Corporate report

DLUHC annual report and accounts 2022 to 2023: Business Rates

Updated 14 December 2023

Business Rates Retention and Non-Domestic Rates Trust Statement

Foreword

Introduction

A Trust Statement provides an account of the collection of revenues which by statute or convention are due to HM Treasury’s Consolidated Fund where the entity undertaking the collection acts as agent rather than principal.

The department acts as an agent responsible for collecting Business Rate income under the Business Rate Retention system from local authorities, central list businesses and the Ministry of Defence.

The Business Rates Retention and Non-Domestic Rates Trust Statement is prepared in accordance with the accounts direction issued by HM Treasury under section 7(2) of the Government Resources and Accounts Act 2000.

Scope

The department operates the system of Business Rates Retention which came into force on 1 April 2013 and replaced the previous collection and redistribution National Non-Domestic Rating system. Under the retention system, local authorities retain at least 50% of the rates collectable as their ‘local share’. The Trust Statement reports the remaining portion of the rates collectable retained by central government. This includes the Central Share. Separate to this, Central List and Visiting Forces income is accounted for alongside Business Rates Retention but these National Non-Domestic Rates otherwise operate in the same way as before the introduction of Business Rate Retention. Central List income relates to hereditaments that go beyond one local authority area, such as gas, electricity, railways and communication networks. Visiting Forces Income relates to rates paid by the Ministry of Defence in respect of properties occupied by Visiting Forces, these typically include Royal Air Force bases.

The results presented in this Trust Statement are separate to those presented in the department’s Resource Accounts although they flow through the department’s accounting system.

Auditors

The Trust Statement is audited by the Comptroller and Auditor General under Section 7 of the Government Resources and Accounts Act 2000. The audit opinion is on page 162. The auditor’s notional fee of £21,500 (2021-22: £20,500) is included in the department’s Resource Accounts. There were no fees in respect of non-audit work.

Statement of the Accounting Officer’s Responsibilities in Respect of the Trust Statement

Under section 7 of the Government Resources and Accounts Act 2000, HM Treasury has directed the Department for Levelling Up, Housing and Communities to prepare for each financial year a Trust Statement in the form and on the basis set out in the Accounts Direction.

HM Treasury appointed me, Sarah Healey CB CVO, the Permanent Head of the Department, as the Accounting Officer for the Business Rates Retention and Non-Domestic Rates Trust Statement.

The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances for which an Accounting Officer is answerable, for keeping proper records and for safeguarding the department’s assets, are set out in Managing Public Money published by the Treasury.

The Trust Statement is prepared on an accruals basis and must give a true and fair view of the state of affairs of Business Rates collected by the department, together with the net amounts surrendered to the Consolidated Fund.

In preparing the Trust Statement, the Accounting Officer is required to comply with the requirements of the Government Financial Reporting Manual (FReM) prepared by the Treasury and, in particular, to:

observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;

make judgements and estimates on a reasonable basis;

state whether applicable accounting standards, as set out in the FReM, have been followed, and disclose and explain any material departures in the account;

prepare the Trust Statement on a going concern basis; and

confirm that the Trust Statement as a whole is fair, balanced and understandable and take personal responsibility for the Trust Statement and the judgements required for determining that it is fair, balanced and understandable.

As the Accounting Officer, I have taken all the steps that I ought to have taken to make myself aware of any relevant audit information and to establish that the department’s auditors are aware of that information. So far as I am aware, there is no relevant audit information of which the auditors are unaware.

Governance Statement in respect of the Trust Statement

The department’s Governance Statement, covering both the Resource Accounts and the Trust Statement, starts on page 52.

Sarah Healey CB CVO

Accounting Officer

Department for Levelling Up, Housing and Communities

14 July 2023

The Certificate and Report of the Comptroller and Auditor General to the House Of Commons

Opinion on financial statements

I certify that I have audited the financial statements of the Business Rates Retention and Non-Domestic Rates Trust Statement for the year ended 31 March 2023 under the Government Resources and Accounts Act 2000.

The financial statements comprise the Business Rates Retention and Non-Domestic Rates Trust Statement’s:

• Statement of Financial Position as at 31 March 2023;

• Statement of Revenue, Other Income and Expenditure and Statement of Cash Flows for the year then ended; and

• the related notes including the significant accounting policies.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and UK Adopted International Accounting Standards.

