The Directors present the Strategic report, Directors' report and financial statements for the year ended 31 December 2022.
Capita Life & Pensions Services Limited (“the Company”) is a wholly owned subsidiary of Capita plc. Capita plc along with its subsidiaries are hereafter referred to as (“the Group”). The Company operates within the Group's Capita Experience division.
The principal activity of the Company continued to be that of the provision of administration services to the life and pension industry. This includes the provision of operational and IT administration and support for other Capita companies within the Capita Experience division of Capita plc.
The Company works closely with Capita Life & Pensions Regulated Services Ltd (“CLPRS Ltd”) and many of the services provided by the Company are consumed by CLPRS Ltd. In particular the Company holds assets which are used as shared infrastructure across both the Company and CLPRS Ltd. The cost of shared infrastructure and project cost that has been recharged to CLPRS Ltd has increased from £4,673,994 in 2021 to £21,304,406 in 2022 in line with the wider restructuring and rationalisation of the Group structure.
As shown in the Company's income statement on page 11, the Company's operating loss has decreased from £10,492,780 in 2021 to £708,650 in 2022.
The balance sheet on pages 12 and 13 of the financial statements shows the Company's financial position at the year end. Net liabilities have increased from £103,730,297 in 2021 to £106,800,681 in 2022. During the year, certain tangible and intangible assets have also been transferred to Capita Life and Pensions Regulated Services as part of the Group reorganisation. Details of amounts owed by/to its parent Company and fellow subsidiary undertakings are shown in notes 15, 17 and 25 to the financial statements.
Key performance indicators used by Capita plc are operating margins, free cash flow, capital expenditure and return on capital employed. Capita plc and its subsidiaries manage their operations on a divisional basis and as a consequence, some of these indicators are monitored only at a divisional level. The performance of the Capita Experience division of Capita plc is discussed in the Group's annual report which does not form part of this report.
The Company is subject to various risks and uncertainties during the ordinary course of its business many of which result from factors outside of its control. The Company’s risk governance framework provides assurance that significant risks are identified and addressed. The Company’s risk management framework provides reasonable assurance (but cannot provide absolute) assurance that significant risks are identified and addressed. An active risk management process identifies, assesses, mitigates and reports on strategic, financial, operational and compliance risk.
The principal themes of risk for the Company are:
Strategic: changes in economic and market conditions, which could impact the availability and cost of IT or project services.
Financial: significant failures in internal systems of control and lack of corporate stability.
Operational: including recruitment and retention of staff, maintenance of reputation and strong supplier and customer relationships, operational IT risk, and failures in information security controls.
Compliance: non-compliance with laws and regulations. The Company must comply with an extensive range of requirements that govern its business.
To mitigate the effect of these risks and uncertainties, the Company adopts a number of systems and procedures, including:
Regularly reviewing trading conditions to be able to respond quickly to changes in market conditions.
Applying procedures and controls to manage compliance, financial and operational risks, including adhering to an internal control framework.
Although the Company is not financially regulated, it is closely linked with companies which are. For that reason many of the additional risk and control procedures also cover operations within the Company.
Capita plc has also implemented appropriate controls and risk governance techniques across all of its businesses, which are discussed in the Group’s annual report and doesn’t form part of this report.
Section 172 Statement
Capita plc’s section 172 statement applies to both the Division and the Company to the extent it relates to the Company’s activities. Common policies and practices are applied across the Group through divisional management teams and a common governance framework. The following disclosure describes how the Directors have regard to the matters set out in section 172(1)(a) to (f) and forms the Directors’ statement as required under section 414CZA of the Companies Act 2006.
Further details of the Group’s approach to each stakeholder are provided in Capita plc’s section 172 statement on pages 47 and 48 of Capita plc’s 2022 Annual Report.
Our People
Why they are important
What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Risks to stakeholder relationship
Key Metrics |
They deliver our business strategy; they support the organisation to build a values-based culture; and they deliver our products and services ensuring client satisfaction.
Flexible working, learning and development opportunities leading to career progression, fair pay and benefits as a reward for performance, two-way communication, and feedback.
People surveys, regular all-employee communications, employee director participation in Board discussions, employee focus groups and network groups and workforce engagement on remuneration, leadership council, regular breakfast sessions with Executive committee for our colleagues.
