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

4. LFR CR: Capital Return

Capital expenditure is defined in Section 39 of the Local Government (Scotland) Act 2003 as expenditure of the authority which falls to be capitalised in accordance with proper accounting practice. The Code of Practice on Local Authority Accounting in the United Kingdom (the Code) constitutes proper accounting practice in accordance with section 12 of the 2003 Act. All expenditure which falls to be capitalised in accordance with the Code should be included in LFR CR.

Capital expenditure covers both tangible and intangible non-current assets. Assets acquired on terms meeting the definition of a credit arrangement (e.g. finance lease or similar) are required by the Code to be capitalised and should be included in the return. This includes assets recognised by local authorities under service concession or similar credit arrangements. A lease meeting the definition of an operating lease will be a revenue transaction and should not be recorded in LFR CR.

Capital expenditure of a joint board should be recorded on its own LFR; constituent authorities should not include expenditure on behalf of such joint boards. The only exception is where a constituent authority has grant aided a joint board using the General Capital Grant (GCG), and these payments should be recorded in the constituent authorities LFR as required.

Capital works carried out by a local authority as an agent for someone else (i.e. another local authority, government department, private sector etc.) where that body reimburses the authority for the work undertaken will not result in a fixed asset on the balance sheet of the authority undertaking the capital work, and should not be reported in LFR CR.

Local authorities are permitted under the conditions of the GCG to grant aid third party capital projects, either directly or through the payment of grant. These grants may be made to other local authorities, other bodies or individuals. This expenditure is revenue expenditure under proper accounting practices, but as these grants are funded from capital resources these grants should be reported in LFR CR. Local authorities receiving grant from another local authority should record that grant as from another local authority, and record the capital expenditure made with the grant as capital expenditure.

Figures should be provided on an accruals basis. The returns require any outstanding amounts accrued in the previous financial year but not yet paid to be re-accrued when making the return. This means that there is an expectation that there will be no credit values recorded as actual expenditure for the year. The exception will be where a sum accrued will not now be paid.

4.1 Part A: Summary of Capital Expenditure and Financing (Rows 8 to 21)

Part A summarises the overall capital expenditure and financing of the local authority for the financial year. This section is entirely pre-populated based on data entered in Parts D and E of the return.

4.2 Part B: Prudential Information (Rows 23 to 53)

The Prudential Code requires local authorities to set and keep under review a number of prudential indicators for the forthcoming and following two financial years. Part B collects data on some of the prudential indicators that a local authority is required to use as set out in the CIPFA Prudential Code – the 2011 edition is referenced in this guidance. Local authorities are required to estimate the Capital Financing Requirement (CFR) of the authority (para 50 and Annex).

All local authorities are required to complete this section.

Capital Financing Requirement (CFR) (Rows 24 to 37): The Prudential Code requires the estimate for the CFR to be calculated by reference to estimates of capital expenditure, reductions for use of grant and capital receipts and for repayments of debt. There is not currently a consistent approach across local authorities on whether borrowing to lend to statutory bodies is included in the CFR so this section has been reviewed to improve consistency of recording and comparability to accounts.

CFR at 1 April as per Statutory Annual Accounts (Row 26): Record here the CFR at 1 April as stated in the statutory annual accounts.

Value of loans to statutory bodies included in CFR at 1 April as per Statutory Annual Accounts (Row 27): Record here the value of Police, Fire or any other loans to statutory bodies as set out in Part F that is included in the CFR at 1 April recorded in Row 26. A comment advising what this amount relates to should be provided in the comments box at the bottom of LFR CR. If no loans to statutory bodies are included in the CFR figures in the annual accounts, this row should be left blank or zeroes entered.

Rows 28 to 35 then show the in-year movement in the CFR value excluding loans to statutory bodies using figures recorded in LFRs A0 and CR.

Transfer of assets between GF and HRA (Row 34): Record here the value of any assets transferred between the General Fund and HRA, with transfers in recorded as negative values. As the transfer of assets must have an overall nil effect, the HRA figure is pre-populated as equal and opposite to the General Fund figure.

Value of loans to statutory bodies included in CFR at 31 March as per Statutory Annual Accounts (Row 36): Record here the value of Police, Fire or any other loans to statutory bodies as set out in Part F that is included in the CFR at 31 March stated in the statutory annual accounts. A comment advising what this amount relates to should be provided in the comments box at the bottom of LFR CR. If no loans to statutory bodies are included in the CFR figures in the annual accounts, this row should be left blank or zeroes entered.

