Local Financial Return (LFR) 2020-2021: guidance

2. LFR A0: Statutory Accounts and Funding

Local authorities should complete LFR A0 first to allow pre-population of other LFRs and to ensure that the return reconciles to the authorities accounts.

Statutory Annual Accounts (Cols C to F): Captures information from local authorities' audited annual accounts, in particular the Comprehensive Income and Expenditure Statement (CIES) and the Movement in Reserves Statements (MiRS). Local authorities are asked to break this information down between the General Fund, HRA and the statutory Harbour Account (Orkney and Shetland only).

Where treatment of specific transactions within annual accounts may not be consistent across all local authorities, this guidance provides advice on how these transactions should be recorded for LFR purposes to ensure consistency. In all cases, the closing balances for the General Fund, HRA and Harbour Account must match those stated in the local authorities' audited, annual accounts.

Please note that a copy of the local authority's audited accounts will be used during initial validation of the LFRs at the time of submission. Any discrepancies between the accounts and the LFR must be explained in the relevant comments boxes. Returns containing unexplained discrepancies will be returned for review and the discrepancies must be resolved before an initial return can be filed for full validation.

Funding Basis (Cols H to K): Automatically calculates the funding basis figures based on figures entered in Columns C to F:

• Gross Expenditure (Row 10) is calculated as the sum of the corresponding annual accounts and statutory adjustment figures;
• where income or expenditure is the same on an accounting and funding basis, values have been pre-populated based on the corresponding row of the CIES section in Columns C to F, for example interest paid on borrowing;
• where income or expenditure is the subject of a statutory adjustment, the cell is greyed out, for example pension interest costs;
• where statutory adjustments are not included in the CIES but are required to be charged to the General Fund, HRA or Harbour Account, these have been pre-populated based on the corresponding row of the MiRS section in Columns C to F, for example statutory repayment of debt.

Please note, for LFR purposes, requisition expenditure and income between councils and VJBs / RTPs must be recorded as service expenditure / income. As this treatment is not consistent across local authorities accounts, the LFR A0 has been designed to allow for this variation with appropriate adjustments made in the funding basis calculations to eliminate any requisition expenditure / income recorded outwith the net cost of services figure in the statutory annual accounts figures.

Statutory Adjustments (Cols M to P): Automatically calculates the statutory adjustments for LFR purposes against the relevant CIES line. These figures are provided for reference only.

2.1 Comprehensive Income and Expenditure Statement (CIES) (Rows 8 to 81)

Gross Expenditure, Gross Income and Net Cost of Services (Rows 10 to 12): These should match the figures set out in local authorities' audited, annual accounts.

Other Operating Expenditure (Rows 14 to 19): This includes lines for 'Gain (-) / loss (+) on derecognition or disposal of assets', 'Assets held for sale - costs to sell / impairment loss / revaluation loss', 'Requisition expenditure to joint boards' and 'Other operating expenditure'.

Requisition expenditure to VJBs / RTPs (Row 17) should only be completed by councils who do not include this expenditure in their net cost of services. This row should reflect the amount of requisition expenditure paid to VJBs and RTPs during the year as stated in the CIES of the local authorities' audited, annual accounts. For LFR purposes, councils are required to record requisition expenditure as service expenditure (LFR 00, Row 21). An appropriate adjustment has therefore been made to the funding basis calculations in LFR A0 to eliminate double counting of requisition expenditure in the control totals for LFR 00.

Other operating expenditure (Row 18) should only be used to record values that are a charge to the General Fund (i.e. not statutory adjustments or charges to an unusable reserve). If figures are entered in this line, an explanation must be provided on what these figures are in the comments box. This line should not be used to record surplus or deficit of trading operations which are not allocated back to services – this should be recorded in Row 43 of LFR A0.

Financing and Investment Income and Expenditure (Rows 21 to 44): Local authorities are required to provide a breakdown of interest payable (Rows 22 to 26) and interest received (Rows 29 to 34). Investment property income should be split between net income (Row 31) and movement in fair value (Row 32) to ensure the statutory adjustment made only relates to movement in fair value.

The Accounting Code of Practice states that surplus or deficit of trading operations which are not allocated back to services should be included in 'Financing and Investment Income and Expenditure' and so this should be recorded in Row 43.

Presentation of a surplus or deficit on internal trading arrangements, for example from the use of an insurance account, is no longer permitted in the CIES. All transfers to and from the statutory Insurance Fund should be recorded as a movement in usable reserves.

Taxation and Non-Specific Grant Income (Rows 46 to 65): Local authorities are required to provide a breakdown of Taxation and Non-Specific Grant Income as stated in their annual accounts.

General Revenue Grant (GRG) income (Rows 47 & 48) has been pre-populated based on Finance Circular 5/2021. To ensure additional Covid-19 funding paid via GRG can be easily identified, pre-populated GRG income is split across two rows, with Row 48 reflecting the Covid-19 specific element.