Creating an inclusive workplace, Speak Up policy, health and wellbeing, Directors’ remuneration, acting on survey feedback.
The 2022 employee survey showed improvement across all metrics. We are developing and delivering a range of action plans, including ensuring our leaders feel confidence in, and ownership of Capita’s strategy, plans and successes, developing inclusive opportunities for internal career mobility. We developed a global career path framework which defines career levels, career job content, and reward framework and introduced mentoring schemes.
Our ability to recruit due to the national and global labor market demand for resources, our ability to retain people, impacting our quality of service, our ability to evolve our culture and practices in line with our responsible business agenda.
Employee Net Promoter Score, Employee Engagement Index and people survey completion level. |
Section 172 Statement (continued)
Clients and Customers Why they are important
What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Risks to stakeholder relationship
Key Metrics |
They are recipients of Capita’s services; and Capita’s reputation depends on delighting them.
High-quality service delivery; delivery of transformation projects within agreed timeframes; and responsible and sustainable business credentials.
Client meetings and surveys, Regular meetings with government stakeholders and annual review with Cabinet Office, creation of Customer Advisory Boards and created a senior client partner programme giving an experienced, single point of contact for key clients and customers.
Current service delivery, Capita’s digital transformation capabilities, possible future services, co-creation of client value propositions, Ongoing benefits of hybrid working on client services.
Feedback provided to business units to address any issues raised, client value propositions team supporting divisions with co‑creation ideas; direct customer and sector feedback; and senior client partner programme undertaking client-focused growth sprints to build understanding of client issues and ideas to help address them.
Loss of business by not providing the services that our clients and customers want, damage to reputation by not delivering to their requirements of our clients and customers.
Customer Net Promoter Score; specific feedback on client engagements. |
Supplier and Partners
Why they are important
What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Risks to stakeholder relationship
Key Metrics |
They share our values and help us deliver our purpose; maintain high standards in our supply chain; and achieve social, economic and environmental benefits aligned to the Social Value Act.
Payments made within agreed payment terms, clear and fair procurement process, building lasting commercial relationships, and working inclusively with all types of business.
Supplier meetings throughout source to procure process, regular reviews with suppliers, supplier questionnaires and risk assessments.
Supplier payments, sourcing requirements, supplier performance, responsible business, science-based targets SBTs and the Supplier Charter.
Alignment of payments with agreed terms; supplier feedback on improvements to procurement process; improvement plans and innovation opportunities; and improved adherence to supplier charter, suppliers committing to SBTs.
Environmental issues, commitment to tackling SBTs, supply chain resilience
99% of supplier payments within agreed terms; SME spend allocation; and supplier diversity profile. |
Section 172 Statement (continued)
Society Why they are important
What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Risks to stakeholder relationship
Key Metrics
|
Capita is a provider of key services to government impacting a large proportion of the population.
Social mobility, youth skills and jobs; digital inclusion; diversity and inclusion; climate change; business ethics and accreditations and benchmarking; and cost of living crisis.
Memberships of non-governmental organisations, charitable and community partnerships, external accreditations and benchmarking and working with clients, suppliers and the Cabinet Office.
Youth employment, promoting digital inclusion, workplace inequalities, Diversity & inclusion and Climate change.
Publication of net zero plan and verification during 2022 of Science Based Targets; continued commitment and accreditation as a real living wage employer; youth and employability programme; Capita’s investment in WithYouWithMe, a workplace technology platform that finds employment for military veterans and other overlooked groups through delivering innovative aptitude testing and digital skills training; highly commended by the Employers Network for Equality & Inclusion for our approach to intersectionality; recognised as a 'Leading Light' by the UK Social Mobility awards; and joined the Cost-of-living Taskforce.
Lack of understanding of the issues important to them and insufficient communication or involvement in shaping and influencing strategies and plans
Net zero by 2035; community investment; workforce diversity and ethnicity data, including pay gaps.
|
On behalf of the Board
The Directors present their Directors' report and financial statements for the year ended 31 December 2022.
The results for the year are set out on page 11.
No dividends were paid or proposed during the year (2021: £nil).
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
KPMG LLP, having indicated its willingness to continue in office, will be deemed to be reappointed as auditor under section 487(2) of the Companies Act 2006.
The Company has granted an indemnity to the Directors of the Company against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third party indemnity provision remains in force as at the date of approving the Directors' report.