In my opinion, the financial statements:

• give a true and fair view of the state of the Business Rates Retention and Non-Domestic Rates Trust Statement’s affairs as at 31 March 2022 and its net revenue for the year then ended; and

• have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Opinion on regularity

• In my opinion, in all material respects the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis of opinions

I conducted my audit in accordance with International Standards on Auditing (UK) (ISAs UK), applicable law and Practice Note 10 Audit of Financial Statements and Regularity of Public Sector Bodies in the United Kingdom (2022). My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate.

Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2019. I am independent of the Department for Levelling Up, Housing and Communities in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern

In auditing the financial statements, I have concluded that the Accounting Officer’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the appropriateness of preparing the Business Rates Retention and Non-Domestic Rates Trust Statement’s ability to continue as a going concern basis for a period of at least twelve months from when the financial statements are authorised for issue.

My responsibilities and the responsibilities of the Accounting Officer with respect to going concern are described in the relevant sections of this certificate.

The going concern basis of accounting for the Business Rates Retention and Non-Domestic Rates Trust Statement is adopted in consideration of the requirements set out in HM Treasury’s Government Financial Reporting Manual, which requires entities to adopt the going concern basis of accounting in the preparation of the financial statements where it is anticipated that the services which they provide will continue into the future.

Other Information

The other information comprises information included in the Foreword, Statement of Accounting Officer’s Responsibilities in Respect of the Trust Statement and Governance Statement but does not include the financial statements and my auditor’s certificate and report thereon. The Accounting Officer is responsible for the other information.

My opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in my certificate, I do not express any form of assurance conclusion thereon.

My responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit, or otherwise appears to be materially misstated.

If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact.

I have nothing to report in this regard.

Opinion on other matters

In my opinion, based on the work undertaken in the course of the audit:

• the information given in the Foreword, Statement of Accounting Officer’s Responsibilities in Respect of the Trust Statement and Governance statement for the financial year for which the financial statements are prepared is consistent with the financial statements and is in accordance with the applicable legal requirements.

Matters on which I report by exception

In the light of the knowledge and understanding of the Business Rates Retention and Non-Domestic Rates Trust Statement and its environment obtained in the course of the audit, I have not identified material misstatements in the Foreword, Statement of Accounting Officer’s Responsibilities in Respect of the Trust Statement and Governance Statement.

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

• Adequate accounting records have not been kept by the Department for Levelling Up, Housing and Communities or returns adequate for my audit have not been received from branches not visited by my staff; or

• I have not received all of the information and explanations I require for my audit; or

• the financial statements are not in agreement with the accounting records and returns; or

• the Governance Statement does not reflect compliance with HM Treasury’s guidance.

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the Accounting Officer is responsible for:

• maintaining proper accounting records;

• providing the C&AG with access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters;

• providing the C&AG with additional information and explanations needed for his audit;

• providing the C&AG with unrestricted access to persons within the Department for Levelling Up, Housing and Communities from whom the auditor determines it necessary to obtain audit evidence;

• ensuring such internal controls are in place as deemed necessary to enable the preparation of financial statements to be free from material misstatement, whether due to fraud or error;

• ensuring that the financial statements give a true and fair view and are prepared in accordance with HM Treasury directions made under the Government Resources and Accounts Act 2000;

• ensuring that the Governance Statement is prepared in accordance with HM Treasury directions made under the Government Resources and Accounts Act 2000; and

• assessing the ability of the Business Rates Retention and Non-Domestic Rates Trust Statement to continue as a going concern,disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Accounting Officer anticipates that the services accounted for within these financial statement will not continue to be provided.

Auditor’s responsibilities for the audit of the financial statements

My responsibility is to audit, certify and report on the financial statements in accordance with the Government Resources and Accounts Act 2000.

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a certificate that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was considered capable of detecting non-compliance with laws and regulations including fraud

I design procedures in line with my responsibilities, outlined above, to detect material misstatements in respect of non-compliance with laws and regulations, including fraud. The extent to which my procedures are capable of detecting non-compliance with laws and regulations, including fraud is detailed below.

