Accounting for business rates retention/ police accounting update

In our regular feature, Ask The Auditor, Graham Liddell from Grant Thornton UK LLP comments on business rates retention, CIPFA’s LAAP bulletin on police accounting and major concerns raised by practitioners at the joint Grant Thornton – CIPFA/FAN closedown workshops. To ask Graham a technical query, email editor@room151.co.uk

Business rates retention – a short-term disincentive for promoting growth
I read Alex Colyer’s excellent article on business rate retention with some interest. He reflects the attitude of many of us: business rates retention is positive conceptually, but those implementing it face significant challenges (including some unresolved matters and increasingly complex regulations). This optimism is based on the fact that it provides a mechanism that gives local authorities a share business growth.

Business rates retention does indeed provide a potential mechanism for sharing growth. Bizarrely, however, a timing issue penalises local authorities in the short-term. This is because local authorities:

• are required to charge the general fund for any levy payable to central government on an accruals basis
• can only credit the general fund for surpluses, the year after the surplus has been achieved.

In other words some local authorities will incur a levy charge for securing business growth but cannot get hold of the income that they have generated until the following year. This flaw is embedded in the primary legislation and a lack of parliamentary time means that it is unlikely to rectified any time soon.

CIPFA LAAP Bulletin 98A – police accounting update
I was pleased to see that CIPFA has published its LAAP bulletin on accounting for police bodies. This supports our strongly held view that:

• the chief constable does not act as an agent for the police and crime commissioner
• the chief constable’s accounts should recognise the income and expenditure incurred in discharging his or her responsibilities.

Last year, preparing the financial statements for the new policing bodies was particularly challenging, but I know that most of our police clients are now in a good position to implement the CIPFA guidance. We are working with other suppliers and the sector generally to help achieve a smoother process this year.

Issues arising from the Grant Thornton/CIPFA-FAN closedown workshops
Our series of joint closedown workshops with CIPFA-FAN draws to a close this week.

Unquestionably, the biggest area of concern for local authorities has been accounting for business rates retention. As referred to earlier, there are some issues that DCLG still need to resolve, but I would like to take this opportunity to acknowledge the fantastic behind-the-scenes work by CIPFA. In particular, CIPFA-FAN’s Advisor,  Caroline White has been tireless in helping DCLG understand the issues faced by practitioners and in working with DCLG to find solutions.

The other major area of concern has been the implications of the changed wording in the Code on valuing property, plant and equipment. I reiterate my comments in my January blog that the overriding requirement is for local authorities to be able to demonstrate that the balance sheet is materially accurate. This means that local authorities must be able to show that the value of property, plant and equipment is not materially different from the amount that would be given by a full valuation carried out on 31 March 2014. If you haven’t talked to your auditor about how you are intending to do this, I would recommend doing so now.

Graham Liddell is Grant Thornton UK LLP’s national technical lead for the public sector. No responsibility or liability is accepted by Grant Thornton UK LLP towards any person or organisation in respect of the use of, or reliance on, information contained in this column.