We have audited the financial statements of Capita Life and Pensions Services Limited (“the Company”) for the year ended 31 December 2022 which comprise the Income Statement, Balance sheet, Statement of Changes in Equity and related notes, including the accounting policies in Note 1.
Going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).
In our evaluation of the directors’ conclusions, we considered the inherent risks to the Company’s business model and analysed how those risks might affect the Company’s financial resources or ability to continue operations over the going concern period.
Our conclusions based on this work:
we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate;
we have not identified, and concur with the directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the going concern period.
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Company will continue in operation.
Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
Enquiring of directors and inspection of policy documentation as to the Company’s high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud.
Reading Board minutes.
Considering remuneration incentive schemes and performance targets for management.
Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible pressures to meet profit targets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries. On this audit we do not believe there is a fraud risk related to revenue recognition because the Company has no revenue transactions.
We also identified a fraud risk related to the risk of bias in accounting estimates such as the recoverability of both tangible and intangible assets.
We performed procedures including:
Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management and those posted to unusual accounts.
Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors and other management (as required by auditing standards), and from inspection of the Company’s regulatory correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, and taxation legislation, and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, data protection laws, anti-bribery, employment law and certain aspects of company legislation, recognising the nature of the Company’s activities and its legal form.
Fraud and breaches of laws and regulations – ability to detect (continued)
Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
The directors are responsible for the strategic report and the directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.
Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:
we have not identified material misstatements in the strategic report and the directors’ report;
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Nature and purpose of reserves:
a) Share Capital
The balance classified as share capital is the proceeds on issue of the Company's equity share capital comprising of 100 Ordinary shares of £1 each.
b) Retained deficit
Represents accumulated losses in the Company.
The notes on pages 15 to 37 form an integral part of these financial statements.
Capita Life & Pensions Services Limited is a company incorporated and domiciled in the United Kingdom.
The financial statements are prepared under the historical cost basis except where stated otherwise and in accordance with applicable accounting standards.
In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2022, the Company’s Directors (“the Directors”) are required to consider whether the Company can continue in operational existence for the foreseeable future, being a period of at least 12 months following the approval of these financial statements. The Directors have concluded that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, and sensitivities, as set out below.
Board assessment
The financial forecasts used for the going concern assessment are derived from financial projections for 2023-2024 for the Company which have been subject to review and challenge by management and the Directors. The Directors have approved the projections.
Inter-dependency with Capita plc (‘the Group’)
The Director’s assessment of going concern has considered the extent to which the Company’s ability to remain a going concern is inter-dependent with that of the Group. The Company has dependency with the Group in respect of the following:
provision of certain services, such as administrative support servicesand should the Group be unable to deliver these services, the Company would have difficulty in continuing to trade;
participation in the Group’s notional cash pooling arrangements, of which £116,104 was held at 31 May 2023. In the event of the cash being required elsewhere in the Group, the Company may not be able to access its cash balance within the pooling arrangement;
recovery of receivables of £552,676 from fellow Group undertakings as of 31 May 2023. If these receivables are not able to be recovered when forecast by the Company, then the Company may have difficulty in continuing to trade; and
additional funding that may be required if the company suffers continuing future losses.
Despite the Company being in a net liability and is loss making in a severe but plausible scenario the ultimate parent undertaking has stated that it will provide continuing financial support as necessary and to the extent it is able to do so.
The financial projections are dependent on the Group providing additional financial support over the period to 31 August 2024 (the “going concern period”) and not seeking repayment of the amounts currently due, which at 31 December 2022 amounts to £128,325,574. The Group has indicated its intention to provide financial support to the Company in order to meet its liabilities as and when they fall due, but only to the extent that money is not otherwise available to the Company to meet such liabilities.
As with any company placing reliance on other group entities for financial support, the Directors acknowledge that there can be no certainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that it will not do so.
Given the reliance the Company has on the Group, the Directors have considered the financial position of the ultimate parent undertaking as disclosed in its most recent condensed consolidated financial statements, being for the year ended 31 December 2022.
