Decision

Decision Instrument RSH1: Decision to issue a revised Accounting Direction

Updated 8 May 2024

Applies to England

Decision Instrument - Instrument number: RSH1

Title of Instrument: Decision to issue a revised Accounting Direction

Introduction

A. Pursuant to the Housing and Regeneration Act 2008 as amended (‘the Act’), the regulation of social housing in England is the responsibility of the Regulator of Social Housing (the regulator). [^1] The regulator is an executive non-departmental public body, sponsored by the Ministry of Housing, Communities & Local Government.

B. The regulator has powers to give directions to private registered providers of social housing about the preparation of their accounts (in relation to profit-making PRPs, only in so far as its accounts relate to social housing activities), and regarding how PRPs must constitute and present a Disposal Proceeds Fund in their accounts. Those powers arise under sections 127 and 177(4) of the Act.

C. An Accounting Direction was previously made pursuant to these provisions and took effect from 1 April 2015 (the 2015 Accounting Direction).

D. The regulator has consulted on proposed revisions to the 2015 Accounting Direction and has considered the responses received in relation to that consultation. It has published a separate Decision Statement including a summary of the key areas of feedback and details of respondents. The purpose of this document is to set out the decision of the regulator following the conclusion of that consultation process.

E The Regulator of Social Housing has the power to delegate its functions to a member of staff pursuant to section 920 of the Housing and Regeneration Act 2008. In accordance with the regulator’s Scheme of Delegated Authority, Directions about the preparation of private registered provider accounts are delegated to the Deputy Director – Strategy & Performance.

Decision

Date decision made: 12 February 2019

Decision made by: Deputy Director – Strategy & Performance

1	The decision-maker has noted the regulator’s statutory power to give directions about the preparation of PRP accounts, including the requirement that this power must be exercised with a view to ensuring that accounts are prepared in a proper form and present a true and fair view of the state of affairs in relation to the PRP’s social housing activities and the disposition of funds and assets which are, or have been, in the PRP’s hands in connection with those activities.
2	The decision-maker has noted that the regulator has conducted a public consultation, including consultation with one or more bodies appearing to the regulator to represent the interests of PRPs, in compliance with the requirements under s127(6) of the Act, and has taken into account the outcomes of that consultation.
3	The decision-maker has determined that a revised Accounting Direction for private registered providers of social housing is made as set out in Schedule 1. This supersedes the 2015 Accounting Direction.
4	This decision takes effect for accounting periods commencing on or after 1 January 2019

Authentication

Name: Jonathan Walters

Position: Deputy Director - Strategy and Performance

Signature:

Schedule 1 to Decision Instrument RSH1

Accounting Direction 2019 (to take effect for accounting periods commencing on or after 1 January 2019)

Overview

1 Private registered providers of social housing are required by section 127 of the Housing and Regeneration Act 2008 to comply with a direction of the Regulator of Social Housing about the preparation of their accounts. Prior to 6 April 2017, PRPs were also required by section 177(4) of the Act to constitute their Disposal Proceeds Fund and to show the DPF in their accounts in accordance with a direction of the regulator.

2 Section 92 (and Part 3 to Schedule 4) of the Housing and Planning Act 2016 (HPA 2016) repealed section 177 of the Act and abolished DPF with effect from 6 April 2017. However, under transitional arrangements [^2] the effect of section 177 has been preserved such that, those providers who had a DPF immediately prior to 6th April 2017, must continue to operate the DPF and comply with the regulator’s Disposal Proceeds Funds Requirements until:

• the fund is exhausted; or
• the PRP notifies the regulator that it is unable to use or allocate, or continue to use or allocate, funds in its DPF in accordance with this Direction; or
• until 6 April 2020 whichever is the earlier.

All references in this document to section 177 of the Act, relate to that section as preserved in accordance with the transitional provisions [^3].

3 The regulator has power to:

• give directions to PRPs about the preparation of their accounts (in relation to profit-making PRPs, only in so far as its accounts relate to social housing activities). The power must be exercised with a view to ensuring that accounts are prepared in a proper form and present a true and fair view of the state of affairs in relation to the PRP’s social housing activities and the disposition of funds and assets which are, or have been, in the PRP’s hands in connection with those activities (section 127 of the Act).
• direct how PRPs must constitute and present a DPF in their accounts (pursuant to section 177(4)).

