Introduction

1. The Department of Health and Social Care group accounting manual 2024 to 2025 (GAM) was published in August 2024. The GAM sets the accounting policies to be followed by members of the department’s consolidation group and provides principles-based guidance to DHSC group bodies on how to prepare and complete their annual reports and accounts (ARA).

2. NHS foundation trusts follow the NHS foundation trust annual reporting manual 2024 to 2025 for the purpose of preparing annual reports.

3. This additional guidance updates the GAM, is mandatory, and must be treated as having the same status as the GAM itself.

4. This document will be updated as additional FAQs arise, so that all additional guidance for 2024 to 2025 will be contained within a single document.

5. This is the initial version of the additional guidance to be published for the 2024 to 2025 GAM.

FAQ 1: changes in HM Treasury discount rates during 2024 to 2025

Background

6. As advised in the GAM (chapter 4 annex 7), HM Treasury discount rates are revised each year and are notified by means of a public expenditure system (PES) paper.

7. ‘PES (2024) 09 discount rates for general provisions, post-employment benefits, financial instruments and leases (under IFRS 16)’ was issued on 3 December 2024.

GAM application

8. By issue of this FAQ, chapter 4 annex 7 and chapter 5 annex 1, note 1.22 of the GAM are updated in accordance with the following text.

Summary of discount rates to be applied as at 31 March 2025

9. The discount rates to be applied as at 31 March 2025 for general provisions, post-employment benefits and financial instruments are summarised below.

Table 1a: nominal general provisions discount rates

Rate type	Rate	Prior year rate
Short-term	4.03%	4.26%
Medium-term	4.07%	4.03%
Long-term	4.81%	4.72%
Very long-term	4.55%	4.40%

Table 1b: general provisions inflation rates

Rate type	Rate	Prior year rate
Year 1	2.6%	3.6%
Year 2	2.3%	1.8%
Into perpetuity	2.0%	2.0%

Table 1c: post-employment benefits discount rate

Rate type	Rate	Prior year rate
Real rate	2.40%	2.45%
Nominal rate	5.15%	5.10%
Consumer prices index (CPI) inflation	2.65%	2.55%

Table 1d: financial instrument discount rate

Rate type	Rate	Prior year rate
Nominal rate	2.15%	2.05%
Real rate with reference to retail prices index (RPI) until February 2030	Minus 0.85%	Minus 1.05%
Real rate with reference to RPI from February 2030	0.05%	Minus 0.05%

10. The following detail is provided to assist preparers in utilising the various discount rates.

General provisions

11. General provisions discount rates are used to discount future cash flows related to provisions recognised in accordance with international accounting standard (IAS) 37.

12. HM Treasury gives rates for short, medium, long-term and very long-term general provisions. These are defined as follows:

• short-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary between 0 and up to and including 5 years from the statement of financial position date
• medium-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary of after 5 and up to and including 10 years from the statement of financial position date
• long-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary of after 10 years and up to and including 40 years from the statement of financial position date
• very long-term rate: a nominal discount rate to be applied to the cash flows of general provisions in a time boundary exceeding 40 years from the statement of financial position date

13. Note - it is the timing of the expected cash flow that governs the discount rate used - the PES papers make no reference to setting discount rates according to the overall term of the arrangement. To arrive at the statement of financial position balance for a provision with expected cash flows occurring in each year for 60 years, cash flow should first be inflated, then each of the 4 discount rates will need to be applied. It would not be appropriate to discount cash flows at the very long-term rate in the first 40 years simply because the liability is not expected to be wholly discharged until year 60.

Inflation assumptions

14. The central inflation assumptions offered in tables 1a to 1d have been provided by HM Treasury. They are based on what is judged to be the most statistically reliable measure of inflation (the Office for Budget Responsibility consumer prices index (OBR CPI) forecasts).

15. The OBR CPI inflation rates should be applied across the following time frames:

• year 1: applied on cash flows up to and including 1 year from the date of the statement of financial position
• year 2: applied on cash flows from after 1 and up to and including 2 years from the date of the statement of financial position
• into perpetuity: applied on cash flows from after 2 years from the date of the statement of financial position

16. HM Treasury considers the presumption to use OBR CPI inflation rebuttable only in certain instances. It is for each entity to assure itself over the reasonableness of the judgements made against the following criteria provided by HM Treasury as to when it is considered acceptable to rebut the presumption of inflating cashflows using OBR CPI.

