Corporate report

Financial statements

Published 16 July 2020

Financial statements

Statement of Comprehensive Income for the year ended 31 March 2020

		2019/20	2018/19
	Notes	£’000	£’000
Income from contracts with customers	2	305,863	320,253
Miscellaneous income	2.1	2,716	2,967
Cost of service	2	(258,038)	(270,414)
Gross surplus		50,541	52,806
Administrative expenses	2	(26,445)	(21,765)
Operating surplus	2.1	24,096	31,041
(Loss)/gain on disposal of non-current assets		(1,583)	39
Investment income – interest receivable	5	3,268	3,068
Finance costs	6	(605)	(633)
Restructure and reorganisation costs	3.2	3,129	3,494
Local Land Charges revenue costs		–	(4,681)
Surplus for the financial year		28,305	32,328
Dividend payable	7	(24,689)	(27,264)
Retained surplus prior to special dividend		3,616	5,064
Special dividend payable	7	(483,514)	–
Retained (loss)/surplus transferred to retained reserves		(479,898)	5,064
Gain on revaluation of property, plant and equipment		4,754	2,273
Comprehensive (loss)/surplus for the financial year		(475,144)	7,337

The notes to the financial statements are an integral part of these accounts.

Statement of Financial Position as at 31 March 2020

		2019/20		2018/19
	Notes	£’000	£’000	£’000	£’000
Non-current assets
Property, plant and equipment	8	74,817		60,638
Investment properties	8.3	3,130		2,950
Intangible assets	9	27,637		25,227
Trade and other receivables	11.2	925		1,498
Total non-current assets			106,509		90,313
Current assets
Contract assets	10	9,845		5,670
Trade and other receivables	11.1	9,547		10,279
Cash and cash equivalents	12	20,094		519,798
Total current assets			39,486		535,747
Total assets			145,995		626,060
Current liabilities
Trade and other payables	13.1	90,243		67,373
Obligations under finance leases	13.1, 14.1	273		241
Short-term provisions	15.1	517		4,945
			91,033		72,559
Indemnity Fund	15.2		73,200		95,400
Total current liabilities			164,233		167,959
Non-current assets plus net current (liabilities)/assets			(18,238)		458,101
Non-current liabilities
Obligations under finance leases	13.2, 14.1	4,009		4,282
Long-term provisions	15.1	5		927
Total non-current liabilities			4,014		5,209
Net (liabilities)/assets			(22,252)		452,892
Capital and reserves
Public Dividend Capital			–		61,545
Revaluation reserve			24,981		20,308
Income and expenditure reserve			(47,233)		371,039
			(22,252)		452,892

Statement of Changes in Reserves for the year ended 31 March 2020

	Public Dividend Capital	Revaluation reserve	Income and expenditure reserve	Total reserves
	£’000	£’000	£’000	£’000
Adjusted balance at 31 March 2018	61,545	18,096	365,914	445,555
Changes in reserves 2018/19
Transfer to retained earnings	–	(61)	61	–
Comprehensive surplus	–	2,273	5,064	7,337
Balance at 31 March 2019	61,545	20,308	371,039	452,892
Changes in reserves 2019/20
Transfer to retained earnings	(61,545)	(81)	61,626	–
Comprehensive loss	–	4,754	(479,898)	(475,144)
Balance at 31 March 2020	–	24,981	(47,233)	(22,252)

The notes to the financial statements are an integral part of these accounts.

Public Dividend Capital was cancelled on 31 March 2020 by the payment of a special dividend to HM Treasury of £483.5m.

The income and expenditure reserve represents the cumulative retained net income, adjusted for dividend payments. The comprehensive loss for 2019/20 reflects the payment of the special dividend. The retained surplus prior to the payment of the special dividend was £3.6m.

The revaluation reserve records the revaluation of non-current property and investment assets.

Cash Flow Statement for the year ended 31 March 2020

		2019/20	2018/19
	Notes	£’000	£’000
Net cash inflow from operating activities	18.1	23,397	43,547
Investing activities
Purchase of tangible assets		(5,277)	(2,368)
Purchase of intangible assets		(17,885)	(13,816)
Proceeds on disposal of tangible assets		3	8
Interest received		3,268	3,359
Decrease in investment in National Loans Fund		–	230,335
Net cash (outflow)/inflow from investing activities		(19,891)	217,518
Financing activities
Dividends paid		(502,364)	(49,160)
Repayments of capital element of obligations under finance leases		(241)	(213)
Interest elements of obligations under finance leases	6	(605)	(633)
Net cash outflow from financing activities		(503,210)	(50,006)
Net (decrease)/increase in cash and cash equivalents	18.2	(499,704)	211,059
Cash and cash equivalents at the beginning of the year	18.2	519,798	308,739
Cash and cash equivalents at the end of the year	12	20,094	519,798

The notes to the financial statements are an integral part of these accounts.