Identifying and assessing potential risks related to non-compliance with laws and regulations, including fraud

In identifying and assessing risks of material misstatement in respect of non-compliance with laws and regulations, including fraud, I:

• considered the nature of the sector, control environment and operational performance including the design of the Department for Levelling Up, Housing and Communities’ accounting policies.

• inquired of management, the Department for Levelling Up, Housing and Communities’ head of internal audit and those charged with governance, including obtaining and reviewing supporting documentation relating to the Department for Levelling Up, Housing and Communities’ policies and procedures on:

• identifying, evaluating and complying with laws and regulations;

• detecting and responding to the risks of fraud; and

• the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations including the Department for Levelling Up, Housing and Communities’ controls relating to compliance with the Government Resources and Accounts Act 2000, Local Government Finance Act 1988, Local Government Finance Act 2012 and Managing Public Money;

• inquired of management, the Department for Levelling Up, Housing and Communities’ head of internal audit and those charged with governance whether:

• they were aware of any instances of non-compliance with laws and regulations;

• they had knowledge of any actual, suspected, or alleged fraud,

• discussed with the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, I considered the opportunities and incentives that may exist within the Department for Levelling Up, Housing and Communities for fraud and identified the greatest potential for fraud in the following areas: posting of unusual journals and complex transactions. In common with all audits under ISAs (UK), I am required to perform specific procedures to respond to the risk of management override.

I obtained an understanding of the Department for Levelling Up, Housing and Communities’ framework of authority and other legal and regulatory frameworks in which the Department for Levelling Up, Housing and Communities operates. I focused on those laws and regulations that had a direct effect on material amounts and disclosures in the financial statements or that had a fundamental effect on the operations of the Department for Levelling Up, Housing and Communities. The key laws and regulations I considered in this context included the Government Resources and Accounts Act 2000, the Local Government Finance Act 1988, the Local Government Finance Act 2012 and Managing Public Money.

Audit response to identified risk

To respond to the identified risks resulting from the above procedures:

• I reviewed the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described above as having direct effect on the financial statements;

• I enquired of management and the Audit and Risk Committee concerning actual and potential litigation and claims;

• I reviewed minutes of meetings of those charged with governance and the Board; and internal audit reports;

• in addressing the risk of fraud through management override of controls, I tested the appropriateness of journal entries and other adjustments; and evaluated the business rationale of any significant transactions that are unusual or outside the normal course of business; and

• I performed analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud and I performed continuous risk assessment procedures performed relating to fraud, non-compliance with laws and regulation or irregularity as appropriate;

• I carried out substantive analytical procedures and tests of detail to confirm compliance with the requirements of the Local Government Finance Act 1988.

I also communicated relevant identified laws and regulations and potential risks of fraud to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of my certificate.

Other auditor’s responsibilities

I am required to obtain evidence sufficient to give reasonable assurance that the expenditure and income recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control I identify during my audit.

Report

I have no observations to make on these financial statements.

Gareth Davies

Comptroller and Auditor General

National Audit Office

157-197 Buckingham Palace Road

Victoria

London

SW1W 9SP

17 July 2023

Statement of Revenue, Other Income and Expenditure

For the period ended 31 March 2023

			£’000
	Note	2022-23	2021-22
National Non Domestic Rates		1,799,569	1,773,976
Business Rates Retention		21,677,525	18,060,944
Local Share
Deduction of Local Share		(11,744,365)	(7,482,007)
Total Revenue after deduction of Local share	3	11,732,729	12,352,913
Net Revenue for the Consolidated Fund Account		11,732,729	12,352,913

There were no recognised gains or losses accounted for outside the above Statement of Revenue, Other Income and Expenditure.

The notes at pages 170 to 171 form part of this Statement.

Statement of Financial Position

as at 31 March 2023

£’000			£’000
	Note	2022-23	2021-22
Current Assets
Accrued Revenue Receivable	4	414,248	160,004
Cash and Cash Equivalents	CfS	12,797	101,508
Total Current assets		427,045	261,512
Current Liabilities
Accrued Revenue Payable		12,799	101,508
Total Current Liabilities		12,799	101,508
Total assets less current liabilities		414,246	160,004
Balance on Consolidated Fund Account	2	414,246	160,004

Sarah Healey CB CVO

Accounting Officer

Department for Levelling Up, Housing and Communities

The notes at pages 170 to 171 form part of this Statement.