17. Where no legal or other requirement prohibits the application of OBR CPI inflation, entities must satisfy themselves that all the following apply:

• there is a logical basis for not applying OBR CPI inflation rates, in that the proposed alternative inflation rates would be clearly more applicable to the underlying nature of the cash flows
• the proposed alternative inflation rates must be free from management bias. An indication of this may be an independent or professional assessment of the proposed alternative inflation rates, such as by a committee, third party or other experts
• the inflation rates instead applied should be based on logical and relevant calculations and reasonable underlying assumptions. For example, they may be comparable to existing financial indices or based on historical trends

18. Where a legal requirement exists prohibiting the application of the OBR CPI rates or requires an adjustment to the rate applied, approaches to establishing an appropriate rate are set out as follows:

• an inflation rate specified by statute or by the courts can be applied instead of OBR CPI inflation
• OBR CPI can be adjusted where this is required by statute or by the courts; for example, in the case of legally enforceable public pension caps
• where OBR CPI cannot be applied by statute or by the courts, but an alternative rate or adjustment is not prescribed, a comparative inflation rate must instead be applied and must fulfil conditions as set out above

19. The below is an excerpt from annex C of PES (2024) 09 which provides combined OBR CPI inflation and discount rates for up to 50 years after the statement of financial position date. Annex C offers combined rates for up to and including 200 years. This is available on request by emailing dh_gam@dhsc.gov.uk.

Table 2: 50 year excerpt from annex C PES (2024) 09

Year	Inflation rate	Inflation cumulative	Discount rate	Cumulative combined rate
1	2.6%	102.6%	4.03%	98.62%
2	2.3%	105.0%	4.03%	96.98%
3	2.0%	107.1%	4.03%	95.09%
4	2.0%	109.2%	4.03%	93.23%
5	2.0%	111.4%	4.03%	91.41%
6	2.0%	113.6%	4.07%	89.42%
7	2.0%	115.9%	4.07%	87.64%
8	2.0%	118.2%	4.07%	85.89%
9	2.0%	120.6%	4.07%	84.18%
10	2.0%	123.0%	4.07%	82.51%
11	2.0%	125.4%	4.81%	74.85%
12	2.0%	127.9%	4.81%	72.85%
13	2.0%	130.5%	4.81%	70.90%
14	2.0%	133.1%	4.81%	69.00%
15	2.0%	135.8%	4.81%	67.15%
16	2.0%	138.5%	4.81%	65.35%
17	2.0%	141.3%	4.81%	63.61%
18	2.0%	144.1%	4.81%	61.90%
19	2.0%	147.0%	4.81%	60.25%
20	2.0%	149.9%	4.81%	58.63%
21	2.0%	152.9%	4.81%	57.06%
22	2.0%	156.0%	4.81%	55.54%
23	2.0%	159.1%	4.81%	54.05%
24	2.0%	162.3%	4.81%	52.60%
25	2.0%	165.5%	4.81%	51.19%
26	2.0%	168.8%	4.81%	49.82%
27	2.0%	172.2%	4.81%	48.49%
28	2.0%	175.6%	4.81%	47.19%
29	2.0%	179.2%	4.81%	45.93%
30	2.0%	182.7%	4.81%	44.70%
31	2.0%	186.4%	4.81%	43.50%
32	2.0%	190.1%	4.81%	42.34%
33	2.0%	193.9%	4.81%	41.20%
34	2.0%	197.8%	4.81%	40.10%
35	2.0%	201.8%	4.81%	39.03%
36	2.0%	205.8%	4.81%	37.98%
37	2.0%	209.9%	4.81%	36.97%
38	2.0%	214.1%	4.81%	35.98%
39	2.0%	218.4%	4.81%	35.01%
40	2.0%	222.8%	4.81%	34.08%
41	2.0%	227.2%	4.55%	36.73%
42	2.0%	231.8%	4.55%	35.83%
43	2.0%	236.4%	4.55%	34.96%
44	2.0%	241.1%	4.55%	34.11%
45	2.0%	245.9%	4.55%	33.28%
46	2.0%	250.9%	4.55%	32.47%
47	2.0%	255.9%	4.55%	31.68%
48	2.0%	261.0%	4.55%	30.91%
49	2.0%	266.2%	4.55%	30.15%
50	2.0%	271.5%	4.55%	29.42%