Notes to the financial statements

1. Statement of accounting policies

1.1 Basis of preparation

These financial statements have been prepared in accordance with the Government Financial Reporting Manual (FReM) 2019/20 and comply with the Accounts Direction given by HM Treasury in accordance with section 4(6)(a) of the Government Trading Funds Act 1973. The accounting policies contained in the FReM follow International Financial Reporting Standards (IFRS), as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy that has been judged to be the most appropriate to the particular circumstances of HM Land Registry for the purposes of giving a true and fair view has been selected. HM Land Registry’s accounting policies have been applied consistently in dealing with items considered material in relation to the financial statements.

These financial statements have been prepared on a going concern basis. Management is of the opinion that a going concern basis is appropriate as we are legally obliged under the Land Registration Act 2002 to provide statutory services relating to land registration and there are sufficient reserves to support the organisation going forward.

Accounting standards issued but not yet effective.

IFRS 16 Leases came into effect on 1 January 2019 and replaced IAS 17 Leases. However, HM Treasury recommended that government departments defer the adoption of this accounting standard until 1 April 2021 although some departments were permitted early adoption in limited circumstances.

The change from 1 April 2021 using the modified retrospective approach is expected to affect four property operating leases and one property held on a non-commercial basis within government. The capitalised values of these right to use assets have been calculated using an existing lease rate of 1.99%* (*HM Treasury PES 2019 11 issued December 2019) which together have a right to use capital value of £5.8m. Since HM Land Registry will create right to use assets, and corresponding lease liabilities, net assets are not expected to change significantly. No extra capital funding will be required, and instead of being charged rent the payments falling due will be a reduction in the right to use liability and finance interest expense, together with amortised depreciation of the right to use asset values. An initial cost budget for the £5.8m right to use asset additions will be required for 2021/22, this amount split between £1.9m (short lease) and £3.9m (long lease) right to use. IFRS 16 permits a lessee to exclude assets and liabilities attached to leases with terms of less than 12 months. HM Land Registry currently has one lease with a term of less than 12 months.

IFRS 17 Insurance Contracts will become effective from 1 January 2023 for public sector organisations. This reporting standard is anticipated to have no accounting impact upon HM Land Registry as no such insurance contracts are held.

1.2 Accounting convention

The financial statements have been prepared under the historical cost convention modified for the revaluation of property, plant and equipment, investment properties and intangible assets to fair value as determined by the relevant accounting standard.

1.3 Estimation techniques

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and judgements that had a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the current year are:

• Note 8 – valuation and impairment of non-current assets and the impact of the coronavirus (COVID-19)
• Note 9 – impairment of intangible assets
• Note 10 – contract assets – which requires a judgement on the percentage of work complete for outstanding applications. This is applied to a tiered standard cost depending upon the application type
• Note 15.2 – estimated provision for indemnity claims – where uncertainty exists for the proportion of outstanding claims that will ultimately be paid, the value of those payments and the effect of any legal judgements. For incurred but not reported (IBNR) claims, the number of unreported claims is unknown as is the point at which an error is discovered and the value of any potential claim

1.4 Income from contracts with customers

IFRS 15 Revenue from Contracts with Customers has been adopted. The income recognition criteria within IFRS 15 are consistent with HM Land Registry accounting policy.

Income from fees and charges is included within the financial statements of the financial year in which the service is delivered. Income is recognised net of any refunds for transactions that are not completed, or on transactions where erroneous information is provided by customers.

Registration of title and Land Charges and Agricultural Credits income is recognised upon receipt of a completed application. If an application is not complete, the amount received is treated as a fee in advance, regardless of application type. All application types are accounted for consistently. The associated payment amounts received for services not delivered in the financial year reported are subsequently recorded as contract liabilities and disclosed within current liabilities. Income is recognised once the contract performance obligation under IFRS 15 has been fulfilled, that is once the register has been fully updated following receipt of an application.

1.5 Operating segments

HM Land Registry’s operating segments are organised around the services it provides and are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM). The four main reportable business segments are: registration of title, Land Charges and Agricultural Credits, Local Land Charges (LLC) and commercial income. This is based on the group’s internal organisation and management structure, and is the primary way in which the CODM is provided with financial information. The CODM of HM Land Registry is Simon Hayes, Chief Executive and Chief Land Registrar.

