assets and liabilities which are held with the objective of collecting contractual cash flows and where cash flows are solely payments of principal and interest. This includes cash equivalents, contract and other receivables, trade and other payables and rights and obligations under lease arrangements.

1.9.2 Impairment of financial assets

For all financial assets measured at amortised cost including lease receivables, contract receivables and contract assets the Authority recognises an allowance for expected credit losses.

The Authority adopts the simplified approach to impairment for contract and other receivables, contract assets and lease receivables, measuring expected losses as at an amount equal to lifetime expected losses.

1.9.3 De-recognition

Financial assets are de-recognised when the contractual rights to receive cash flows from the assets have expired or the Authority has transferred substantially all the risks and rewards of ownership.

Financial liabilities are de-recognised when the obligation is discharged, cancelled or expires.

1.10 IFRS disclosure

IFRS's, amendments and interpretations in issue but not yet effective or adopted

The following is a list of changes to IFRS that have been issued but which were not effective in the reporting period:

• IFRS 16 Leases
• IFRS 17 Insurance Contracts
• IFRIC 23 Uncertainty over Income Tax Treatments.

The HRA is still quantifying the impact of the implementation of IFRS 16, which becomes effective from 1 April 2020, but do not anticipate that this will be material. The other IFRS changes would have no material impact on the HRA financial statements.

2. Analysis of Net Expenditure by segment

The Health Research Authority currently reports the financial information to the Board as one segment and therefore no segmental analysis is disclosed.

3. Staff numbers and related costs

The tables for the staff numbers and staff costs and other related costs are included on page 35 within the staff report of the Remuneration report section and also included within note 4 of the annual accounts.

4. Expenditure

The Health Research Authority costs all relate to administration costs:

(*) The Audit Fee for the period to the 31 March 2019 is £35,000 (period to 31 March 2018 £35k).  The Authority did not make any payments to External Auditors for non-audit work.

4.1 Better Payment Practice Code – measure of compliance

5. Operating revenue

2018/19 is the first year of applying IFRS15 – revenue from contracts with customers. As part of the transition, the Health Research Authority is required to apply the standard to the closing balances as at 31 March 2018 and recognise the difference as an adjustment to the opening balances.

The Health Research Authority has completed the transition work to identify the contracts which are within scope of IFRS15, and the majority of the revenue is received from the Devolved Administrations on a cross charging arrangement using the Barnett Formula, and so is outside of scope. The remainder of the revenue did fall within scope, but all performance obligations had been delivered by the end of the reporting date.

6. Non-current assets

6.1 Tangible assets – property, plant and equipment

6.2 Intangible assets

The HRA's intangible assets consist mainly of developed expenditure relating to our two research IT systems, HARP and IRAS. The costs in the tables above all relate to these two systems. The asset under construction costs relate mainly to the development of a replacement system, New IRAS, for the current IRAS system. 

The HRA continued to develop the IRAS system until the end of June to meet the system requirements that were needed, from this point no further development work has been capitalised.  Development work on the New IRAS system commenced in July 2018.

The amortised charge in the year of £829k for Information Technology includes £54k of additional depreciation as a result of revising the economic life of the HARP system to the 31st March 2021. Any future development expenditure for HARP will be depreciated on a straight-line basis to 31 March 2021.

7. Trade receivables

Amounts falling due within one year:

8. Cash and Cash equivalents

9. Trade payables and other current liabilities

Amounts falling due within one year:

10. Capital Commitments

At 31 March 2019, the HRA exercised the option to extend the contract for the development of the HARP and IRAS systems for a further year, which is key to the delivery of the HRA’s statutory obligations. 

During the year, the HRA also entered into a contract with a company to start developing the New IRAS system, of which there remains a capital commitment. The total capital commitment as at 31 March 2019 is £440,133.

