2021-22 local financial returns (LFRs) - guidance notes

3. LFR 23: Reserves

LFR 23 collects information on all reserves (usable reserves, statutory adjustment accounts and unusable reserves) and must be completed by all local authorities. Please note, Common Good funds and trust or charitable funds are excluded. Common Good funds should be recorded in Column U of LFR 00.

The term reserve and fund are both used within legislation. In practice they are treated as synonymous and use of the word reserve should be treated as referring to both funds and reserves. Annex A provides background information on the usable reserves detailed in LFR 23.

The majority of LFR 23 is pre-populated based on other LFRs, particularly LFR A0, and will be automatically updated as the return is completed. This section focuses on the cells which are not pre-populated and will need completed.

3.1 Statutory Adjustments and Movement in Reserves (Rows 26 to 63)

Capital expenditure funded from Usable Reserves (Row 31): Record here any capital expenditure funded from a Usable Reserve against the relevant column as positive values. Figures for General Fund, HRA and Harbour Accounts (Columns C to E) are pre-populated based on LFR A0, Row 109. Column J should reflect amounts of capital grants / contributions unapplied that have now been applied to capital expenditure only, in accordance with Finance Circular 3/2018.

Gain / loss on derecognition or disposal of assets (Row 32): Gains and losses are not proper charges to the General Fund / HRA / Harbour Account. The statutory adjustment requires a credit to Capital Fund / Capital Receipts equal to the disposal proceeds – this value should be recorded in Column I. Gains should be entered as a negative value; losses as a positive value.

Scottish Ministers have permitted some capital receipts to be used to fund specific revenue costs (LFR A0, Rows 131 to 134). These capital receipts must be transferred from Capital Grants and Receipts Unapplied and so are recorded in Column J.

If an asset is derecognised and was carried at a revalued amount, the Accounting Code requires that the balance on the Revaluation Reserve for that asset be transferred to the Capital Adjustment Account. Record this adjustment in Column Q.

Capital Grants and Contributions (Row 35): Record the amount of capital grants / contributions recognised in LFR A0, Row 61 where the expenditure to be financed has not yet been incurred in Cell J35, in accordance with Finance Circular 3/2018. This figure should be entered as a negative value.

Transfer excess capital receipts (Row 61): Record here the value of excess capital receipts transferred between the Capital Fund / Capital Receipts and Capital Grants and Receipts Unapplied, in accordance with Finance Circular 1/2019 and Finance Circular 4/2019. The Capital Grants and Receipts Unapplied figure (Column J) will be automatically calculated as the equal and opposite of the Capital Fund / Capital Receipts figure entered (Column I).

3.2 Balances (Rows 65 to 75)

Balance at 1 April (Row 66): This is pre-populated with the closing balance as reported in the previous years' LFR 23 based on the local authority name selected on the Front Page tab.

Adjustments to balance at 1 April (Row 67): Record here any adjustments required to ensure the calculated balance at 31 March in Row 70 matches to that stated in the accounts exactly. Where an adjustment is significant, an explanation should be provided in the comments box at the bottom of LFR 23.

Adjustments for the General Fund, HRA and Harbour Account are automatically calculated based on the 'Balance at 1 April' figures entered in LFR A0, Row 87.

Adjusted balance at 1 April (Row 68): This line calculates the balance brought forward following any adjustments required to the pre-populated balance as recorded in Row 67.

This line should equal the opening balance for the year as stated in the local authorities' audited, annual accounts. The only exception is where a rounding adjustment has been required to ensure the closing balance matches exactly.

Balance at 31 March (Row 70): This line must exactly equal the closing balance for the year as stated in the local authorities' audited, annual accounts – this will be checked as part of the accounts validation checks carried out at the point of submission. If there is a specific reason that this figures does not match the accounts, this should be detailed in the comments box at the bottom of LFR 23.

Balance at 31 March excluding IFRS 9 unrealised gains (Row 75): This line automatically calculates reserves balances at 31 March excluding IFRS 9 unrealised gains – the usable reserves balance that will be reported in SLGFS. IFRS 9 unrealised gains are excluded from the reported usable reserves balances as these gains will only materialise if the investment is sold and so cannot be considered to be available to fund services.

3.3 Earmarked Reserves at 31 March (Rows 77 to 82)

A local authority cannot create earmarked reserves, however they can earmark the General Fund for specific purposes. Any earmarked amounts should be recorded in this section of LFR 23. These figures should be consistent with the amounts disclosed as earmarked in the local authorities' audited, annual accounts.

Council Tax Income to be used for Affordable Housing (Row 78): Local authorities have the discretion to reduce Council Tax discount on second homes and long-term empty properties. Additional income from reducing these discounts from 50% to a minimum of 10% must be used to support affordable housing – either by the local authority itself, paid to Registered Social Landlords (RSLs) or disbursed by local authorities to organisations or individuals.

Record here the amount of additional income from reducing Council Tax discounts on second homes / long-term empty properties that is earmarked for affordable housing at 31 March. The validation check in Cell M78 mirrors the validation check in Cell E38 of LFR 12 – see the LFR 12 guidance for information on this.

Housing Revenue Account's share of other reserves (Row 79): Where HRA reserves are held as part of other reserves, the amount attributable to the HRA should be recorded in this line.

Earmarked Reserves (Row 81): Any other amounts within the General Fund earmarked for a specific purpose, as identified in the local authorities' audited, annual accounts, should be recorded in this line.

3.4 Earmarked Reserves relating to COVID-19 (Rows 84 to 87)

This section captures the amount of General Fund earmarked reserves, as recorded in Cell C81, that relates to COVID-19. The amounts at both 1 April and 31 March are required in Cells C85 and C86 respectively. Cell C87 then automatically calculates the change in earmarked reserves relating to COVID-19 in year.

3.5 Earmarked Elements in Statutory Adjustment Accounts (Rows 89 to 98)

This section requires balances held in Capital Grants and Receipts Unapplied, the Financial Instruments Adjustment Account and the Employee Adjustment Account to be analysed into component parts. This analysis is a requirement of the statutory guidance and must be completed. Validation checks have been included to flag returns where this has not been done.

Premiums on refinancing – capital receipts held (Row 96): This line has been added to reflect the change in recording of Financial Instruments - Use of Capital Receipts (Rows 51 & 52) to be recorded against Capital Grants & Receipts Unapplied, rather than Capital Fund / Capital Receipts as in prior years.