Ultimate parent undertaking – Capita plc
The Capita plc Board (‘the Board’) concluded that it was appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, sensitivities, and mitigations when preparing the Group’s consolidated financial statements at 31 December 2022. These consolidated financial statements were approved by the Board on 2 March 2023 and are available on the Group’s website (www.capita.com/investors). Below is a summary of the position at 2 March 2023:
Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the date of approval of these financial statements, although those standards do not specify how far beyond twelve months a Board should consider. In its going concern assessment, the Board has considered the period from the date of approval of these financial statements to 31 August 2024 (‘the going concern period’) and which aligns with the expiry of the revolving credit facility (RCF).
Given the track record of the Group extending the RCF in prior years, including in 2022, and the committed bridge facility executed in February 2023, the Board is confident that the RCF will be extended or refinanced and be of a sufficient quantum well ahead of its expiry in August 2024.
The base case financial forecasts used in the going concern assessment are derived from the 2023-2024 business plans as approved by the Board in January 2023.
The base case financial forecasts demonstrate liquidity headroom and compliance with all debt covenant measures throughout the going concern period to 31 August 2024. The base case projections used for going concern assessment purposes reflect business disposals completed up to the date of approval of these financial statements but do not reflect the benefit of any further disposals that are in the pipeline. The liquidity headroom assessment in the base case projections reflects the Group’s existing committed financing facilities and debt redemptions and does not reflect any potential future refinancing, other than in respect of the current RCF as noted above.
In considering severe but plausible downside scenarios, the Board has taken account of the potential adverse financial impacts resulting from the following risks:
revenue growth falling materially short of plan;
operating profit margin expansion not being achieved;
additional inflationary cost impacts which cannot be passed on to customers;
unforeseen operational issues leading to contract losses and cash outflows;
increased interest rates;
reduction in deferred cash consideration in respect of completed disposals;
non-availability of the Group’s non-recourse receivables financing facility; and
unexpected financial costs and penalties linked to incidents such as data breaches and/or cyber-attacks.
The likelihood of simultaneous crystallisation of the above risks is considered by the directors to be relatively low. Nevertheless, in the event that simultaneous crystallisation were to occur, the Group would need to take action to mitigate the risk of insufficient liquidity and covenant headroom. In its assessment of going concern, the Board has considered the mitigations, under the direct control of the Group, that could be implemented including reductions in capital investment, substantially reducing (or removing in full) bonus and incentive payments and significantly reducing discretionary spend. Taking these mitigations into account, the Group’s financial forecasts, in a severe but plausible downside scenario, demonstrate sufficient liquidity headroom and compliance with all debt covenant measures throughout the going concern period to 31 August 2024.
Adoption of going concern basis by the Group:
Reflecting the Board’s confidence in the benefits expected from the completion of the transformation programme and ability to obtain further RCF financing beyond its existing committed funding facilities coupled with its ability to implement appropriate mitigations should the severe but plausible downside materialise the Group continues to adopt the going concern basis in preparing these financial statements. The Board has concluded that the Group and Parent Company will be able to continue in operation and meet their liabilities as they fall due over the period to 31 August 2024.
The Directors have also made enquiries with the Directors of the ultimate parent undertaking to understand the current performance of the Group, and to confirm that they are not aware of any events or circumstances since 2 March 2023 that would change their conclusion in regard to the going concern basis for the Group and ultimate parent undertaking.
Conclusion
Although the Company has a reliance on the Group as detailed above, even in a severe but plausible downside for both the Company and the Group, the Directors are confident the Company will continue to have adequate financial resources to continue in operation and discharge its liabilities as they fall due over the period to 31 August 2024 (the “going concern period”). Consequently, the annual report and financial statements have been prepared on the going concern basis.
The Company has applied FRS101 – Reduced Disclosure Framework in the preparation of its financial statements. The Company has prepared and presented these financial statements by applying the recognition, measurement and disclosure requirements of international accounting standards in conformity with the requirements of the Companies Act 2006.
The Company's ultimate parent undertaking, Capita plc, includes the Company in its consolidated statements. The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and with UK-adopted International Financial Reporting Standards (IFRSs) and the Disclosure and Transparency Rules of the UK's Financial Conduct Authority. These are available to the public and may be obtained from Capita plc’s website on https://www.capita.com/investors.
In these financial statements, the Company has applied the disclosure exemptions available under FRS 101 in respect of the following disclosures:
A cash flow statement and related notes;
Comparative period reconciliations for share capital, property, plant and equipment and intangible assets;
Disclosures in respect of transactions with wholly owned subsidiaries;
Disclosures in respect of capital management;
The effects of new but not yet effective IFRSs;
Certain disclosures regarding IFRS 15 Revenue from Contracts with Customers;
Certain disclosures regarding IFRS 16 Leases; and
Disclosures in respect of the compensation of key management personnel.