Post-employment benefit provisions

20. The real discount rate applicable on 31 March 2025 is 2.40% (the previous year’s rate was 2.45%), with CPI measured at 2.65%.

21. The rate is applicable for all provisions for continuing obligations arising from previous employment service.

22.HM Treasury considers that schemes for which the RPI is a material assumption are limited and consequently will no longer provide rates that take account of RPI inflation.

23. A nominal rate to be used for assessing interest costs of scheme liabilities for 2024 to 2025 is set at 5.15%.

Financial instruments

24. The financial instrument discount rate is used for some financial instruments in accordance with the requirements of the financial reporting manual (FReM).

25. The FReM states:

Where future cash flows are discounted to measure fair value, entities should use the higher of the rate intrinsic to the financial instrument and the real financial instrument discount rate set by HM Treasury (promulgated in PES papers) as applied to the flows expressed in current prices. 

26. To reflect the upcoming changes to RPI in 2030 HM Treasury has provided real rates for before and after February 2030. Accordingly, the real financial instrument discount rate to be applied as at 31 March 2025 is minus 0.85% (prior year rate minus 1.05%) until February 2030 and 0.05% (prior year rate minus 0.05%) after February 2030. These rates can be applied where the instrument is index linked to RPI.

27. While entities should employ their own RPI modelling HM Treasury has provided indicative RPI rates of 3.00% until February 2030 and 2.10% from February 2030.

28. Where the financial instrument is not linked to an inflationary index, and a nominal rate is required, 2.15% (previously 2.05%) may be used.

Leases

29. PES (2023) 10 confirmed that the HM Treasury incremental borrowing rate (a nominal rate) of 4.72% is to be applied for new leases commencing, or relevant lease modifications or remeasurements being remeasured in the 2024 calendar year under international financial reporting standard (IFRS) 16. 

30. For the 2025 calendar year, PES (2024) 09 confirms the incremental borrowing rate as 4.81%. This will be relevant for newly commenced leases, relevant lease modifications (paragraph 45 of IFRS 16) and relevant lease remeasurement scenarios (paragraph 40 of IFRS 16), occurring in 2025.

FAQ 2: injury costs recovery revenue, probability of non-recovery

Background

31. Paragraphs 4.88 to 4.97 of the GAM describe the treatment of injury costs recovery (ICR) revenue.

32. When estimating lifetime expected credit losses in relation to ICR receivables, the GAM instructs NHS providers to include an amount within the credit loss allowances for contract receivables to reflect income that is not expected to be recoverable. Each year, the compensation recovery unit (CRU) advises a percentage probability of not receiving the income.

33. The figure for 2024 to 2025 is 24.45%. By issue of this FAQ, paragraph 4.95 of the GAM is amended to reflect this figure.

GAM application

34. If it is material, 24.45% of accrued ICR revenue should be used to calculate expected credit losses. However, where NHS providers are in a position to make a reliable estimate of their own percentage, they should use their own local information to inform the expected credit loss position.

35. The above instruction aligns to the IFRS 9 simplified approach to impairments as mandated by the HM Treasury adaptations and interpretations to the standard.

FAQ 3: pension contribution treatment

36. The process established in 2019 to 2020 by which NHS England made contributions towards the pension contribution increases continues to be employed in 2024 to 2025.

37. NHS England guidance on this process remains in place and per the 2019 to 2020 GAM FAQ 6, accounting for the employer contribution in full and on a gross basis is in line with application of IAS 19, no adjustment will be made to disclose pension costs in chapter 5 of the GAM.