14 July 2023

Statement of Cash Flows

for the period ended 31 March 2023

			£’000
	Note	2022-23	2021-22
Cash flows from operating activities		11,389,776	12,209,152
Cash paid to the Consolidated Fund		(11,388,459)	(12,305,449)
CFERs payable to the Consolidated Fund		(90,028)	-
Increase/(decrease) in cash in this period		(88,711)	(96,297)
A: Reconciliation of Net Cash Flow to Movement in Net Funds
Net Revenue for the Consolidated Fund	3	11,732,729	12,352,913
(Increase)/Decrease in receivables		(254,242)	(47,464)
Increase/(Decrease) in payables		(88,711)	(96,297)
Net Cash Flow from Operating Activities		11,389,776	12,209,152
B: Analysis of Changes in Net Funds
Increase/(decrease) in Cash in this Period		(88,711)	96,297
Net funds at 1 April		101,508	5,211
Net Funds as 31 March		12,797	101,508

The notes at pages 170 to 171 form part of this Statement.

Notes to the Trust Statement

Trust Statement Note 1 Statement of Accounting Policies

Basis of accounting

The Trust Statement is prepared in accordance with:

• the Accounts Direction issued by HM Treasury on 9 February 2015 under section 7(2) of the Government Resources and Accounts Act 2000

• the Financial Reporting Manual (FReM) issued by HM Treasury. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as interpreted for the public sector.

The Trust Statement has been prepared on an accruals basis and in accordance with the historical cost convention.

This Trust Statement reports the income collectable under the Business Rates Retention system as also reported in the Main Non-Domestic Rating Account and the Levy Account.

Revenue recognition

Revenue is collected from local authorities, central list companies and the Ministry of Defence.

Business Rates income retained by the department represents the government’s share of business rates retention and is accounted in accordance with IFRS15. As there are no performance obligations revenue is recognised when the revenue is wholly non-refundable, can be measured reliably, and it is probable that the associated economic benefits from the taxable event will flow to the collecting entity. All these elements must be satisfied. Revenue is determined via NNDR1 claim forms submitted by local authorities. The amounts recognised also include final adjustments to prior years’ figures where eligibility has been confirmed by inclusion of audited figures in local authority NNDR3.

Local share

Under Business Rates Retention, local authorities retain a percentage of the Business Rates collectable as their local share. Following the Office of National Statistics classification of the entire system as a central government tax, the local share is included in this Trust Statement as income collectable in respect of the tax and is then deducted as an allowable expense to calculate the amount due to the Consolidated Fund.

The cost of collection borne by local authorities included within the local share is £84 million (£84 million in 2021-22).

Trust Statement Note 2 Balance on the Consolidated Fund

		£’000
Consolidated Fund	2022-23	2021-22
Balance on Consolidated Fund Account as at 1 April	160,004	112,541
Net Revenue of the Consolidated Fund	11,732,729	12,352,913
Less amount paid to the Consolidated Fund	(11,388,459)	(12,305,450)
CFERs payable to the Consolidated Fund	(90,028)	–
Balance on Consolidated Fund Account as at 31 March	414,246	160,004

Trust Statement Note 3 Revenue collected on behalf of the Consolidated Fund

		£’000
Revenue	2022-23	2021-22
Central list and others: NNDR revenue collectable on behalf of the Consolidated Fund	1,799,569	1,773,976
Local authorities: BRR revenue collected on behalf of the Consolidated Fund	9,933,160	10,578,937
Balance on Consolidated Fund Account as at 31 March	11,732,729	12,352,913

Trust Statement Note 4 Receivables

		£’000
Receivables	2022-23	2021-22
Accrued revenue receivable	414,248	160,004
Total receivables	414,248	160,004

Trust Statement Note 5 Payables

		£’000
Payables	2022-23	2021-22
Accrued revenue payable	12,799	101,508
Total payables	12,799	101,508

Trust Statement Note 6 Cash at Bank

The cash and cash equivalents and net funds disclosed in the Statement of Cash Flows are held with the Government Banking Service.