As the consolidated financial statements of Capita plc include equivalent disclosures, the Company has also taken the disclosure exemptions under FRS 101 available in respect of the following disclosures:
Certain disclosures required by IFRS 2 Share Based Payments in respect of Group settled share based payments;
Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company, in the current and prior periods including the comparative period reconciliation for goodwill; and
Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures.
The Company has adopted the new amendments to standards detailed below but they do not have a material effect on the Company’s financial statements.
New amendments or interpretation | Effective date |
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) | 1-Jan-22 |
Annual Improvements to IFRS Standards 2018–2020 | 1-Jan-22 |
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) | 1-Jan-22 |
Reference to the Conceptual Framework (Amendments to IFRS 3) | 1-Jan-22 |
Intangible assets acquired separately are capitalised at cost and those identified in a business acquisition are capitalised at fair value as at the date of acquisition. Following initial recognition, the carrying amount of an intangible asset is its cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Amortisation is charged on assets with finite lives, this expense is taken to the profit and loss account through the administrative expenses line item.
Intangible assets are tested for impairment, either individually or at the cash-generating unit level, where there is an indicator of impairment. Given the close relationship with other Capita entities, impairment testing does take into account the financial forecasts of those entities.
Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account when the asset is de-recognised.
The Company currently only has software and licences as intangibles. Software and licences are amortised over their useful economic lives of 5-10 years from the date they are brought into use.
Regular computer equipment is depreciated over 3-5 years in line with the standard Group policy. In addition the Company holds shared infrastructure assets which support the deployment of desktop and laptop devices across the business; this platform is depreciated over a period of 10 years, representing the expected useful life of this specific asset.
All investments are stated at cost. Subsequently they are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
The Company leases one office building, which is partially subleased to other entities.
The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration. The following sets out the Company’s lease accounting policy for all leases with the exception of leases with low value and term of 12 months or less which we have taken the exemption in the standard. These are expensed to the income statement.
At the inception of the lease, the Company recognises a right-of-use asset and a lease liability. A right-of-use asset is capitalised in the balance sheet at cost, which comprises the present value of minimum lease payments determined at the inception of the lease. A lease liability of equivalent value is also recognised. Right-of-use assets are depreciated using the straight-line method over the shorter of estimated life or the lease term. Depreciation is included within the line item administrative expenses in the income statement.
The Company as a lessee - Right-of-use assets and lease liabilities
Right-of-use assets are measured at cost, which comprised the initial amount of the lease liability adjusted for any lease payments made at or before the adoption date, less any lease incentives received at or before the adoption date and less any onerous lease provisions (reclassified on the opening balance sheet). Depreciation is included within administrative expenses in the income statement. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be fully recoverable. Right-of-use assets exclude leases with a low value and term of 12 months or less. These leases are expensed to the income statement as incurred.
Lease liabilities are measured at amortised cost using the effective interest rate method. Lease payments are apportioned between a finance charge and a reduction of the lease liability based on the constant interest rate applied to the remaining balance of the liability. Interest expense is included within the line item net finance costs in the consolidated income statement.
The lease payments comprise fixed payments, including in-substance fixed payments such as service charges and variable lease payments that depend on an index or a rate, initially measured using the minimum index or rate at inception date. The payments also include any lease incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option. Lease liability is adjusted for any prepayment.
The lease term determined comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are included if the Company has reasonable certainty that the option will be exercised and periods covered by the option to terminate are included if it is reasonably certain that this will not be exercised.
The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments due to a renegotiation or market rent review, a change of an index or rate or a reassessment of the lease term. Payments associated with leases that have a term of less than 12 months or are of low value are recognised as an expense in the income statement as incurred.
The Company as a lessor
The Company acts as an intermediate lessor of property assets and equipment. When the Company acts as a lessor, it determines at lease commencement whether the lease is a finance lease or an operating lease. To classify each lease, the Company makes an overall assessment of whether the lease transfers to the lessee substantially all of the risks and rewards of ownership in relation to the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. The Company recognises lessor payments under operating leases as income on a straight-line basis over the lease term. The Company accounts for finance leases as finance lease receivables, using the effective interest rate method.
