Financial statements 2023-24

Statement of comprehensive net expenditure for the year ended 31 March 2024

The notes on pages 71 to 86 form part of these accounts.

Statement of financial position as at 31 March 2024

The notes on pages 71 to 86 form part of these accounts.

The financial statements on pages 67 to 70 were signed on behalf of the Health Research Authority by:

Dr Matthew Westmore

Chief Executive
Health Research Authority
15 July 2024

Statement of cash flows for the year ended 31 March 2024

The notes on pages 71 to 86 form part of these accounts.

Statement of changes in taxpayers’ equity for the year ended 31 March 2024

The notes on pages 71 to 86 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, we have selected the accounting policy which is considered the most appropriate for our circumstances to give a true and fair view. The policies we have adopted are described below and have been applied consistently for 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. We consider it appropriate to prepare the 2023-24 financial statements on a going concern basis.

1.2 Accounting conventions

These financial statements are 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. Our main revenue comprises fees and charges for services provided to the devolved administrations, as well as revenue from the government’s non-cash apprenticeship fund and other NHS and non-NHS organisations. Where revenue is derived from contracts with customers, it is accounted for under IFRS 15. We recognise our devolved administration revenue as a single performance obligation where the service is delivered over the financial year, and recognise the revenue over the same period. For all other revenue this is recognised when (or as) performance obligations are met and is measured at the transaction price allocated to the performance obligation.

The FReM expands the definition of a contract to include legislation and regulations which enable an entity to receive cash or another financial asset that is not classified as a tax by the Office of National Statistics (ONS). Income generated for services provided is recognised when (or as) performance obligations are met and is measured at the transaction price allocated to the performance obligation. Where income received or receivable relates to a performance obligation that is to be met in a future period, the income is deferred and recognised as a contract liability.

We access funds from the Government’s apprenticeship service and recognise this benefit 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

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:

During the year we upgraded our hardware on our legacy research systems. The useful life of these assets is less than the normal five years used for tangible information technology, as we expect these assets to be fully utilised at the point of migration to the transformed future Integrated Research Application System (IRAS).

(a) Assets under construction

Assets are held under construction where furniture and fittings are not yet in 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. Intangible assets comprise of software licences for the legacy learning management system and the hardware licence fee for our legacy research systems. Development expenditure for our legacy systems is 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

All assets are reviewed annually to consider any changes in their 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.

We did not perform a valuation review on IRAS in 2023-24 as there has been no change in the level of benefit expected over the life of these assets.

We have considered the economic life of IRAS following the completion of the strategic review and the roadmap to replace these systems and have extended the economic life as a result.

Development work for our research systems restarted in October 2023 using Agile methodology with a delivery partner. Due to the contractual arrangements and methodology used, each defined development stage has been assessed against IAS 38 to determine the nature of the work. Costs incurred in the year have been apportioned between capital (61%) and revenue (39%). The initial development stages focussed on establishing and onboarding the team and setting up systems for collaborative working. These activities have been assessed as revenue. Work also started on the design and build phase, where a larger proportion of the activities related to the design, set up and early construction of future IRAS. These activities have been assessed as capital, as they are directly attributable to preparing the asset for use.

Internal staff costs working on the programme have been allocated to capital and revenue expenditure based on the assessed apportionment of the contract with the delivery partner. This method of apportionment has been used to reflect our single blended team ways of working.

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 year in which the service is received from staff. The cost of leave earned but not taken by staff at the end of the year is recognised in the financial statements to the extent that staff can carry forward leave into the following year and staff 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 our organisation 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 our 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 we commit to the retirement, regardless of the method of payment.

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 determine the term of the lease term with reference to the non-cancellable period and any options to extend or terminate the lease which we are reasonably certain to exercise.

Initial recognition and measurement

At the commencement date of the lease, being when the asset is made available for use, we recognise a right of use asset and a lease liability.

The right of use asset is recognised at cost comprising the lease liability, any lease payments made before or at commencement, any direct costs incurred by the lessee, less any cash lease incentives received. We include any estimate of costs to be incurred restoring the site or underlying asset on completion of the lease term where these are readily available and reasonably certain to be exercised.

The lease liability is initially measured at the present value of future lease payments discounted at the interest rate implicit in the lease. Lease payments includes fixed lease payments, variable lease payments dependent on an index or rate and amounts payable under residual value guarantees. It also includes amounts payable for termination penalties where these options are reasonably certain to be exercised. Where an implicit rate cannot be readily determined, we apply an incremental borrowing rate. This rate is determined by HM Treasury annually for each calendar year. A nominal rate of 3.51% applied to new leases and lease modifications commencing in the 2023 calendar year and 4.72% for new leases in the 2024 calendar year. We have not entered into any new leases or had any lease modifications since 1 January 2024.