4 This document (Accounting Direction for private registered providers of social housing 2019) sets out the regulator’s directions about how PRPs must prepare their accounts in relation to the matters set out above. The regulator has conducted a public consultation including consultation with one or more bodies appearing to the regulator to represent the interests of PRPs (in compliance with section 127(6) of the Act).

5 This Direction is made without prejudice to the regulator’s power to make specific directions under the provisions of the Act. Where reference is made to any legislation, standard or guidance which is subsequently amended or replaced, then the later publication should be taken to apply to this Direction until such time as it is revised.

Commencement and requirements

6 This Direction has effect in relation to periods of account beginning on or after 1 January 2019. It supersedes the requirements of the Accounting Direction for private registered providers of social housing 2015 (2015 Direction). The 2015 Direction continues to apply to accounts for periods beginning before 1 January 2019 although earlier adoption of this Direction is encouraged.

7 This Direction applies to PRPs in terms of the preparation of their accounts [^6] and to profit-making PRPs only in so far as their accounts relate to social housing activities [^7].

8 The regulator directs:

8.1 PRPs to constitute and present a DPF in their accounts [^8] in accordance with Part 2 paragraph 29 of the Schedule to this Direction, but subject to the requirements set out in paragraph 2 of this Direction [^9].

8.2 In accordance with section 127 of the Act as follows, every PRP must prepare their accounts: a. if a large PRP, so that:

i. if they are a non-profit PRP, information is shown in accordance with Part 1 of the Schedule

ii. if they are a profit-making PRP, information is shown in accordance with Part 1 of the Schedule but only in so far as its accounts relate to social housing activities.

b. For all PRPs (whether a Large or small PRP), so that:

i. if they are a non-profit PRP, information is shown in accordance with Part 2 of the Schedule

ii. if they are a profit-making PRP, information is shown in accordance with Part 2 of the Schedule but only in so far as its accounts relate to social housing activities.

9 Unless required otherwise in this Direction, a PRP will still comply with this Direction, where:

i. information is required in a specified form; the PRP prepares that information in a form substantially to the same effect as that specified

ii. the PRP is the parent organisation within a Group structure; that the PRP prepares consolidated financial statements where it is permitted by legislation and financial reporting standards, including FRS 102, to do so

iii. differences to the requirements of this Direction are required in order to comply with the applicable laws, regulations and accounting standards and associated guidelines (including SORP) [^10]

iv. more information is given than is required by this Direction

v. save as is indicated otherwise OR in relation to paragraphs 27 and 28 of the Schedule Part 2, in providing the information required by Part 1 of the Schedule to this Direction, lines with a nil value can be omitted, and lines where the value is not material can be aggregated.

The Schedule to the Accounting Direction for private registered providers of social housing 2019

Part 1

See paragraph 8.2.a of the Direction: every large PRP must prepare their accounts so that the information in Notes A and B below is shown (in relation to profit-making PRPs, only in so far as its accounts relate to social housing activities)

Note A - Particulars of turnover, cost of sales, operating expenditure and operating surplus

	Turnover	Cost of Sales	Operating expenditure	Operating surplus/(defecit)
	£	£	£	£
Social housing lettings (Note B)
Other social housing activities: First tranche low-cost home ownership sales
Charges for support services
Other
Activities other than social housing
Total

Notes:

1. Material items of social housing activity should be separately identified.

2. Where material sums are involved, additional analysis should be provided.

3. Additional lines should be included within Notes A&B to ensure consistency with the Statement of Comprehensive Income. This may include the disclosure of profits or losses on the sale of property, plant and equipment and decisions to include or exclude in operating activities (SORP 2018 3.17 & FRS 102 5.9 & 5.9B).

Note b - Particulars of turnover and operating expenditure from social housing lettings [^11]

	General needs housing	Supported housing (including housing for older people)	Other [^12]	2XX1 Total	2XX0 Total
	£	£	£	£	£
Income
Rent receivable net of identifiable service charges [^13]
Service charge income
Amortorised government grants [^14]
Government grants taken to income [^15]
Other grants
Turnover from social housing lettings
Management
Service charge costs
Routine maintenance
Major repairs expenditure
Bad debts
Depreciation of housing properties
Impairment of housing properties
Other costs [^16]
Operational expenditure on social housing lettings
Operating surplus/(deficit) on social housing lettings
Void losses (being rental income lost as a result of property not being let, although it is available for letting)

Part 2

See paragraph 8.2.b of the Direction: all PRPs must prepare their accounts so that information is shown in accordance with this Part 2 of the Schedule (in relation to profit-making PRPs, only in so far as its accounts relate to social housing activities).

Other information to be shown in the financial statements

Establishment of private registered provider

1 A statement of the legislative provisions under which the PRP is established.

Financial reporting standards

2 The basis and standards under which the accounts have been prepared. Particulars of and reasons for any material departures from those should be stated.

Analysis of intra Group transactions between PRPs and non-PRPs

3 Every PRP shall demonstrate a transparency in the flow of funds, allocation of overheads and transactions between registered and unregistered entities within the Group.

4 Where a PRP transacts with an Associate, Subsidiary or other Group member which is not a PRP or is an unregistered entity, financial statements prepared shall:

• describe the basis of any significant apportionment, recharge or allocation of turnover, costs, assets and liabilities between the PRP and the other party
• specify in aggregate the turnover, costs, assets or liabilities, which have been so apportioned or allocated
• specify which Associates, Subsidiaries or other Group members have been involved in the apportionment or allocation
• include any cross guarantees, debts between Group entities or financial support made across Group members.

Narrative reporting

5 The financial statements should be accompanied by a narrative report applicable to the constitutional structure of the PRP. This may be a strategic [^17] report or Directors’ report (or equivalent) covering the development and provision of social housing and social housing activities for the period.

6 PRPs with at least 5,000 homes [^18] are expected to produce a strategic report. Smaller PRPs are encouraged to publish a report commensurate with the size of the business. The report should provide a balanced and comprehensive but concise analysis consistent with the size and complexity of the business of the:

• PRP’s development and performance during the financial year, including an assessment of the business model used and key financial and non-financial indicators
• effects of material estimates and judgements upon reported performance
• principal risks and uncertainties facing the PRP, including factors arising from subsidiaries or joint ventures
• main trends and factors underlying the development, performance and position of the PRP (or Group) and which are likely to affect it in the future.

7 PRPs must annually publish evidence within the statutory accounts to enable stakeholders to understand the PRP’s:

• performance against its own value for money targets and any metrics set out by the regulator, and how that performance compares to peers
• measurable plans to address any areas of underperformance, including clearly stating any areas where improvements would not be appropriate, and the rationale for this in accordance with the regulator’s Standard on value for money.

8 All PRPs must undertake an assessment of their compliance with the Governance and Financial Viability Standard at least once a year and PRPs must certify compliance with the Standard during the course of the year and up to the signing of the accounts within the narrative report or explain why it has not been possible to comply with the Standard. Any non-compliance identified since the previous report should be explained. The code of governance that has been adopted by the PRP should also be disclosed.

Extension of definition of Director

9 In paragraphs 10 to 18 below, ‘Director’ also includes the Chief Executive and any other person who is a member of the executive management team, or its equivalent, of the PRP.

Key management personnel

10 Remuneration paid to key management personnel in relation to the period of account or, where no such remuneration are so payable, a statement to that effect. The aggregate amount disclosed should separately identify sums paid to non-executive Board members, where remunerated. If non-executive Board members are not remunerated, a statement should be made to this effect.

11 The remuneration payable to the highest paid Director in relation to the period of account, excluding pension contributions.

12 The full-time equivalent number of staff whose remuneration payable in relation to the period of account fell within each band of £10,000 from £60,000 upwards. This should also include compensation for loss of office.

13 Details of the nature of the Chief Executive’s or equivalent’s pension arrangements stating:

a. the nature of the pension scheme and how it is funded

b. whether he or she is an ordinary member of the pension scheme

c. whether any enhanced or special terms apply

d. whether he or she has an individual pension arrangement (including a personal pension) to which the PRP or any of its subsidiaries makes a contribution, and if so, the aggregate amount of contribution made by the PRP and its subsidiaries.

14 In paragraphs 10 to 13 above, remuneration includes payments in respect of a Director’s services as a Director of the PRP or the Director’s services (while a Director of the PRP) in connection with the management of its affairs or the affairs of any subsidiary of the PRP, whether those amounts are payable by the PRP, a parent body or any of its subsidiaries, and includes [^19]:

a. wages and salaries, including performance-related pay, payable for the period

b. fees and dividends

c. sums payable by way of expense allowance (so far as chargeable to United Kingdom tax)

d. contributions payable in respect of pensions

e. termination benefits

f. the estimated money value of any other benefits otherwise than in cash.

15 The aggregate amount of any compensation payable to Directors or past Directors in relation to the period of account in respect of loss of office (whether by retirement or otherwise).

16 The aggregate amount of Directors’ or past Directors’ pensions recognised within the financial statements for the year. This amount does not include any pension payable or receivable under a pension scheme if the scheme is such that the contributions under it are substantially adequate for maintenance of the scheme. The amount shown shall distinguish between pensions in respect of services as Director, whether of the PRP or any of its subsidiaries, and other pensions.

Consideration for Directors’ services

17 The aggregate amount of any consideration payable to or receivable by third parties in relation to the period of account for making available the services of any person to perform in the role of Director of the PRP, or (while a Director of the PRP) in connection with the management of the affairs of the PRP or the affairs of any subsidiary of the PRP. ‘Third parties’ means persons other than a Director or a person connected with the Director or a body corporate controlled (within the meaning of section 255 of the Companies Act 2006) by that Director and the PRP or any of its subsidiaries.

18 In paragraph 17 above, amounts to be disclosed include benefits otherwise than in cash and, in relation to such amounts, reference to the amounts are to be the estimated money value of the benefit. The nature of such benefits should be disclosed.

Employees

19 The average number of employees employed during the period of account expressed in full-time equivalents, to be calculated on a basis disclosed by the PRP.

Social housing turnover and costs

20 Where the information in Part 1 of this Schedule has not been provided because the PRP is not a large PRP, the following information shall be given in relation to the period of account:

a. rent receivable excluding service charges

b. service charges receivable

c. revenue, Capital Grants (including how much has been recognised within the accounts through accrual or performance model), financial assistance and any other assistance receivable from whatever source

d. social housing activity expenditure

e. operating surplus/deficit and net surplus/deficit from social housing activities

f. void losses (being rental income lost as a result of property not being let, although it is available for letting).

Financial assistance and other government grant receivable

21 The total accumulated amount of financial assistance and other government grant received or receivable at the date of the statement of financial position, based upon properties owned at that date, showing the extent to which amounts have been recognised in the Statement of Comprehensive Income or are held as deferred income.

External auditors

22 The amount of remuneration, exclusive of VAT, payable in the period of account including sums payable in respect of expenses, of the PRP’s external auditors for the auditing of the accounts, including the basis of any apportionments of cost to the PRP, if applicable.

23 The amount of any remuneration, in relation to the period of account exclusive of VAT, including sums payable in respect of expenses, of the PRP’s external auditors or their associates in respect of services other than those of auditing the accounts [^20]. ‘Associate’ has the same meaning as that set out in Schedule 1 of the Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008.

Creditors including Recycled Capital Grant Fund

24 In respect of each item shown under creditors in the PRP’s statement of financial position:

a. the aggregate amounts of any instrument included under that item in respect of which any security has been given by the PRP together with an indication of the nature of the security given

b. where the nature of the liability is debt, a summary of the main elements, showing terms of payment or repayment, and the rates of interest payable on the debt

c. the aggregate amount of adjustments made to the carrying value of debt in respect of finance costs, discounts and premia.

25 If it is not practicable to comply with paragraph 24(b) because to do so would result in a statement of excessive length, it shall be sufficient to give a summary of the main elements, showing terms of payment or repayment, and the rates of interest payable on the debts.