Investments and other financial assets
Classification
The Company classifies its financial assets in the following measurement categories:
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
those to be measured at amortised cost.
The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows.
Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Impairment
The Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.
Trade and other receivables
The Company assesses on a forward looking basis the expected credit losses associated with its receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of 3 months or less. Bank overdrafts are shown within current liabilities.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Company makes a formal estimate of the asset's recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use is determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax asset and unused tax losses can be utilised, except where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
The Company participates in a number of defined contribution pension schemes where contributions are charged to the profit and loss account in the year in which they are due. These schemes are funded and contributions are paid to separately administered funds. The assets of these schemes are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services Ltd, a fellow subsidiary undertaking, which pays the group liability centrally. Any unpaid contributions at the year-end have been accrued in the accounts of Capita Business Services Ltd.
The Company also has employees who were members of a defined benefit pension scheme operated by the group – the Capita Pension & Life Assurance Scheme (the “Capita DB Scheme”).
As the Company no longer has any active members in the Capita DB Scheme, this triggered a cessation event which means a Section 75 debt (which is a statutory debt due from a participating employer to the trustees of a multi-employer defined benefit pension scheme which is in deficit) would have become due. However, the Trustee of the Capita DB Scheme agreed that the pension liabilities attributable to the Company would be transferred to Capita Business Services Ltd (the Principal Employer of the Capita DB Scheme), which removed the Section 75 debt due from the Company. This Flexible Apportionment Arrangement was agreed in early 2018. As a result of the arrangement, the Company is no longer a formal participating employer in the Capita DB Scheme. In return for the Trustee granting this Flexible Apportionment Arrangement, the Company has provided a guarantee to the Capita DB Scheme that puts the Company into the same position as if it had remained a participating employer. However, the probability of any liability crystallising on the guarantee has been assessed as remote.
As there is no contractual agreement or stated group policy for charging the net defined benefit cost of the Capita DB Scheme to participating entities, the net defined benefit cost of the Capita DB Scheme is recognised fully by the Principal Employer.
A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent qualified actuary for the Trustee of the Capita DB Scheme, with the last full valuation carried out as at 31 March 2020. The next full actuarial valuation is due to be carried out with an effective date of 31 March 2023.
Group Accounts
The financial statements present information about the Company as an individual undertaking and not about its Group. The Company has not prepared Group accounts as it is exempt from the requirement to do so by section 400 of the Companies Act 2006 as it is a subsidiary undertaking of Capita plc, a company incorporated in England and Wales, and is included in the consolidated accounts of that Company.
The preparation of financial statements in accordance with generally accepted accounting principles requires the directors to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported income and expense during the presented periods. Although these judgements and assumptions are based on the directors’ best knowledge of the amount, events or actions, actual results may differ.
The company’s principal activity is wholly undertaken in the United Kingdom. There has been no revenue earned for the year. After the exit of the HBOS contract in 2020, the Company no longer has any external customers and solely services other Capita entities. Any cost recharges to those entities are not classified as revenue but offset against costs. The Board does not expect this to change in the short or medium term.
*The cost of shared infrastructure and project cost that has been recharged to a fellow Group subsidiary (Capita Life and Pensions Regulated Services Ltd) has increased from £4,673,964 in 2021 to £21,304,406 in 2022 in line with the wider restructuring and rationalisation of the Group structure. During the year, certain tangible and intangible assets have also been transferred to Capita Life and Pensions Regulated Services as part of the Group reorganisation.
Audit fees are borne by the ultimate parent undertaking, Capita plc. The audit fee for the current period was £30,000 (2021: £36,000). The Company has taken advantage of the exemption provided by regulations 6(2)(b) of The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 not to provide information in respect of fees for other (non-audit) services as this information is required to be given in the Company accounts of the ultimate parent undertaking, which it is required to prepare in accordance with the Companies Act 2006.
All rental incomes originate from an office lease in Belfast which is used by other parts of Capita. The lease ends in year 2023.
A change to the main UK corporation tax rate was substantively enacted on 24 May 2021. The rate applicable from 1 April 2023 increases from 19% to 25%. The deferred tax asset at 31 December 2022 has been calculated based on this rate. The Company has gross unrecognised fixed asset timing differences of £16,400,000 (2021: £15,200,000) in the statutory accounts due to the uncertainty of future use.