Please note that the CFR at 1 April in Row 27 and the CFR at 31 March in Row 37 must match the figures stated in the local authorities' annual accounts and this will be checked as part of validation against the accounts.

Total External Debt at 31 March (Rows 39 to 48): This section sets out the calculation of a local authority's total external debt at 31 March.

Rows 41 to 44 calculate Total External Debt in line with the balance sheet figures recorded in Part C. Row 41 is pre-populated as the sum of long-term, short-term and on demand borrowing. The totals in Rows 42 & 43 are pre-populated as the sum of long and short-term liabilities from Part C, however local authorities are required to split the total figures between the General Fund and HRA in Columns C & D.

Rows 45 and 46 reflect the adjustment made to calculate actual external borrowing as per the Prudential Code. Local authorities should enter the adjustment required in Cell E45 – that is the amount of any accounting adjustments made, including premiums and discounts, transaction costs, accrued interest and effective interest rate adjustments which should be excluded. Row 46 calculates the Actual External Borrowing figure and this should be equal to actual outstanding external borrowing at the end of the financial year.

Rows 47 and 48 reflect that the CIPFA Prudential Code advises that loans to statutory bodies should be treated the same as transferred debt and so the debt of the local authority should be reduced by the value of these loans. Row 47 should be used to record the value of debt associated with lending to other statutory bodies that should be excluded for the purposes of the Gross Debt and CFR prudential indicators. Row 48 then calculates the actual gross external debt for comparison to the CFR as advised in the Prudential Code.

Operational Boundary and Authorised Limit at 31 March (Rows 50 to 53): Record here the operational boundary and authorised limit at 31 March as approved by the authority and as required by the Prudential Code.

4.3 Part C: Balance Sheet at 31 March (Rows 55 to 109)

The CIPFA Prudential Code requires the actual CFR of a local authority to be calculated from the authority's balance sheet (para 53). The Prudential Code also requires local authorities to identify the CFR for the General Fund and HRA separately (para 85). All authorities are required to complete this section.

Please note that liabilities for service concession arrangements and finance leases must now be captured separately (see Rows 77 / 78 and 85 / 86). This is to allow capture of key figures on service concessions prior to local authorities' utilising the service concession flexibility from 2022-23.

Statutory Balance Sheet (Column C): Record here the figures as per the local authority's audited statutory Balance Sheet. Where a local authority has presented its Balance Sheet differently from that in the return, it is acceptable for the local authority to adjust its statutory data to allow completion of the return. Figures relating to reserves (Rows 94 to 100) have been pre-populated based on LFR 23.

Prudential Balance Sheet (Columns E to G): Actual figures for the CFR should be taken from the Balance Sheet by consolidating:

• tangible fixed and intangible assets;
• debtors relating to capital transactions;
• any amounts carried as investments that were treated as capital expenditure;
• the Capital Adjustment Account;
• the Revaluation and Financial Instruments Revaluation Reserves.

Local authorities are asked to record the prudential elements of their Balance Sheet, split between the General Fund (Column E) and HRA (Column F). Rows from the Balance Sheet that are not identified by the Prudential Code have been greyed out.

Rows which must be fully reflected on the Prudential Balance Sheet will have the total (Column G) pre-populated. For rows where the total has not been pre-populated, local authorities must record only the prudential element of the Balance Sheet figure. In particular, please note the following advice:

Capital debtors: This will relate to borrowing to on-lend, as the loan made is repayable. From 1 April 2003, when the capital framework changed, all borrowing to on-lend, other than to statutory bodies, requires the consent of Scottish Ministers. Some local authorities may have debtors which pre-date 1 April 2003 – any on-lending which has been funded from borrowing should have an associated loans fund advance.

In line with advice from the Prudential Code, debtors relating to lending to other statutory bodies should not be treated as prudential capital debtors. This means they should not be included as debtors in Part C, in particular in Rows 66 or 70.

Total capital debtors is expected to be equal to the Loans Fund outstanding amount at 31 March for Consents to Borrow – see validation check in Cell O222.

Investments: From 1 April 2003, when the capital framework changed, only investments on the Balance Sheet which are purchased by borrowing using a consent to borrow issued by the Scottish Ministers will be a prudential investment.

Some local authorities may have capital investments acquired prior to 1 April 2003, funded from borrowing under the old capital framework, and these should be included as a prudential investment. Only the original capital value of the investment is a prudential investment. Any subsequent revaluation of the investment is not included in the prudential amount recorded.

In Scotland, there is no legislative requirement for local authorities to treat the acquisition of share capital in a corporate body as capital expenditure.