26 In respect of the Recycled Capital Grant Fund, information as below, which may be (but does not have to be) set out in the format shown in Annex 2. Any amount is to be considered material:

a. a reconciliation between the balance held at the beginning of the period of account and the balance at the end of the period of account, showing amounts added into and taken out of the RCGF

b. the source and use or allocation of funds should be disclosed

c. the amounts which are outstanding for three or more years or otherwise potentially due for repayment to Homes England or the Greater London Authority.

Disposal Proceeds Fund

27 PRPs who had a DPF as at or before 6 April 2017 must constitute and present the DPF and show it in their accounts in the format shown in Annex 321. Any amount is to be considered material. PRPs are referred to the DPF requirements22. The PRP must show, separately for sums arising from disposals inside and outside of the Greater London area [^23]:

a. a reconciliation between the balance held at the beginning of the period of account and the balance at the end of the period of account, showing amounts taken out of the DPF

b. the source of funds

c. the use or allocation of funds, separately identifying transfers to other PRPs

d. the amounts in respect of which the PRP has paid from the DPF either to Homes England or the GLA [^24]

e. the amounts in respect of which the regulator may require repayment of sums in accordance with the DPF requirements. [^25]

28 In accordance with paragraph 2 of this Direction the DPF will operate until 6 April 2020 (unless an individual PRP meets the statutory requirements for bringing it to an end earlier).

Rent arrears

29 The aggregate amount of gross social housing rent arrears, the net present value adjustment where a repayment schedule is in place (and an adjustment has been made and is material) and the amount of any provisions for bad and doubtful debts. Rents paid in advance should be shown as a creditor, not netted off against arrears.

Charges

30 Particulars of any charge on the assets of the PRP to secure the liabilities to any other person or organisation, including, where practicable, the amount secured.

Capital funding and capital commitments

31 There shall be stated:

a. the aggregated amount of contracts for capital expenditure, so far as not provided for

b. the aggregated amount of capital expenditure approved which has not been contracted for

c. an indication of the proposed financing of such expenditure, showing the amount of grant, agreed loans, loans under negotiation, property sales and any other sources of funding.

Other commitments

32 Particulars shall also be given of any other financial commitments which have not been provided for and are relevant to assessing the PRP’s state of affairs.

Residential accommodation owned and / or managed

33 The number of units of different types of social housing distinguishing between those owned and managed by the PRP at both the start and the end of the period of account and explaining reasons for the movements between these dates. Information should include: general needs housing; supported housing; housing for older people (all differentiated between that let at social rent and Affordable Rent levels); low-cost home ownership accommodation (as defined in section 70 of the Act); care homes and other social housing. PRPs must provide a full analysis appropriate to their operating circumstances.

Residential accommodation managed by others

34 Where social housing owned by a PRP is being managed on its behalf by another body, the number of units of social housing (which refers both to self-contained and non-self-contained homes and bed spaces) accommodation managed by other bodies at the start and the end of the period of account.

Related parties

35 Relationships between parents and subsidiaries and registered and unregistered Group or Associated bodies shall be disclosed irrespective of whether there have been transactions between those related parties. Other related party transactions should be disclosed in accordance with FRS 102 [^26], unless otherwise required to satisfy the requirements of paragraphs 3 or 4 of this Schedule.

Annex 1: Glossary of terms

Words and expressions used in this Direction shall, unless the context requires otherwise, have the following meanings:

‘Associate’ is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a Subsidiary nor an interest in a joint venture.

‘The Act’ means the Housing and Regeneration Act 2008.

‘Board’ means the governing body of a PRP.

‘Capital Grant’ means the grants listed in section 77(3) of the Act and grants under section 27A of the Housing Act 1996.

‘Chief Executive’ means the person who has overall responsibility for the running of the day to day affairs of the PRP’s social housing activities.

‘Director’ means a member of the Board of the PRP.

‘Disposal Proceeds Fund’ (DPF) means the fund shown separately in a PRPs accounts in accordance with section 177(1) of the Act (as preserved by transitional arrangements), in respect of which the regulator has issued the DPF requirements. For ease, section 177 of the Act prior to it being repealed is set out in Annex 4.