1.6 Employee benefits

The cost of providing employee benefits is recognised in the period in which HM Land Registry receives services from its employees, rather than when it is paid or payable. Short-term employee benefits are recognised as an expense in the period in which the employee renders the service. Performance payments are recognised only when there is a legal or constructive obligation to pay them and the costs can be reliably estimated. Termination benefits are recognised when it can be demonstrated there is an irreversible agreement to terminate the employment of employee(s) before the schemes’ retirement date or as a result of an offer to encourage voluntary redundancy.

1.7 Pensions

HM Land Registry employees are civil servants who are entitled to be members of the Principal Civil Service Pension Scheme (PCSPS) or the Civil Servant and Other Pension Scheme (CSOPS) – known as ‘alpha’. These are unfunded multi-employer defined benefit schemes, but HM Land Registry is unable to identify its share of the underlying assets and liabilities on a reasonable and consistent basis. HM Land Registry has therefore accounted for contributions and payments to these schemes under International Accounting Standard (IAS) 19 Employee Benefits as if they were defined contribution schemes. Liability for the payment of future benefits is a charge on the PCSPS or alpha scheme.

1.8 Property, plant and equipment

Freehold and leasehold land and buildings are professionally valued by external, independent property valuers having appropriate recognised professional qualifications and recent experience in the location and category of the properties being valued. Cushman and Wakefield (Royal Institution of Chartered Surveyors (RICS) registered valuer) carried out a desktop valuation in March 2020.

HM Land Registry is required by the FReM to disclose non-current assets in the Statement of Financial Position at fair value. For assets in use the FReM requires valuation at existing use as an asset’s fair value, rather than market value required by IFRS 13 Fair Value Measurement. Details of FReM adaptations which continue to apply for 2019/20 can be found on GOV.UK (search ‘Financial Reporting Manual 2019/20’).

For short-life non-property assets, historical cost is used as an approximation to the fair value of the asset. Freehold land and buildings and leasehold buildings are included at revaluation less accumulated depreciation and impairment losses. All other tangible non-current assets are included at historical cost less accumulated depreciation and impairment losses.

Assets in the course of construction are not depreciated. For other assets the depreciation charge is calculated so as to allocate the cost or revalued amount, less the estimated residual value, of non-current assets systematically over their remaining useful lives using the straight-line method. Other property, plant and equipment includes IT and office equipment and machinery. HM Land Registry capitalises expenditure over £1,000 for an individual asset. Where appropriate, individual assets falling below the minimum value for capitalisation are grouped. It is HM Land Registry’s policy not to capitalise expenditure on fixtures and fittings, principally office furniture, as they are not considered material.

Asset lives are reviewed at the end of each financial year.

The following asset depreciation rates are used:

Freehold land	Nil
Freehold buildings	Estimated useful life
Leasehold buildings	Period of the lease or estimated useful life
Telecommunications equipment	5 years
Office equipment	5 years
Computers: mainframe	5 years
Computers: PCs	5 years
Structured cabling	10 years
Plant and heavy machinery	10 years

1.9 Impairment of non-current assets

Impairment reviews are undertaken at each year-end and if there are indications the asset has suffered an impairment loss a charge is reflected in the Statement of Comprehensive Income in the year in which it occurs. If the asset is carried at a revalued amount, the impairment loss is treated as a revaluation decrease, to the extent of the revaluation reserve that relates to the asset, with any excess in the Statement of Comprehensive Income. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. The recoverable amount is the higher of fair value less costs to sell and value in use. For assets under development, an annual review is undertaken to confirm that these assets still meet the measurement criteria within IAS 38 Intangible Assets.

1.10 Intangible assets

Software licences

Separately acquired intangible assets are shown at historical cost. The costs incurred to acquire and bring these assets to use are capitalised. These include contractors’ charges, materials, directly attributable labour and directly attributable overhead costs.

Software licences are included at cost less accumulated amortisation. They are amortised on a straight-line basis at a rate of:

Mainframe	5 years
PCs	5 years

Software development costs

In accordance with IAS 38, expenditure incurred on developing new IT infrastructure (covering third-party costs and the direct costs of in-house staff effort) are capitalised. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by HM Land Registry are recognised as intangible assets when:

• it is technically feasible to complete the software product so it will be available for use
• management intends to complete the software product and use or sell it
• there is an ability to use or sell the software product
• it can be demonstrated how the software product will generate probable future economic benefit
• adequate technical, financial and other resources to complete the development and to use or sell the software product are available
• the expenditure attributable to the software product during its development can be reliably measured

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditure that does not meet these criteria is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

All research expenditure is written off as incurred.