The pre-populated GRG – Additional Covid-19 Funding figures in Row 48 exclude amounts relating to Winter and Spring Hardship Payments only. This is in line with the LASAAC guidance on the accounting treatment for COVID grants – as the local authority is considered to be acting as agent for these grants, they are omitted from the main accounts data. Information on these grants is captured separately in LFR AG. The data used to calculate the pre-populated GRG – Additional Covid-19 Funding figures are provided in the 'GRG – Covid-19' tab of the return.

Any adjustments required to the pre-populated GRG income figures should be entered in Row 49, with an explanation for the adjustment provided in the comments box at the bottom of LFR A0. This will ensure that Total GRG (Row 50) matches the amount of GRG stated in the annual accounts.

As this income is designated as GRG, the expectation is that this will be recognised immediately as income with no adjustment made for any prepayments for the double allocation of Free School Meals or for the Easter Free School Meals falling across two financial years.

The Non-Domestic Rates Income (NDRI) Distributable Amount is pre-populated based on Finance Circular 5/2021 in Row 51. Local authorities can make any adjustments required to this figure in Row 52, however any adjustments should be explained in the comments box at the bottom of LFR A0. Please note that this figure should not be adjusted for TIF or BRIS income – this should be recorded in Rows 56 & 57 respectively.

Council Tax (Row 54) should be the amount of Council Tax income recognised in the Annual Accounts, including any adjustments for previous local taxes.

Accrual for Discretionary Housing Payments (Row 55) should capture any accruals made by local authorities relating to Discretionary Housing Payments.

Requisition Income (Row 58) should be completed by VJBs and RTPs only and should reflect the amount of requisition income received from the constituent councils during the year as stated in their audited annual accounts. For LFR purposes, requisition income must be recorded as service income for the VJB / RTP (Row 56 in LFR 00). An appropriate adjustment has therefore been made to the funding basis calculations in LFR A0 to eliminate double counting of requisition expenditure in the control totals for LFR 00.

Capital Grants and Contributions (Row 60) should reflect all capital grants and contribution income which will be subject to a statutory adjustment. Further guidance on the accounting treatment of capital grants and contributions can be found in Local Government Finance Circular 3/2018.

City Deal Grant to be used to fund capital expenditure incurred in a prior financial year (Row 61) should be used to record the amount of Glasgow City Region Deal grant received in 2020-21 that has been used to fund capital expenditure incurred in a prior financial year, in line with the letter from Scottish Government on 26 March 2021. Local authorities who are not a member authority in the Glasgow City Region Deal should either leave these cells blank or enter zeroes.

Other (Row 64) should be used to record any taxation and non-specific grant income that cannot be recorded against Rows 47 to 63. It is anticipated that this line will be zero. Any non-zero figures should be explained in the comments box at the bottom of LFR A0 and these will be reviewed during validation.

Other Comprehensive Income and Expenditure (Rows 71 to 79): All values recorded here are transferred to unusable reserves in LFR 23. Do not record here anything that flows to the General Fund or is the subject of a statutory adjustment.

2.2 Movement in Reserves Statement (MiRS) (Rows 83 to 145)

Balance at 1 April (Row 85): Record here the balance on the General Fund, HRA and Harbour Accounts at 1 April as stated in the annual accounts.

Adjustments to Usable Reserves permitted by accounting standards (Rows 87 to 89): Where assets are revalued, IAS 16 'Property, Plant and Equipment' allows some of the revaluation surplus to be transferred to retained earnings as the asset is used by the authority. The surplus transferred is the difference between depreciation based on the revalued carrying amount of the asset, and depreciation based on the asset's historical cost.

The revised LASAAC Statutory Basis for Reserves – Mandatory Guidance mandates that the IAS 16 revaluation adjustment should be treated as an accounting adjustment, rather than a statutory adjustment. To reflect this latest guidance, a new 'Adjustments to Usable Reserves permitted by accounting standards' section has been added to LFR A0 and 23.

Record here the accounting adjustment against the General Fund, HRA and Harbour Account (Columns C to E) as required. The corresponding adjustment to the Revaluation Reserve is automatically pre-populated in LFR 23, Cell Q23.

Given this guidance was only recently issued, if your authority's annual accounts for 2020-21 do not reflect the LASAAC guidance you will need to amend the statutory adjustment for depreciation value recorded in LFR A0, Row 97. It is noted that this will mean some figures within the LFR will not match to your annual accounts, however this adjustment is required to ensure the LFR is completed on a consistent basis in line with the LASAAC guidance across all local authorities. Where this adjustment has had to be made, please note this in the comments box at the bottom of LFRs A0 and 23.

Statutory Adjustments (Rows 91 to 122): Statutory adjustments have been grouped to match the statutory adjustment accounts into which the adjustments are transferred, with a sub-total provided for each. Where possible, statutory adjustments have been pre-populated based on the CIES section of LFR A0.