IFRS 16 Leases (Rows 105 to 109): The Financial Reporting and Advisory Board (FRAB) have permitted a further extension to the timeframe for adoption of IFRS 16 to 1 April 2024. However, local authorities are strongly encouraged to adopt IFRS 16 earlier and can choose to do so from 1 April 2022.

To ensure the impact of adoption of IFRS 16 can be quantified throughout the transition period, this section has been added to LFR CR, Part C to capture the values of Operating Leases that will be recognised on the local authorities' Balance Sheet when IFRS 16 is adopted. Relevant values for assets, short-term liabilities and long-term liabilities should be recorded in Cells C106 to C108 respectively.

4.4 Part D: Service Breakdown (Rows 111 to 185)

Part D collects data as it relates to the local authority service to benefit from the capital expenditure. The breakdown broadly follows the CIPFA's SeRCOP Service Expenditure Analysis. The service and subservices also align to those used throughout the revenue LFRs.

Where expenditure is reported against Other Services (Row 169), local authorities should provide further detail on what the expenditure relates to in the comments box at the bottom of LFR CR.

HRA expenditure should be recorded in Rows 174 to 182 in line with guidance on the definition and interpretation of the Scottish Housing Quality Standard (SHQS).

Where a local authority acquires a fixed or intangible asset from another local authority, the acquiring authority should include the expenditure as capital expenditure on their return, and the selling local authority should record the sale proceeds as a capital receipt on their return.

Expenditure corresponding to Donated Asset Income (recorded in LFR A0, Row 65) must be included in the capital expenditure figures recorded in this section.

Capital Expenditure (Columns C to G): Record here capital expenditure as defined by the Local Authority Accounting Code and incurred by the local authority only. Do not include amounts relating to third party capital projects, this should be recorded in Columns I and M as appropriate.

Revenue Expenditure Funded from Borrowing: Third Party Capital Projects (Column I): The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 provides a local authority with the power to borrow to provide capital support, by grant or direct expenditure, to a third party's capital project. Record here expenditure on third party capital projects, including other local authorities, funded from borrowing.

Revenue Expenditure Funded from Borrowing: Consented Borrowing (Column J): Borrowing to on-lend requires Scottish Ministers consent. Record here any lending using a borrowing consent.

Third Party Capital Projects funded from Capital Grant (Column M): Subject to the conditions set out in any capital grant, a local authority may be able to fund a capital grant to a third party, or the direct expenditure on a third parties capital project, from the capital grant. Record here expenditure on third party capital projects, including other local authorities, funded from capital grants.

Actual Capital Receipts (Columns Q to S): Record here actual capital receipts received in the financial year. Receipts should be recorded against the service with which the asset was last in use, i.e. at the point that it was identified for disposal.

4.5 Part E: Analysis of Financing of Expenditure (Rows 187 to 205)

Part E collects data on how local authorities' capital expenditure and revenue funded from capital resources was financed. The total financing figures are validated against the relevant total expenditure figures calculated in Part D (see checks in Row 205).

Please ensure use of any unapplied capital grants received in prior years to fund capital expenditure in this year is recorded against the relevant row.

General Capital Grant from Scottish Government (Row 190): Record here only the amount of Scottish Government GCG. The total amount of GCG recorded should match that from the final payment profile held by Scottish Government, shown in Cell Q190 for reference, and the validation check in Cell O190 will fail if the amounts are not equal.

Capital grants from Scottish Government, excluding GCG (Row 191): Record here any specific capital grants received from the Scottish Government, excluding GCG, that are only used to finance the capital programme.

Grants from Scottish Government agencies and / or NDPBs (Row 193): Record here any grants received from Scottish Government agencies or NDPBs used to finance the capital programme. The National Public Bodies Directory should be used to check the status of the body the grant was received from.

Grants from other Scottish local authorities (Row 194): Record here grants received from other local authorities, including VJBs, RTPs and Bridge Authorities, that have been used to finance the capital programme.

Donated Asset Income (Row 196): This line ensures that donated asset income is correctly recognised within LFR CR and is pre-populated based on LFR A0, Row 65. The corresponding expenditure should be included in the capital expenditure figures recorded in Part D.

Other grants and contributions (Row 197): Record here any grants / contributions received from third parties not already included in Rows 190 to 196 that were used to finance the capital programme. This should include grants from UK Government departments, UK NDPBs, the European Union and the lottery.

Borrowing from Loans Fund (Row 198): The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 requires a local authority to maintain a Loans Fund. Advances are made from the loans fund for capital expenditure, including that relating to the HRA.