11. Commitments under leases

Operating leases

The Health Research Authority entered into a new MOTO agreement with the Department of Health and Social Care for offices at Skipton House in London during 2018-19. The MOTO was for the period 1 April 2018 to 20 December 2021. The HRA also have leases for offices in Nottingham, Bristol, Manchester and Newcastle.

Total future minimum lease payments under these operating leases are given in the table below:

Operating lease income

The HRA had an implied lease through a Civil Estate Occupancy Agreement with NHS Business Services Authority from 13 September 2017 relating to the rental of floor space within the area occupied by the HRA at Skipton House. NHS Business Services Authority vacated the space during this financial year

12. Other financial commitments

The Health Research Authority entered into a five-year contract on 1 July 2017 with SBS for the provision of financial and accounting and payroll services. The annual cost of the contract is £154,434 and the contract expires on 30 June 2022. At 31 March 2019, the HRA is in the second year of a three-year contract for the provision of a managed service platform for the HARP and IRAS systems, which are key to the delivery of the HRA's statutory obligations. There is an option to extend this contract for one year.

During the financial year, the HRA, as part of the development for the New IRAS system, entered into a two-year contract for the platform licence fees, which are essential to enable the system to be built.

The HRA exercised its option to extend for a further year the contract for the maintenance and helpdesk of the HARP and IRAS systems, together with the development of the HARP system, which is key to the delivery of the HRA's statutory obligations.

13. Losses and special payments

For the year-ended 31 March 2019, the HRA had no losses and special payments to report. (£0 2017/18)

14.  Contingent Assets

During 2018/19 the HRA submitted a case to HMRC to recover the VAT on the development costs of the new IRAS system. As at 31 March 2019, a decision had not been received from HMRC due to their uncertainty around the application of the criteria for recovery of VAT for IT services. 

HMRC has confirmed that they are at advance negotiations with their policy team to come up with a resolution to this and that once a resolution is confirmed they will assess HRA's application.

15. Related Party Transactions

The Health Research Authority is a Non-Departmental Government Body (NDPB) established by order of the Secretary of State for Health.

The Department of Health and Social Care is regarded as a controlling related party.  During the year the Health Research Authority has had a significant number of material transactions with the Department, and with other entities for which the department is regarded as the parent department.

The Health Research Authority has considered materiality in line with the manual for accounts guidelines for agreeing creditor and debtor balances (£100k) and for income and expenditure balances the same threshold has been used (£100k).

No Board member, key manager or other related parties has undertaken any material transactions with the Health Research Authority during the year.

16. Events after the reporting period

The Accounting Officer authorised these financial statements for issue on 25 June 2019.

17. Financial Instruments

Financial risk management

Financial reporting standard IFRS 7 requires disclosure of the role that financial instruments have had during the period in creating or changing the risks a body faces in undertaking its activities. As the cash requirements of the Authority are met through Parliamentary funding, financial instruments play a more limited role in creating risk that would apply to a non-public sector body. 

The majority of financial instruments relate to contracts to buy non-financial items in line with the Health Research Authority 's expected purchase and usage requirements and the Health Research Authority is therefore exposed to little credit, liquidity or market risk.

Financial assets

The Health Research Authority operates primarily within the NHS market and receives the majority of its income from DHSC and Devolved Administrations. IFRS 9 requires the HRA to adopt a lifetime credit loss model to its financial assets. 

The HRA has applied this model to its trade receivables (excluding NHS receivables) and assessed its credit loss value as at 31 March 2019 to be £1,926 (31 March 2018 £1,385). As required under IFRS9, the HRA applied the credit loss model to the opening balances and assessed that there was no change to the bad debt provision provided for as at the 31 March 2018, as a result of applying the new standard.

Financial liabilities

The Health Research Authority operates within both the NHS and non-NHS market for the supplies of goods and services. The organisations financial liabilities mainly consist of these short-term trade creditors and accruals relating to the purchase of non-financial items. The exposure to financial liability risk is therefore minimal.

The aged creditor report for NHS and non-NHS payables at the reporting date was: