DHSC group accounting manual 2025 to 2026 consultation exercise

Question 1

Overview

Accepted Answer

All bodies within the Department of Health and Social Care accounting boundary (DHSC group bodies) must publish annual reports and accounts. Clear and transparent reporting helps the entity, as well as the users of the entity’s annual report and accounts, understand and scrutinise the year’s operations and outcomes.

DHSC and NHS England have powers to direct the form in which the annual report and accounts should be prepared, the information that should be included, and the methods and principles that should be followed in their preparation.

In determining the form and content of the accounts we must, by statute, aim to ensure the accounts present a true and fair view.

In order to achieve this, DHSC issues a group wide annual report and accounting manual every year, the group accounting manual (GAM), containing the requirements DHSC group bodies need to follow when preparing their annual reports and accounts (ARAs).

The NHS foundation trust annual reporting manual (FT ARM) establishes the annual reporting requirements for NHS foundation trusts. The FT ARM contains the formal accounts direction, but foundation trusts will follow the GAM for accounts requirements.

The GAM requires DHSC group bodies to follow the requirements of international financial reporting standards (IFRS), as adopted by the United Kingdom, interpreted and adapted by HM Treasury’s financial reporting manual (FReM).

Therefore, the GAM only includes detailed accounting guidance for specific circumstances, including but not limited to where DHSC group bodies are:

required to depart from IFRS or the FReM
required to make specific disclosures in addition to IFRS and the FReM
faced with particular circumstances that IFRS or the FReM do not address

Updates to the GAM follow the same principle and, on that basis, are required where IFRS or the FReM have changed, or when DHSC group bodies are required to make specific extra disclosures.

Some content for the 2025 to 2026 GAM is not yet available, such as HM Treasury discount rates. The draft GAM indicates where this is the case, and the manual will be revised later in the year once this content is known. An additional guidance document published alongside subsequent updates of the 2025 to 2026 GAM will signpost the changes made within the manual.

2025 to 2026 consultation

This consultation relates to the draft GAM for the 2025 to 2026 financial year. The documents being consulted upon can be found on the DHSC group accounting manual collection page on GOV.UK.

The 2025 to 2026 GAM will be published later in 2025, once we have considered consultation responses and further refined the guidance offered in the GAM.

Post consultation changes will be made in collaboration with the relevant sector finance leads. The publication of the GAM is subject to approval by the Financial Reporting Advisory Board (FRAB).

Principal changes proposed in the draft GAM

There are a number of accounting and reporting changes that are detailed in the summary of changes section in the draft GAM. Those changes include:

incorporation of guidance for adopting IFRS 17 Insurance Contracts from 1 April 2025
revised approaches to subsequent measurement of intangible assets and classification of property, plant and equipment stemming from the outputs from the non-investment thematic review
incorporation of guidance relating to accounting for social benefits
incorporation of guidance for phase 3 implementation of the Task Force on Climate-related Financial Disclosures (TCFD)
updates of specific reporting requirements including removal of requirement for NHS trusts to disclose performance against an external finance limit and revision to how mental health expenditure is disclosed in integrated care boards’ (ICBs) annual reports and accounts

This document summarises the changes introduced into the draft 2025 to 2026 GAM and provides consideration of prospective updates to both the 2025 to 2026 GAM and future iterations.

Question 2

Implementation of IFRS 17 Insurance Contracts

Accepted Answer

IFRS 17 is being applied in the FReM and the GAM from 1 April 2025. IFRS 17 sets out the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of IFRS 17 and replaces the previous standard IFRS 4 Insurance Contracts. IFRS 4 was an interim standard which was meant to be in place until the International Accounting Standards Board completed its project on insurance contracts. IFRS 4 permitted entities to use a wide variety of accounting practices for insurance contracts. IFRS 17 significantly changes the accounting treatment for insurance contracts, and will increase the transparency of entities’ financial positions and performance, and make financial statements more comparable.

As is commonplace when the public sector is adopting a new accounting standard, HM Treasury developed IFRS 17 application guidance (available on Government financial reporting manual: application guidance). DHSC has also developed IFRS 17 application guidance contextualised for the health sector (available on the NHS England page Financial accounting and reporting updates).

While IFRS 4 had very limited or no applicability within the DHSC group, it is important that entities do not assume that IFRS 17 will not impact group entities without ensuring appropriate assessments have been made as to whether contracts or components of contracts give rise to insurance contracts.

In terms of updated guidance provided in the draft 2025 to 2026 GAM:

the accounting and budgeting misalignment in relation to insurance expenditure scoring to capital is detailed in chapter 2 of the GAM
the interpretations and adaptations of IFRS 17 are detailed in chapter 4 and chapter 4 annex 1
due to the limited application to group entities historically, a separate annex to chapter 4 of the GAM has not been developed
summary content regarding transition, initial recognition and subsequent measurement under the general measurement model of IFRS 17 has been provided in chapter 4
relevant and proportionate updates have also been made to chapter 5 and chapter 5 annex 1 of the GAM detailing key elements of the disclosure requirements

Consultation questions on implementation of IFRS 17

Do you have any comments regarding the guidance in the GAM and supporting annexes relating to implementation of IFRS 17?

Do you have any comments regarding IFRS 17 implementation more broadly?

Question 3

Implementing the current outputs from the non-investment asset thematic review

Accepted Answer

Under this thematic review, in which DHSC and NHS England participated as representatives on FRAB, the relevant authority working group and as part of the non-investment asset working group, changes have been proposed to the valuation of both intangible assets and for property, plant and equipment.

Intangible assets

The review proposed that instead of maintaining the historic position of the FReM, through which the option to employ the cost model on subsequent measurement had been removed, the option to employ the revaluation model should now be withdrawn from 1 April 2025 and the cost model should be employed. Transition will require the carrying values of existing intangible assets, measured under the previous revaluation approach, as at 1 April 2025, to be taken forward as a deemed historic cost. International accounting standard (IAS) 8 has been adapted so that these changes, and all changes stemming from the thematic review will be completed prospectively than retrospectively.

This approach received positive consultation responses and FRAB endorsement and it has been incorporated into the 2025 to 2026 FReM. The approach is also reflected in chapters 4 and 5 and the associated annexes of the 2025 to 2026 GAM. The comprehensive nature of the proposal and the timely endorsement of the approach and associated guidance by FRAB ensures there are deemed to be limited risks in implementing this proposal across the NHS during 2025 to 2026.

Property, plant and equipment (PPE)

The review has proposed changes to the classification, valuation cycles and valuation methodologies of PPE, accounted for under IAS 16.

In terms of classification, the review proposed to remove the distinction between specialised and non-specialised assets held for their service potential from the FReM and to reclassify these assets in line with terminology employed in the international public sector accounting standards 45 and 46, as assets held for their operational capacity. Positive consultation responses and FRAB endorsement have been received and this approach has been incorporated into the 2025 to 2026 FReM.

Regarding valuation cycles,the review proposed to mandate certain approaches to valuation cycles focusing on the employment of a quinquennial valuation cycle, or rolling programme of quinquennial valuations, with indexation applied in the interim. For non-property assets, appropriate indices are to be applied as the basis for valuation. Historically the FReM has only listed what valuation cycles may be appropriate, including annual valuations. As part of the proposals, no change has been made to the ability to apply depreciated historic cost to assets with short useful lives or low values or both. Positive consultation responses and FRAB endorsement have been received and this approach has been incorporated into the 2025 to 2026 FReM.

In terms of valuation methodologies, the proposal to remove alternative site valuation from the types of valuation technique employable under a depreciated replacement cost (DRC) methodology on a modern equivalent asset (MEA) basis has been endorsed by FRAB, but a lack of consensus regarding the approach to valuing land has meant that a comprehensive approach to changing valuation methodologies has not been endorsed by FRAB or incorporated into the 2025 to 2026 FReM.

As such there is not a comprehensive approach to changing asset valuation for PPE that is being incorporated into the FReM for 2025 to 2026. Instead, a 2-step approach is being taken in central government to implementing these valuation changes. We view this as creating a number of potential complexities for future years, when a consensus on outstanding issues is reached in FRAB and changes to valuation methodologies are then incorporated in the FReM.

The currently proposed approach for PPE in the 2025 to 2026 FReM, of entering a transition period from 1 April 2025, without the revised valuation approach being finalised, may mean entities are well into the transitional period or will have completed their transition before it is confirmed how entities will need to revise their complex DRC MEA models. Under the FReM approach, entities may have as little as a few months to re-work complex models with their valuers, dependent on when the change in approach is communicated and guidance finalised.

Given the material impact for a number of NHS bodies that will be seen in removing alternative site valuation from the FReM and GAM, this change at short notice could create significant levels of variation from local financial plans, together with audit scrutiny, increased valuer costs and operational impacts to the entity, as well as cause complications for national planning activities.

We are aware of the immediate benefits in updating valuation cycles to reflect the approach taken in the FReM, particularly in employing indexation than resorting to annual valuations. However, concerns over the complications of implementing half of a wider change to valuation approach now and the other half potentially in 2 years gives rise to future risks that would not arise if both the change in valuation cycle and valuation methodology were implemented together within a transition period, as was originally proposed by the thematic review.

While the GAM reflects changes to terminology of PPE in regards to assets no longer being held for their service potential, but held for their operational capacity and revising references to distinctions of specialised and non-specialised assets, the GAM is drafted to diverge from the FReM by excluding any changes to valuation cycles for the 2025 to 2026 financial year. Instead, the GAM reflects the previous guidance on this matter until revisions to valuation cycles and valuation methodologies both receive FRAB endorsement. The intention is to then enter a transition period in which both the changes for valuation cycle and valuation methodology are enacted, which was the expectation stemming from the thematic review proposals for most of 2023 and 2024 calendar years.

Given the above, there are updates throughout the GAM in relation to subsequent measurement of intangible assets and some updates of terminology in relation to assets held for operational capacity and accounted for under IAS 16. It should be noted that all divergences from the FReM in the GAM are considered by FRAB and HM Treasury. There is the possibility that the GAM will need to reflect the approach taken in the FReM after discussions on this point take place in the March 2025 FRAB session.

Consultation questions on the GAM approach to implementing the current outputs from the non-investment thematic review

Do you have any comments regarding the guidance on intangible assets contained in the GAM?

Do you have any comments on the considered risks of implementation of half a valuation approach in one financial year, to be followed up with additional adjustments to valuation approaches in a future year?

Do you consider the benefits brought by mandating quinquennial valuations with interim indexation outweigh the risks of implementing a revised approach to valuations under IAS 16 in two steps and if so, why?

Do you have any other comments regarding the outputs from the non-investment thematic review?

Do you have any other comments regarding the guidance in the GAM relating to the changes stemming from the non-investment asset review?

Question 4

Implementing phase 3 of TCFD recommended disclosures

Accepted Answer

The 2025 to 2026 financial year incorporates the TCFD strategy pillar recommended disclosures into the GAM and completes the phased introduction of TCFD recommended disclosures.

The approach of the GAM in the main has reflected the HM Treasury approach to public sector adoption of the TCFD recommended disclosures. The GAM currently departs from the approach in the FReM in the following ways, as the GAM does not require:

NHS bodies to disclose or develop processes to disclose scope 1, 2 and 3 emissions reporting under the metrics and target pillar. As emissions estimates for the NHS in England will be provided by NHS England, it is considered that undue costs and effort would be involved in each local body establishing a duplicative process for the purpose of this disclosure
a compliance statement, but provides suggested introductory text in making the disclosures while maintaining the Companies Act approach of requiring the entity to explain why the specific disclosures are not provided

In adopting the recommended disclosures under the strategy pillar, the GAM departs from the approach taken by in the FReM in regards to:

not requiring entities to complete a climate principal risk assessment required as part of HM Treasury’s application guidance as part of the strategy pillar, as it is considered that the risk management pillar requirements sufficiently cover this matter
adaptation of the recommended disclosure relating to the scenario analysis, as described below

Rather than requiring entities to disclose the resilience of an organisation’s strategy over various reference points, including mid and end of century reference points, given a global warming pathway of 2°C or lower, the GAM adapts the second recommended disclosure under the strategy pillar, to incorporate the requirements of a more targeted scenario analysis.

Entities are asked to describe the impact of risks and opportunities on the organisation’s operations, strategy and financial planning and how these materialise over time horizons established as part of the first recommended disclosure, when considered against a global warming pathway of 2°C or lower.

The adapted recommended disclosure above ensures entities will describe elements of plausible but uncertain future states that are consistent with the delivery of a scenario analysis, but in a more targeted and informative manner for the user of an NHS body ARA, that is less resource intensive or costly for the entity to compile. Tailored guidance is also provided in chapter 3 annex 5 of the GAM to assist with compiling the recommended disclosures detailed as part of the strategy pillar.

Consultation questions on applying the phase 3 TCFD recommendations in the GAM

Do you have any comments on the guidance provided in the GAM relating to the recommended disclosures under the strategy pillar?

Do you have any other comments regarding the TCFD guidance in the GAM?

Question 5

Incorporation of HM Treasury guidance regarding accounting for social benefits

Accepted Answer

The 2025 to 2026 FReM incorporates specific guidance regarding the accounting for social benefits with accompanying application guidance. While the accounting for social benefits is anticipated to have limited relevance or material impact for DHSC group entities, a short section in chapter 4 has been added to provide the definition of social benefits and the expected accounting treatment following the principles outlined in the IFRS conceptual framework and application guidance. A link to the HM Treasury application guidance is also provided.

Do you have any comments regarding the guidance provided in the GAM relating to the accounting for social benefits?

Question 6

Reporting updates in the GAM

Accepted Answer

Changes are being proposed in relation to disclosure of mental health expenditure and the mental health investment standard (MHIS), and disclosure of performance against an external financing limit (EFL) for NHS trusts.

Mental health expenditure

NHS England requires each ICB to meet the MHIS. The MHIS requires all ICBs to spend a proportion of their allocation on mental health services. This minimum level of spend is calculated by NHS England for each year. Separately the GAM has up to now incorporated a requirement stemming from the National Health Service Act 2006 for ICBs to disclose in their annual report the proportion of overall spend that relates to mental health. This was included at paragraph 3.27 of the 2024 to 2025 GAM.

It is proposed to incorporate both of these sets of requirements into a single disclosure that must be included as a note to the ICB’s financial statements.

Following the results of the DHSC GAM consultation, NHS England will determine its proposed future policy for the independent reviews of the MHIS which are currently commissioned.

The guidance that was previously included at paragraph 3.27 has been removed and revised guidance for ICBs has been incorporated into chapter 5 of the GAM. The proposed note for the ICB accounts template and reference to eligible mental health services as defined by the NHS England MHIS guidance are incorporated into chapter 5 of the GAM. Paragraph 3.27 will now require ICBs to cross-refer users to the note to the financial statements which present the relevant statement, calculation and explanation regarding mental health expenditure.

NHS trust external financing limit (EFL)

EFL is considered one of the duties that NHS trusts must comply with, alongside the capital resource limit and the breakeven duty. The EFL does not apply to NHS foundation trusts. The historic processes around the EFL and its disclosure no longer correspond with the current control frameworks for NHS providers and it is not actively used. Accordingly, we have removed the EFL disclosure from chapter 5 of the GAM. DHSC intends to backdate this change and remove the disclosure from the 2024 to 2025 GAM as part of the year-end update to the GAM.

Consultation questions on reporting updates in the GAM

Do you have any comments on the principle of disclosing mental health expenditure in a note to the accounts?

Do you have any comments on the detailed design of the proposed note or the accompanying guidance?

Do you agree with the approach taken to removing the requirement to disclose performance against an EFL for NHS trusts and if not, why?

Question 7

Other changes to the GAM

Accepted Answer

There are no other standards updates effective for the 2025 to 2026 financial year that require further contextualisation in the GAM.

The pandemic response accounting treatments are no longer relevant so those sections in chapter 4 have been removed.

The only other minor changes made to the 2025 to 2026 GAM relate to the correction of typos.

Consultation questions on other changes made to the GAM

Do you have any other general comments on the GAM?

Question 8

Prospective changes to the GAM

Accepted Answer

There are 2 prospective changes to the GAM that preparers should be aware of. DHSC would welcome comments regarding these.

Payment performance disclosures

Chapter 5 of the GAM contains requirements in relation to disclosures regarding the better payment practice code, late payment of commercial debts and wider compliance with public contract regulations. The Procurement Act 2023 and associated statutory instruments provide for specific disclosures to be made by entities that will not coincide with ARA production timelines. When the relevant primary and secondary legislation comes into force, the extent of these disclosures in the GAM will be revisited. This will be considered as part of the cycle of regular updates made to the 2025 to 2026 GAM in January and March 2026.

Capitalisation threshold

A capitalisation threshold of £5,000 has been detailed in the GAM and not updated for many years. DHSC has received comments from a small number of stakeholders as to whether it will consider increasing the threshold, given that the sorts of costs this threshold now captures are quite different to the costs the threshold captured when originally posed. DHSC is open to revisiting this threshold and assessing the impacts of any change, such as implications for local and national plans and the steps to implementing any revised threshold.

No change will be made to the capitalisation threshold in the short-term, but if there is significant support for a change of threshold raised through response to this consultation, we will consult on a specific proposal in a future GAM consultation. In giving views, preparers are encouraged to consider the practical implications of such a change and the need to apply any threshold consistently.

Consultation questions on prospective changes to the GAM

Do you have any other comments in regards to the procurement related GAM disclosures in light of the Procurement Act 2023 and associated statutory instruments?

Do you have any views regarding what a reasonable revised capitalisation threshold is and what issues would arise if that suggested revised capitalisation threshold was either halved or doubled?

Question 9

Summary of consultation questions

Accepted Answer