We do not apply the above recognition requirements to leases with a term of 12 months or less, or to leases where the value of the underlying asset is below £5,000, excluding any irrecoverable VAT. Lease payments associated with these leases are expensed on a straight line basis over the lease term. Irrecoverable VAT on lease payments is expensed as it falls due.

Subsequent measurement

We use the cost model for subsequent measurement of our right of use assets. We consider this an appropriate proxy for the current value as the valuation would not be materially different using the revaluation model due to the length of the lease terms. The liability is remeasured for changes in assessments impacting the lease term, lease modifications or to reflect actual changes in lease payments. Such remeasurements are also reflected in the cost of the right of use asset. Where there is a change in the lease term, an updated discount rate is applied to the remaining lease payments. We subsequently measure the lease liability by increasing the carrying amount for interest arising which is also charged to expenditure as a finance cost and reducing the carrying amount for lease payments made.

Initial application of IFRS16 in 2022/23

We applied IFRS16 to these financial statements from 1 April 2022. IFRS16 replaced IAS17, the previous standard. The standard was applied using a modified retrospective approach with the cumulative impact recognised in the general fund on 1 April 2022.

For continuing leases previously classified as operating leases, a lease liability was established on 1 April 2022 equal to the present value of future lease payments discounted at the incremental borrowing rate of 0.95%. A right of use asset was created equal to the lease liability and adjusted for prepaid and accrued lease payments and deferred lease incentives recognised in the Statement of Financial Position immediately prior to initial application. Hindsight was used in determining the lease term where lease arrangements contained options for extension or earlier termination.

We concluded that two of our five office agreements do not fall within IFRS16 definition of a lease. The annual expenditure of 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 IFRS16 removes that classification.

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.

1.12 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 year.

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.

IFRS18 Presentation and Disclosure in Financial Statements

IFRS18 was issued in April 2024 and applies to periods beginning on or after 1 January 2027. The standard has not yet been adopted by FRAB for inclusion within the FREM and therefore it is not yet possible to confirm how this will impact on our accounts in the future.

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 50 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

5. Operating revenue

6. Non-current assets

6.1 Tangible assets – property, plant and equipment 2023-24

* Disposals in year consist of old laptops that were replaced for newer models (£102k), with a small amount of accelerated depreciation (£10k) being charged in year to recognise the decrease in their useful life. We also disposed of fully depreciated furniture and fittings as part of our Manchester office closure and move to shared facilities with NHS England.

6.2 Tangible assets – property, plant and equipment 2022-23

6.3 Intangible assets 2023-24

* Information technology negative additions in the year relate to a VAT accrual which was released following professional advice confirming the eligibility for reclaim.

** The disposal relates to website development costs incurred in prior years to support IRAS. The development was paused whilst we completed the strategic refresh and put in place the new development approach. It has now been confirmed that this digital asset will no longer be required as part of future IRAS.

6.4 Intangible assets 2022-23

*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 2023-24

Our London office lease at Redman Place and our Manchester office lease at Piccadilly Place (addition in the year) are recognised as right of use assets under IFRS 16 and included within the note above. During the year our Manchester office lease at Barlow House and our Bristol office lease at Temple Quay House were terminated as planned and the relevant entries are disclosed within the disposals/derecognition lines of the note above.

Our Newcastle office agreement at Newcastle Blood Centre and our Nottingham office agreement at Equinox House are treated as service agreements as the lessors have substantive substitution rights and we do not have an identified asset 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 these service agreements have been included in Note 14.

7.2 Right of use assets 2022-23

7.3 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. Cash outflows in respect of leases recognised on Statement of Financial Position are disclosed in the reconciliation above.

Income generated from subleasing right of use assets is £555 (2022-23 £44,000) and is included within fees and charges in Note 5.

7.4 Maturity analysis of future lease payments at 31 March 2024

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.

12. Capital commitments

At 31 March 2024, we had £366,437 capital commitments (31 March 2023: £22,000) relating to future IRAS.

13. Commitments under leases

Operating lease income

At 31 March 2024 we had no commitments relating to operating lease income (31 March 2023: £555).

14. Other financial commitments

We have entered into non-cancellable contracts for which we have a financial commitment. These include our office accommodation in Newcastle and Nottingham, contracts to support our research systems and deliver the research systems programme, licensing and other services.

15. Losses and special payments

Losses and special payments are reported on page 58 in the parliamentary accountability and audit report section of the annual report.

16. Related party transactions

The HRA is a non-departmental public body (NDPB) established by the Secretary of State for Health and Social Care. The Department of Health and Social Care (DHSC) is regarded as a controlling related party. During the year we 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 2024 to be £1,422 (31 March 2023 £1,474).

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. There are no events after the reporting date to report.