Financial statements

Statement of comprehensive net expenditure for the period ended 31 March 2023

The notes on pages 63 to 77 form part of these accounts.

Statement of financial position as at 31 March 2023

The notes on pages 63 to 77 form part of these accounts. The financial statements on pages 59 to 62 were signed on behalf of the Health Research Authority by:

Dr Matthew Westmore
Chief Executive
Health Research Authority
4 July 2023

Statement of cash flows for the period ended 31 March 2023

The notes on pages 63 to 77 form part of these accounts.

Statement of changes in taxpayers’ equity for the period ended 31 March 2023

The notes on pages 63 to 77 form part of these accounts.

Notes to the accounts

1. Accounting policies

These financial statements have been prepared in line with directions issued by the Secretary of State, under the Care Act 2014 and 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 the most appropriate for our circumstances has been selected to give a true and fair view. The 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.

1.1. Going concern

The Department of Health and Social Care (DHSC) has confirmed our funding will continue and next year’s funding has been agreed. There is a strong presumption for the continued provision of our services as set out in the Care Act 2014 for a minimum timeframe of 12 months from the date the annual accounts are authorised. It is considered appropriate to prepare the 2022/23 financial statements on a going concern basis.

1.2 Accounting conventions

This account is prepared under the historical cost convention. This is in accordance with directions issued by the Secretary of State for Health and Social Care and approved by HM Treasury.

1.3 Income

Operating income is income which relates directly to our operating activities. It comprises fees and charges for services provided to the devolved administrations, as well as income from the government apprenticeship fund and other NHS and non-NHS organisations.

Where income is derived from contracts with customers, it is accounted for under IFRS 15.

The FReM expands the definition of a contract to include legislation and regulations which enables an entity to receive cash or another financial asset that is not classified as a tax by the Office of National Statistics (ONS). 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 revenue received or receivable relates to a performance obligation that is to be satisfied in a future period, the income is deferred and recognised as a contract liability.

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.

1.4 Taxation

The Health Research 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.

1.5 Tangible assets – property, plant and equipment

a) Capitalisation

Tangible assets which can be used for more than one year are capitalised when:

• individually have a cost equal to or greater than £5,000; or
• collectively have a cost of at least £5,000 and an individual cost of more than £250, where 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

Tangible 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.

1.6 Depreciation

All tangible assets are depreciated over their useful economic life. The expected useful life of furniture and fittings assets can vary depending on the length of the lease of the building and so are depreciated over different economic lives as follows:

(a) Assets under construction

Assets are held under construction where furniture and fittings are not yet in use, and where personal computers have not been built to specification and distributed to staff for their use.

1.7 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, except for 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 learning management system and the licence fee for the current IRAS. The development expenditure relating to the HRA’s research systems is 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 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.

1.8 Significant accounting policies and material judgements

We review estimates and underlying assumptions annually based on historical experience and other relevant factors. Revisions to accounting estimates are recognised in the period of the revision and future periods if the revision affects both current and future periods.

In 2021-22 we performed an annual valuation review of IRAS to assess whether there was a need for the asset to be impaired. Following the research systems strategic review we decided to withdraw certain digital developments earlier than previously planned. In doing this, we considered whether the anticipated benefits over this shortened timeframe would exceed the costs that had been capitalised.

The outcome of the 2021-22 assessment was that there was no requirement for an impairment given that the level of the benefit expected over the reduced timeframe. The carrying value of the asset in the accounts was a fair valuation of the asset. This assessment was approved by our Audit and Risk Committee in 2022.

No further valuation review has taken place during 2022-23 as there has been no change in the level of benefit expected over the life of the asset.

We also considered the economic life of IRAS following the decision to replace elements of the development earlier than originally planned. As a result we have reduced the economic life of IRAS and included the accelerated depreciation within the 2022-23 costs.

IRAS development costs have been accounted for based on 80% capital and 20% revenue due to the contractual arrangements in place and external benchmarks. Allocation of internal staff costs are based on the average time spent on the programme and how much development has taken place. Externally sourced development costs relating to replacement of IRAS and in-house programme management costs have been capitalised 100% while the system is under construction.