Trust Statement Note 7 Impact of COVID-19 on Business Rates Transactions

To help local authorities manage the ongoing financial impact of the pandemic, in 2021-22 it was agreed that the on account additional business rate relief grant payments to them were again deliberately inflated as they had been in 2020‑21 to help with temporary shortfalls resulting from the announcement of additional reliefs in year. A total of £7.5 billion was paid to local authorities. This led to significant adjustments at year end 2022-23 with the return of £3.5 billion from local authorities and additional payments of over £0.8 billion, mainly to major precepting authorities. These transactions pass through the department’s resource accounts, not through these accounts. At 31st March 2023, £3.4 billion of the £3.5 billion total had been returned to the Exchequer.

Going forward we expect business rates income to continue to recover from the impacts of the pandemic

Trust Statement Note 8 Events after the reporting period

The department’s financial statements which includes this Trust Statement are laid before the Houses of Commons by HM Treasury. In accordance with the requirements of IAS 10 ‘Events After the Reporting Period’, post Statement of Financial Position events are considered up to the date on which the Accounts are authorised for issue. This is interpreted as the same date as the date of the Certificate and Report of the Comptroller and Auditor General.

Accounts Direction Given by HM Treasury

This direction applies to the Department for Levelling Up, Housing and Communities for the reporting of the Business Rates Retention and Non-Domestic Rates.

The department shall prepare a Trust Statement (“the Statement”) for the financial year ended 31 March 2015 and subsequent financial years for the revenue and other income, as directed by HM Treasury, collected by the department as an agent for others, in compliance with the accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual by HM Treasury (“FReM”) which is in force for that financial year.

The Statement shall be prepared, as prescribed in appendix 1, so as to give a true and fair view of (a) the state of affairs relating to the collection and allocation of Business Rates; (b) the revenue and expenditure; and (c) the cash flows for the year then ended.

The department shall report the total amount of Business Rates revenue, comprising the central and local share, including those elements that are recorded separately. These include levy income receivable from local authorities and other income following reconciliation adjustments. The department shall show the local share as an allowable deduction from the total amount of Business Rates revenue recognised and correspondingly reduce revenues payable to the consolidated fund by the amounts retained by local government in the form of the local share.

The Statement shall also be prepared so as to provide disclosure of any material expenditure or income that has not been applied to the purposes intended by Parliament or material transactions that have not conformed to the authorities which govern them.

When preparing the Statement, the department shall comply with the guidance given in the FReM. The department shall also agree with HM Treasury the format of the Principal Accounting Officer’s Foreword to the Statement, and the supporting notes, and the accounting policies to be adopted, particularly in relation to revenue recognition. Regard shall also be given to all relevant accounting and disclosure requirements in Managing Public Money and other guidance issued by HM Treasury, and to the principles underlying International Financial Reporting Standards.

Compliance with the requirements of the FReM will, in all but exceptional circumstances, be necessary for the accounts to give a true and fair view. If, in these exceptional circumstances, compliance with the requirements of the FReM is inconsistent with the requirement to give a true and fair view, the requirements of the FReM should be departed from only to the extent necessary to give a true and fair view. In such cases, informed and unbiased judgement should be used to devise an appropriate alternative treatment which should be consistent with both the economic characteristics of the circumstances concerned and the spirit of the FReM. Any material departure from the FReM should be discussed in the first instance with HM Treasury.

The Statement shall be transmitted to the Comptroller and Auditor General for the purpose of his examination and report by a date agreed with the Comptroller and Auditor General and HM Treasury to enable compliance with the administrative deadline for laying the audited accounts before Parliament before the Summer Recess.

The Trust Statement, together with this direction (but with the exception of the related appendices) and the Report produced by the Comptroller and Auditor General under section 7(2) of the Government Resources and Accounts Act 2000 shall be laid before Parliament at the same time as the department’s Resource Accounts for the year unless HM Treasury have agreed that the Trust Statement may be laid at a later date.

This Accounts Direction supersedes any previously issued Accounts Directions in respect of Business Rates Retention.

Ross Campbell

Deputy Director, Government Financial Reporting