FAQ 4: financial reporting manual (FReM) updates impacting the GAM

Background

38. HM Treasury updates the current version of the FReM each December. Not all of these updates impact the guidance provided in the GAM as for instance there can be presentational changes in the FReM and updates that have already been incorporated into the GAM. The below details the December 2024 updates to the 2024 to 2025 FReM that are required to be reflected in the GAM.

39. The FReM references to the Financial Reporting Council’s 2018 guidance on the strategic report have been removed. Accordingly, paragraph 3.9 making reference to the publication has been removed.     

FAQ 5: GAM reporting updates and corrections

Background

40. This FAQ details a number of reporting updates requiring insertion into the GAM that do not stem from FReM updates.

GAM corrections

41. Paragraph 5.151 of the GAM makes incorrect reference to intangible assets. This FAQ removes that reference.

42. This FAQ also updates various links provided in the GAM. This includes the link providing guidance on the breakeven duty in paragraph 5.276, the link providing off-payroll guidance in paragraph 3.194 and the link to the tax centre of excellence guidance in paragraph 3.195.

Clarification of expectations regarding fair pay disclosure guidance

43. The GAM provides principles-based guidance throughout, including for disclosures as part of the remuneration report. There are various instances in which the judgement of the entity should be employed in delivering these disclosures, for instance: 

• paragraph 3.70 notes that narrative can define the scope of the information being disclosed for users of accounts in relation to the content of the remuneration and staff report

• paragraph 3.107 confirms that estimates can be made when splits between agency fees and remuneration cannot be made

• paragraph 3.116 notes that entities should provide context for percentages disclosed to help users understand how the percentages have been arrived at and where comparisons are not straightforward

• paragraphs 3.120 to 3.123 provide opportunity for the entity to explain why and how the ratio has changed, noting in the subsequent paragraphs that the list of matters provided in the GAM is not exhaustive and steps can and should be taken to avoid distortion of the ratio

• paragraph 3.124 makes reference to the relevance of the HM Treasury guidance produced on the matter which confirms in paragraph 3.2 a balance is needed between standardising calculations and the supportive narrative giving sufficient explanation and justification to ensure users can understand the intricacies of the organisation’s pay policy. In paragraph 3.20 of the HM Treasury guidance it is identified that narrative may be required to explain the basis of calculation and provide context for users such as where types of staff might have an impact on the calculation and can be tailored to the needs of the reporting entity as appropriate

44. Entities should explain the approach taken to making the disclosures required by the GAM. Where it is not practicable to apply a calculation set out in the GAM, entities remain compliant with the requirements of the GAM if they clearly disclose the approach they have adopted for the calculation (and estimates and judgements made in doing so), and apply that approach consistently. By order of this FAQ the following text is added to the GAM at paragraph 3.70:

In making the required remuneration report disclosures, entities may need to use estimates and make judgements. These should be clearly explained to assist users. Where expected approaches to disclosure requirements are impracticable for the entity to follow this should be stated and the approach taken by the entity should be disclosed.

Fair pay disclosure guidance in light of backdated pay for resident doctors

45. In arriving at how to present the fair pay disclosure in light of the resident doctor pay award, which provided backdated pay for the 2023 to 2024 financial year, preparers should note that:

• there is no requirement in the GAM to restate prior year fair pay disclosures
• the aim is to avoid distortion of the ratios and percentages disclosed per paragraph 3.122 of the GAM and accordingly steps should be taken to remove payments relating to staff no longer in post and salary paid to staff in the current year, relating to qualifying services of a prior year. Nevertheless, where appropriate estimates and adjustments cannot be made, or are not practicable to be made, the entity can explain per paragraph 3.120 that the median pay ratio may not be consistent with the pay policies for the entity’s employees taken as a whole

46. By order of this FAQ the following text is added to the GAM in paragraph 3.108:

Where amounts remunerated in the current financial year relate to services rendered in a previous financial year and are significant, these amounts should be removed from current year payments to avoid distortion of ratios and percentages. Appropriate estimates and adjustments can be made. Where it is not practicable for such estimates or adjustments to be made, the entity can instead disclose that the median pay ratio (or other affected disclosure) may not be consistent with the pay policies for the entity’s employees taken as a whole, with suitable explanation provided.