No new construction of IRAS took place during 2022-23 while the recommendations of the strategic review were put in place. All expenditure on IRAS this year has been treated as 100% revenue.

1.9 Cash and cash equivalents

Cash is the balance held with the Government Banking Service. We do not hold any petty cash.

1.10 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 pension schemes. The schemes are unfunded, defined benefit schemes 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. The contributions are charged to operating expenses as they become due. 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 the expenditure at the time the Health Research Authority commits itself to the retirement, regardless of the method of payment.

The schemes are subject to a full actuarial valuation every four years and an accounting valuation every year.

1.11 Leases

A lease is a contract or part of a contract that gives the right to use an asset for a period in exchange for consideration. For public sector organisations, in line with HM Treasury guidance, this includes lease-like arrangements with other public bodies.

We have applied IFRS16 in preparing our accounts from 1 April 2022. IFRS16 replaces IAS17, the previous standard. IFRS16 has been applied using a modified retrospective approach and has been recognised in the general fund on 1 April 2022. In moving to IFRS16 several methods offered in the standard have been used, including:

• applying IFRS16 to arrangements identified as a lease in IAS17
• measuring the right of use assets for leases previously classified as operating leases at an amount equal to the lease liability adjusted for accrued or prepaid lease payments

We concluded that two of our five office agreements do not fall within IFRS16 definition of a lease. Whilst there may be identified assets within these agreements, the lessors have substantive rights to substitute these assets throughout the period of use. The substitution rights are considered substantive as the lessors have both the practical ability to substitute for alternative assets throughout the period of use and the lessors would be likely to benefit economically from exercising their rights to do so. We would be unable to prevent the lessors from exercising their substitution rights.

Under IAS17, the previous standard for leases, these agreements were recognised as operating leases, with the annual expenditure recognised within the statement of comprehensive net expenditure. Following the implementation of IFRS16 the expenditure relating to these two agreements will continue to be recognised within the statement of comprehensive net expenditure, although it will no longer be classified as operating lease expenditure, as IFRS 16 removes that classification.

No adjustments have been made for operating leases where the underlying asset is less than £5,000 or where there is less than 12 months left on the term.

Lease payments are apportioned between finance charges and repayment of the principal. Finance charges are recognised in the statement of comprehensive net expenditure.

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.

2021-22 comparatives

Comparatives have not been restated. Under IAS17 the classification of operating or finance leases still applicable to lessors under IFRS16 also applied to lessees.

1.12 Financial instruments

Financial assets and financial liabilities recognition

Financial assets and financial liabilities arise where the HRA 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 Office for National Statistics.

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

Our receivables comprise of cash at bank, NHS and non-NHS receivables, prepayments, accrued income and other receivables. Our financial liabilities comprise: NHS Payables, other payables and accruals.

1.12.1 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.

1.12.2 Impairment of financial assets

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

We adopt 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.

1.12.3 De-recognition

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

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

1.13 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.

IFRS17 Insurance contracts

The standard is effective for accounting periods beginning on or after 1 January 2023. IFRS17 is yet to be adopted by the FReM. Early adoption is not permitted. This standard is unlikely to have a material impact on our financial statements.

2.Analysis of net expenditure by segment

We report financial information to the Board as one segment and therefore no segmental analysis is disclosed.

3.Staff numbers and related costs

Tables for staff numbers, costs and other related costs are included on page 42 within the remuneration and staff report and also included within note 4 of the accounts.

4.Expenditure

All our costs are administration costs:

*The HRA did not make any payments to external auditors for non-audit work

4.1 Better payment practice code - measure of compliance

5.Operating revenue

6.Non-current assets

6.1 Tangible assets - property, plant and equipment

6.2 Intangible assets

* Disposals in year are fully depreciated assets that are no longer in use and are being written out of the accounts.