*During the year, certain intangible assets have been transferred to Capita Life and Pensions Regulated Services as part of the Group reorganisation.
The additions during the year relate to provision for remediation of the dilapidations.
The Company participates in defined contribution pension schemes.
The pension charge for the defined contribution pension schemes for the year is £445,367 (2021: £574,169). The pension charge excludes pension contributions paid by the Company on behalf of employees via a salary sacrifice arrangement. The 2021 comparative figure has also been re-presented to reflect this.
The Company has current and former employees who were members of the Capita Pension and Life Assurance Scheme (the "Capita DB Scheme"), a defined benefit pension scheme.
The Capita DB Scheme is a non-segregated scheme with around 200 different sections in the scheme where each section provides benefits on a particular basis (some based on final salary, some based on career average earnings) to particular groups of employees.
As the Company no longer has any active members in the Capita DB Scheme, this triggered a cessation event which means a Section 75 debt (which is a statutory debt due from a participating employer to the trustees of a multi-employer defined benefit pension scheme which is in deficit) would have become due. However, the Trustee of the Capita DB Scheme agreed that the pension liabilities attributable to the Company would be transferred to Capita Business Services Ltd (the Principal Employer of the Capita DB Scheme and a fellow subsidiary undertaking), which removed the Section 75 debt due from the Company. This Flexible Apportionment Arrangement was agreed in early 2018. As a result of the arrangement, the Company is no longer a formal participating employer in the Capita DB Scheme. In return for the Trustee of the Capita DB Scheme granting this Flexible Apportionment Arrangement, the Company has provided a guarantee to the Capita DB Scheme that puts the Company into the same position as if it had remained a participating employer. However, the probability of any liability crystallising on the guarantee has been assessed as remote.
The pension charge for the Company in relation to the Capita DB Scheme for the year was £nil (2021: £nil).
A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent qualified actuary for the Trustee of the Capita DB Scheme, with the last full valuation carried out as at 31 March 2020. Amongst the main purposes of the valuation is to agree a contribution plan such that the pension scheme has sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee of the Capita DB Scheme and the Principal Employer. The 31 March 2020 valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This equates to a funding level of 89.0% (31 March 2017: 86.1%).
As a result of the full actuarial valuation, the Principal Employer and the Trustee of the Capita DB Scheme agreed a funding plan to eliminate the deficit – the Principal Employer has agreed to pay additional contributions totalling £124m between July 2021 and December 2023.
In addition, the Principal Employer has agreed to make additional, non-statutory, contributions of £15m each year in 2024, 2025 and 2026 to meet a secondary funding target. The aim of which is to target, by 2026, the position of having sufficient assets to invest in a portfolio of low risk assets that will generate income to pay members’ benefits as they fall due.
Finally, the Principal Employer agreed an average employer contribution rate of 36.0% (excluding employee contributions made as part of a salary sacrifice arrangement) towards the expected cost of benefits accruing.
The next full actuarial valuation is due to be carried out with an effective date of 31 March 2023.
For the purpose of the consolidated accounts of Capita plc, an independent qualified actuary projected the results of the 31 March 2020 full actuarial valuation to 31 December 2022 taking account of the relevant accounting requirements.
The principal assumptions for the accounting valuation as at 31 December 2022 were as follows: rate of increase in RPI/CPI price inflation - 3.15% pa/2.50% pa (2021: 3.30% pa/2.65% pa); rate of salary increase - 3.15% pa (2021: 3.30% pa); rate of increase for pensions in payment (where RPI inflation capped at 5% pa applies) - 3.05% pa (2021: 3.20% pa); discount rate - 4.75% pa (2021: 1.90% pa).
The Capita DB Scheme assets at fair value as at 31 December 2022 totalled £1,126.3m (2021: £1,732.5m). The actuarially assessed value of Capita DB Scheme liabilities as at 31 December 2022 was £1,087.0m (2021: £1,725.3m) indicating that the Capita DB Scheme had a net asset of £39.3m (2021: net asset of £7.2m). These figures are quoted gross of deferred tax. The full disclosure is available in the consolidated accounts of Capita plc.
The average monthly number of employees (including non-executive Directors) were:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 0 (2021 - 0).
There are no significant events occurring post balance sheet date.