Record here the advances made from the Loans Fund for capital expenditure of the local authority. Loans fund advances for capital support to third parties and consented borrowing figures have been pre-populated based on figures entered in Part D. Do not record the value of external borrowing.

Capital receipts used from asset sales / disposals (Row 199): Record here the value of capital receipts used to fund capital expenditure. This does not need to equal the actual capital receipts received in year, as recorded in Part D.

Capital Fund applied (Row 200): Record here the amount taken from the Capital Fund to finance the local authority's capital programme.

Capital expenditure funded from revenue (Row 201): Record here the amount of capital expenditure funded from revenue reserves, including the use of any earmarked reserves relating to Council Tax discounts. The total in Cell E201 must be equal and opposite to the sum of values recorded in LFR 23, Cells C31 to H31 as per the validation check in Cell O201.

Assets acquired under service concession arrangements (Row 202): The acquisition or purchase of an asset through an on-Balance Sheet PPP / PFI / NPD must be recorded as capital expenditure and so the value of any assets financed by PPP / PFI / NPD must be recorded here.

Assets acquired under finance leases (Row 203): Under SSAP 21, assets acquired under a finance lease must be recognised on the lessee's Balance Sheet and the value of the assets recognised should then be treated as capital expenditure by the lessee. Therefore the value of any assets acquired and financed by a finance lease must be recorded here.

Any hire purchase contracts that have similar characteristics to a finance lease and are of a financing nature, should be accounted for as finance leases and recorded in LFR CR. A lease meeting the definition of an operating lease will be a revenue transaction and should not be recorded in LFR CR.

4.6 Part F: Loans Fund (Rows 207 to 244)

The Local Authority (Capital Finance and accounting) (Scotland) Regulations 2016 requires a local authority to establish and operate a Loans Fund. Advances are made from the Loans Fund to finance a local authority's capital expenditure and any grant or loan made by a local authority for which Scottish Ministers have provided a consent to borrow. These advances, and associated repayments, should be recorded in Columns C & D for the General Fund and HRA respectively.

Local authorities are also able to make advances from the Loans Fund to other statutory bodies under statute, including Community Councils and Harbour Authorities. These advances, and associated repayments, should be recorded in Columns G to M. In particular, 'Other LAs' in Column G should include lending to the Tay Road Bridge; an IJB, if permitted to borrow; and / or an RTP.

The Loans Fund advances outstanding at 1 April (Row 210) is pre-populated as the Loans Fund advances outstanding at 31 March from the selected local authorities' return from the previous year. Any adjustments required to this figure should be entered in Row 211, with an explanation for the adjustment provided in the comments box at the bottom of LFR CR.

Repayments in year (principal only; no interest) - As charged to annual accounts (Row 213): Record here the value of the principal repayments made to the Loans Fund in year as charged to the annual accounts; do not include interest payments. These figures should match the sum of those recorded in LFR A0, Rows 104 to 106 as per the validation check in Cell Q213.

Any statutory repayment of debt for consented borrowing debtors included in the annual accounts should be included in Column C. Any repayments by statutory bodies included in the annual accounts should be included in Columns G to K and the corresponding capital receipt entries must also be made.

Repayments in year (principal only; no interest) - Reduction in capital prudential debtors (Row 214): There is a requirement in the legislation to make a loans fund advance for consented borrowing loans and these results in a prudential debtor. For some local authorities, this has led to a loans fund advance but no statutory repayment of debt made to the annual accounts; instead the loans fund is reduced by the same value as the reduction in debtor.

To resolve this difference, the reduction in capital prudential debtors relating to consented borrowing loans or statutory bodies where a local authority does not make a statutory repayment of debt but just reduces their CFR must also be recorded. Any reduction relating to consented borrowing debtors should be recorded in Columns C and D. Any reduction relating to repayments by statutory bodies should be recorded in Columns G to K.

Transfer of assets between funds (Row 215): Assets transferred between the General Fund and HRA must have a nil effect. The HRA figure will therefore be calculated automatically to be equal and opposite to the General Fund figure.

Advances Outstanding for Consent to Borrow (Rows 217 to 222): Record here the value of the Loans Fund advances outstanding at 31 March for each of the types of debtor listed. The sum of advances outstanding for all consented borrowing as calculated in Cell E222 should be equal to the value recorded as prudential debtors in Part C as per validation check in Cell O222.

Advances Outstanding for Lending to Other LAs (Rows 223 to 229): Record here the value of the Loans Fund advances outstanding at 31 March by type of authority. These figures should provide a breakdown of the value in Cell G216.