7.Right of use assets

7.1 Right of use assets

7.2 Reconciliation of the carrying value of lease liabilities

Lease payments for short term leases, leases of low value assets and variable lease payments not dependent on an index or rate are included in operating expenditure. These payments are included in Note 4. £44,000 income was generated from subleasing right of use assets and is included within fees and charges in Note 5.

7.3 Maturity analysis of future lease payments at 31 March 2023

7.4 Initial application of IFRS16 on 1 April 2022

We have applied IFRS16 to leases in these accounts with an initial application date of 1 April 2022. The standard has been applied using a modified retrospective approach without restatement of comparatives. Lease liabilities created for existing operating leases on this date were discounted using the weighted average incremental borrowing rate determined by HM Treasury as 0.95%.

Reconciliation of operating lease commitments at 31 March 2022 to lease liabilities under IFRS16 at 1 April 2022

* The table shows IAS17 operating lease commitments at 31 March 2022 on an IFRS16 basis. Our Bristol, London and Manchester office leases are recognised as right of use assets under IFRS16. Our Newcastle and Nottingham office agreements are treated as service agreements as the lessors have substantive substitution rights and we do not have an identified assets or the right to direct the use of an asset in the period of use. The cost of these arrangements is included within the statement of comprehensive net expenditure. Future commitments related to service agreements have been included in Note 13.

** At 31 March 2022, the lease extension for our Bristol office was unsigned. As we were occupying the space, future rental costs for the lease period were included in IAS17 operating lease note. At 31 March 2023, the lease extension remained unsigned due to delays experienced by the head lessor.

This agreement is now expected to end March 2024, compared to March 2027 when the accounts were prepared last year.

8.Trade and other receivables

9.Cash and cash equivalents

10.Trade payables and other current liabilities

11.Provisions for liabilities and charges analysis

In December 2022, we activated a break clause on our Manchester office lease and provided for estimated dilapidations costs of £185,000. This work was carried out in May and June 2023 prior to the end of the lease and no previous provision for these works has been recognised in the accounts. The timing of the associated cash flows is certain and payments are expected to be made in Summer 2023.

12.Capital commitments

At 31 March 2023, we had £22,000 capital commitments (31 March 2022: £nil).

13.Commitments under leases

Operating lease income

On 26 April 2019 we agreed a lease with HighSpeed2 to share our Manchester office space. The lease ended on 28 April 2023.

14.Other financial commitments

15.Losses and special payments

Losses and special payments are reported on page 50 in the parliamentary accountability and audit report section of the annual report.

16.Related party transactions

The HRA is an NDPB established by the Secretary of State for Health and Social Care. The Department of Health and Social Care is regarded as a controlling related party. During the year we have had a significant number of material transactions with DHSC and with other entities for which DHSC is regarded as the parent Department.

We have considered materiality in line with the group accounting manual guidelines for agreeing creditor and debtor balances (£300k) and have used the same threshold for income and expenditure balances (£300k).

No HRA Board member, key manager or other related party has undertaken any material transactions with the HRA during the year.

17.Financial instruments

Financial risk management

Financial reporting standard IFRS7 requires disclosure of the role that financial instruments have had during the year in creating or changing the risks a body faces in undertaking its activities. As our cash requirements are met through Parliamentary funding, financial instruments play a more limited role in creating risk that would apply to a non-public sector body.

Most financial instruments relate to contracts to buy non-financial items in line with our expected purchase and usage requirements and consequently we are exposed to little credit, liquidity or market risk.

Financial assets

We operate primarily within the NHS market and receive most of our income from DHSC and the devolved administrations. IFRS9 requires us to adopt a lifetime credit loss model for our financial assets.

We have applied this model to our trade receivables (excluding NHS receivables) and assessed our credit loss value as at 31 March 2023 to be £1,474 (31 March 2022 £1,306).

Financial liabilities

We operate within both the NHS and non-NHS market for the supplies of goods and services. Our financial liabilities mainly consist of short-term trade creditors and accruals relating to the purchase of non-financial items. The exposure to financial liability risk is minimal.

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

18.Events after the reporting period

The Accounting Officer authorised these financial statements for issue on the date the Comptroller and Auditor General signed the audit certificate.