‘Disposal Proceeds Fund Requirements’ means the document “Disposal Proceeds Fund: requirements” which sets out the regulator’s decisions on how it requires PRPs to operate a DPF and which can be found here https://www.gov.uk/government/publications/disposal-proceeds-fund.

‘Financial assistance’ means that provided by Homes England and/or the Greater London Authority under section 19 of the Act or section 333 ZE of the Greater London Authority Act 1999 (respectively).

‘FRS 102’ means the Financial Reporting Standard applicable in the UK and Republic of Ireland as published and amended from time to time by the Financial Reporting Council.

‘General needs housing’ covers the bulk of social housing rental accommodation. It includes both self-contained and hostel/shared housing units and bed spaces. General needs housing is stock that is not designated for specific client groups or investment programmes.

‘Group’ in relation to a PRP means that body and its subsidiaries and associates and includes those subsidiaries and associates whether or not they are PRPs.

‘Housing for older people’ means social housing made available exclusively to older people and fully meets the definition of supported housing specified in the Welfare Reform and Work Act 2016 and regulations made under it.

‘Key management personnel’ has the same meaning as set out in section 33.6 of FRS 102, being ‘those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any Director (whether executive or otherwise) of that entity’. Within a PRP these are likely to be members of a Board of management, senior management team or equivalent.

‘Large PRP’ means a PRP which owns 1,000 or more homes on the first day of the period of account.

‘Private registered provider’ (PRP) has the meaning given in section 80(3) of the Act.

‘Recycled Capital Grant Fund’ (RCGF) means the fund used to recycle grant in accordance with procedures and policies specified by the Homes England under sections 32 of the Act and by the GLA pursuant to section 333 ZE of the Greater London Authority Act 1999.

‘Social housing’ has the meaning given in sections 68 and 77 of the Act.

‘Social housing activities’ means accommodation, facilities or services provided by a registered provider in connection with the provision of social housing or its management, as determined by the Board and as discussed in the Governance and Financial Viability Standard Code of Practice.

‘Social housing lettings means activities associated with social housing accommodation and housing services provided with that accommodation.

‘SORP’ means the ‘Statement of Recommended Practice for registered social housing providers’ issued jointly by the National Housing Federation (NHF), Community Housing Cymru, the Northern Ireland Federation of Housing Associations and the Scottish Federation of Housing Associations and published by the NHF, as amended or re-issued from time to time.

‘Standards’ means the standards set by the regulator using its powers under sections 193 and 194 of the Act.

‘Subsidiary’ is an entity, including an unincorporated entity such as a partnership that is controlled by another entity (known as a parent).

‘Supported housing’ has the meaning given in regulation 2 of the Social Housing Rents (Exceptions and Miscellaneous Provisions) Regulations 2016 being low-cost rental accommodation provided by a registered provider which:

a. is made available only in conjunction with the supply of support

b. is made available exclusively to households including a person who has been identified as needing support, and

c. falls into one or both of the following categories:

i. accommodation that has been designed, structurally altered or refurbished in order to enable residents with support needs to live independently; and

ii. accommodation that has been designated as being available only to individuals within an identified Group with specific support needs.

For the purposes of this definition, “support” includes:

• sheltered accommodation
• extra care housing
• domestic violence refuges
• hostels for the homeless
• support for people with drug or alcohol problems
• support for people with mental health problems
• support for people with learning disabilities and/or disabilities
• support for offenders and people at risk of offending
• support for young people leaving care
• support for teenage parents
• support for refugees

Annex 2: Format for disclosure of RCGF balances

	Funds pertaining to activities covered by:	Homes England	GLA
		£000	£000
Opening balance		X	X
Inputs to RCGF:	Grants recycled	X	X
	Interest accrued	X	X
	Transfers from other PRPs	X	X
Recycling of grant:	New build	(X)	(X)
	Major repairs and works to existing stock	(X)	(X)
	Transfers to other PRPs	(X)	(X)
	Other	(X)	(X)
Repayment of grant to Homes England/GLA		(X)	(X)
Closing balance		(X)	(X)
Amounts 3 years old or older where repayment may be required		X	X