The Local Authority (Capital Finance and Accounting) (Scotland) (Coronavirus) Amendment Regulations 2021 gives local authorities the flexibility to reduce the amount of statutory repayments they make to the Loans Fund in 2020-21. In order to collect data on the use of this flexibility, LFR A0 has been amended as follows:

• Statutory repayment of debt - Loans Fund: Amount due to be repaid before applying flexibility (Row 102): This is in line with the Loans Fund repayment line in prior LFRs and should capture the total amount of Loans Fund that was due to be paid in 2020-21 before the flexibility is applied.
• Statutory repayment of debt - Loans Fund: Reduction (-) permitted by statute (Row 103): Record here the reduction in Loans Fund repayments being applied in 2020-21. The sum of this figure and that in Row 102 should reflect the actual Loans Fund repayment made in year. The validation check in Cell M103 ensures that figures in Row 103 are entered as negatives; and Row 102 + Row 103 is greater than or equal to zero.

Statutory repayment of debt - Additional repayment for City Deal (Row 104) is pre-populated based on LFR A0, Row 61 to reflect the fact that this grant income has been used to repay the Loans Fund. This repayment amount should also be included in the Loans Fund repayment figures recorded in LFR CR, Row 206.

The pre-populated statutory repayment of debt lines in LFR A0, Row 39 and LFR 23, Row 30; and the validation check in LFR CR, Cell Q206 have been updated to reflect these additional statutory repayment of debt lines.

Capital expenditure funded from GF / HRA / Harbour (Row 106) should be used to record capital expenditure funded directly from the General Fund, HRA or Harbour Account only. Capital expenditure funded from other Usable Reserves should be recorded in LFR 23, Row 31.

The statutory adjustment for any gain or loss on derecognition or disposal of assets (Row 107) is equal and opposite to that recorded in Row 15. Recording of the capital receipt, the adjustment to the Revaluation reserve and the Capital Adjustment Account is done in LFR 23.

The statutory adjustment made for capital grants and contributions (Row 110) is equal and opposite to that recorded in Row 60. Any capital grant recorded in the cost of services to fund capital grants to third parties is treated as revenue grant and is not subject to a statutory adjustment.

Capital Grants unapplied (Row 111) subsequently used to fund capital grants to third parties (i.e. revenue expenditure) is to be treated as a capital adjustment (i.e. a reverse of a statutory adjustment made in a prior year). This is because the original grant was recognised as capital and a statutory adjustment made to transfer the grant from the General Fund. Where the unapplied grant is applied to capital expenditure of the local authority this is recorded in LFR 23.

Statutory adjustments allow the cost of deferral of premiums / discounts from refinancing of debt (Row 117) to be set aside and charged to the GF / HRA over the life of the new debt taken out. This links to Interest paid - Premiums / discounts from the refinancing of debt (Row 25), such that the value in Row 117 should not exceed that in Row 25. Whilst both lines are for premiums and discounts, it is expected that Row 117 would have a negative value, as it credits the GF / HRA and transfers the debit from Row 25 to the statutory adjustment account. These expectations of value and signage are reflected in the validation check at Cell M117.

Annual recharge of deferred premiums / discounts from refinancing of debt (Row 118) should reflect the recharge of amounts of deferred premiums / discounts previously set aside and, as such, is expected to be a positive value. The validation check at Cell M118 ensures all values in Row 118 are entered as positives.

Transfers from other Statutory Usable Reserves (Rows 126 to 141): Record here transfers between usable reserves only. Transfers between usable reserves and statutory adjustment accounts should be recorded as statutory adjustments.

Covid-19 - use of capital receipts (Row 132) should be used to record any use of capital receipts to fund the financial impact of Covid-19 in line with the guidance on accounting practices for this flexibility set out in Finance Circular 2/2021.

The Local Government (Scotland) Act 1975 permits local authorities to establish a Capital Fund and places restrictions on the use of these resources. Transfers from the Capital Fund / Capital Receipts to the General Fund / HRA / Harbour Account must be in accordance with the legislation and should be recorded in the appropriate row, rather than as a general transfer. In particular, transfers relating to repayment of debt should be recorded in LFR A0, Row 127.

The Transfers to Capital Fund (Row 134) should therefore only reflect transfers from the General Fund / HRA / Harbour Account to the Capital Fund and so must be positive. Validation has been included to flag where a negative has been entered.

Authorities that hold any reserves other than General Fund, HRA, Harbour Accounts, Renewal and Repairs or the Insurance Fund should record any transfers to or from these reserve(s) against Transfers to / from: Other Statutory Funds (Row 138).

Interest may not be credited directly to any reserve. Any share of interest received which a local authority wishes to apply to any reserve should be transferred to that reserve as a movement from the General Fund.

The following should be recorded in LFR 23:

• use of Capital Fund / Capital Receipts to fund capital expenditure (Cell I31);
• the movement between Capital Grants and Contributions Unapplied and the Capital Adjustment Account to reflect the grant or contribution being used to fund capital expenditure (Cell J31).