Schedule of Future Repayments (Rows 230 to 244): The decisions taken each year on new advances, such as the period and amount of each repayment, creates a liability to repay those advances from future years' budgets. A local authority is required to report on the commitment to repay Loans Fund advances, providing a breakdown of future repayments in five-year periods. Local authorities should record this breakdown of future repayments in this section.

4.7 Part G: Housing (Scotland) Act 2010 (Rows 246 to 257)

Part G collects information on Loans Fund advances outstanding relating to housing. The values in Rows 248 to 254 should be the housing element of the figures in Part F, Rows 210 to 216 and so the HRA figures for these rows have been pre-populated from Part F on this basis.

Capital Receipts (Row 256): Record here the amount of capital receipts acquired in the financial year under Right to Buy. The HRA figure has been pre-populated based on Part D.

Number of houses sold under Right to Buy (Row 257): Record here the actual, unrounded number of houses sold under Right to Buy.

4.8 Part H: City Deal / Growth Deal (Rows 259 to 274)

Part H extracts the value of expenditure and financing relating to City Deals and / or Growth Deals already included in Parts D and E.

City Deal / Growth Deal Grant Received (Row 261): Grants for City Deals and Growth Deals are required to be spent in the financial year it is received and so this line is pre-populated based on figures entered in Part E.

Expenditure (Rows 262 to 265): Record here the total expenditure on City Deal and / or Growth Deal projects. Do not just record the amount funded from City Deal / Growth Deal Grant.

Financing (Rows 266 to 271): Record here the financing of the total City Deal / Growth Deal expenditure as shown in Row 265. Please note the following guidance:

• City Deal / Growth Deal Grant Used on City Deal Projects In Year (Row 267): Record here the value of City Deal / Growth Deal Grant used on City Deal / Growth Deal projects in year only. Where, in exceptional circumstances, local authorities have used City Deal / Growth Deal Grant on non-City Deal / Growth Deal projects, this should be recorded in Row 273.
• City Deal Grant from Previous Years (Row 270): City Deal Grant conditions require the grant be used in full in the year provided. In exceptional circumstances, local authorities may use City Deal Grant on non-City Deal projects if the amount of City Deal Grant received exceeds City Deal project expenditure in that year. This is on the condition that an amount equal to that of City Deal Grant used on non-City Deal projects is taken from the local authorities own resources in the next financial year to fund City Deal projects.

This figure has therefore been pre-populated with the amount of City Deal Grant used for non-City Deal projects in the previous years' return.

City Deal / Growth Deal Grant applied to non-City Deal / Growth Deal projects (Row 273): In exceptional circumstances, if the amount of City Deal / Growth Deal Grant received exceeds City Deal / Growth Deal project expenditure in that year, grant which has not been used on City Deal / Growth Deal projects may be used on non-City Deal / Growth Deal projects. Record here the value of City Deal / Growth Deal Grant used to finance non-City Deal / Growth Deal projects in the financial year.

City Deal / Growth Deal Grant received for capital expenditure incurred in a prior financial year (Row 274): This line is pre-populated from LFR A0, Row 62 to ensure that additional grant for the Glasgow City Region Deal used to fund capital expenditure that was incurred in a prior financial year and funded by a loans fund advance is reflected in this section of LFR CR.

4.9 Part I: Value of Fixed Assets at 31 March (Rows 276 to 292)

Part I collects data on the Net Book Value (NBV) of fixed assets held by local authorities at 31 March. The data requested should align to how local authorities present fixed assets in their accounts. Where possible, lines have been pre-populated based on Part C.

4.10 Part J: Summary of Capital Receipts and Capital Fund (Rows 294 to 318)

Capital receipts are income from the sale of fixed assets, or any income received which is in respect of an asset which was originally treated as capital expenditure.

Part J collects data on the movement of capital receipts in year, both in the Capital Fund / Capital Receipts and in Capital Grants and Receipts Unapplied. Most of this data is pre-populated based on figures provided elsewhere in the return.

Totals for Rows 296, 298 and 300 are provided in LFR 23, however local authorities are required to provide the appropriate split between the General Fund and the HRA. The totals in Column E are validated against the relevant figures in LFR 23 (Cells I68, J32 and I61 respectively) and will fail if they are not equal.

Local authorities are also required to provide the amount of capital receipts held in Capital Grants and Receipts Unapplied at 1 April in Row 309, as this information is not available elsewhere in the return. This row should not include amounts relating to capital grants held in the Capital Grants and Receipts Unapplied Account.