Software development costs are categorised as assets under development within note 9.

Local Land Charges

HM Land Registry completed the building and development of a computerised register to hold the Local Land Charges data in July 2018. As of 31 March 2020, the data relating to nine local authorities has been added to the register and is in use.

Under IAS 38, development costs have been capitalised for two separate assets: a database to hold the information; and the data itself, which needs to be cleansed, digitised and migrated to this database. Following commencement of the register service, these components are amortised over their respective useful lives of:

Local Land Charges register	5 years
Local Land Charges data	10 years

1.11 Investment properties

Investment properties are measured at fair value. Any gain or loss on disposal (calculated as the difference between the net proceeds from disposal and the carrying amount of the item) is recognised in profit or loss. When an investment property that was previously classified as property, plant and equipment is sold, any related amount included in the revaluation reserve is transferred to retained earnings (see note 1.8 for details of the valuer engaged).

1.12 Contract assets

Contract assets relate to incomplete applications that have been partially processed and have incurred costs – internal costs of staff and directly attributable overheads. The costs associated with the contract assets are derived from the average costs for producing the relevant service. These estimates, and the underlying assumptions, are reviewed on a regular basis.

1.13 Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for irrecoverable amounts. These impairment provisions are recorded in administrative expenses within the Statement of Comprehensive Income. The carrying amount of trade receivables is deemed to be an approximation of fair value.

If collection of amounts receivable is expected in one year or less they are classified as current assets.

1.14 Cash and cash equivalents

Cash represents cash-in-hand, cash held with the Government Banking Service (GBS) and commercial banks. The commercial bank and GBS deposits are immediately available funds.

1.15 Trade payables

Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are stated at their nominal value. The carrying amount of trade payables is deemed to be an approximation of fair value.

1.16 Provisions

HM Land Registry provides for legal and constructive obligations that are of uncertain timing or amount at the Statement of Financial Position date, on the basis of management’s best estimate at that date of the expenditure required to settle the obligation. As the effect of discounting is immaterial, it is included as part of the revaluation to that provision in year, rather than disclosed on a separate line. Provisions are charged to the Statement of Comprehensive Income and recorded as liabilities in the Statement of Financial Position. (Further details, including sensitivities, are given in note 15.)

1.17 Indemnity Fund

Schedule 8 to the Land Registration Act 2002 requires HM Land Registry to indemnify third parties against loss caused by mistakes in the register, mistakes in search results and loss of documents by HM Land Registry. Most of HM Land Registry’s indemnity claims arise as a result of mistakes in the register, and some of these mistakes are the result of forgery of documents such as charges. Indeed fraud/forgery usually accounts for the largest share of indemnity payments, and this year is no exception. Under Schedule 8 to the Act, HM Land Registry has statutory rights to recover these payments from third parties, where it is the case that third parties are at fault, either wholly or partly, for the loss.

As at the current accounting date, future claim payments are uncertain in timing and amount. The Indemnity Fund is established on the basis of the best estimate of the expenditure required to settle the obligation. The Indemnity Fund is determined after considering actuarial estimates of the cost of claims reported but not settled, as well as claims incurred but not reported. The estimated cost of claims includes expenses incurred in settling these claims.

The carrying amount of the Indemnity Fund is derived from critical judgements, estimates and assumptions based upon historical experience and other factors which are considered to be relevant. These estimates and underlying assumptions are reviewed on a quarterly basis by HM Land Registry, supported by its independent actuary, the Government Actuary’s Department (GAD).

After the accounting date, a further review of claims received by HM Land Registry (up to the date the Accounting Officer approves the Annual Report and Accounts) is made to see if the Indemnity Fund is still appropriately valued. Provided in these accounts are the likely settlement values of current and future claims against the Indemnity Fund. Further details of the Indemnity Fund are shown in note 15.2 of this report.

1.18 Contingent liabilities

Where appropriate, liabilities that have only a possible chance of crystallising and do not meet the provisions criteria have been classified as contingent liabilities. This includes, but is not limited to, claims for losses arising from errors or fraud in relation to HM Land Registry’s statutory responsibility as insurer of titles in England and Wales (see note 17).

1.19 Finance leases

Where HM Land Registry retains all the risks and rewards of ownership of an asset subject to a lease under IAS 17, the lease is treated as a finance lease. Future instalments payable under finance leases, net of finance charges, are included in liabilities with the corresponding asset values recorded in non-current assets and depreciated over the shorter of their estimated useful lives or their lease terms. Lease payments are apportioned between the finance element, which is charged to the Statement of Comprehensive Income as interest, and the capital element, which reduces the outstanding obligation for future instalments.

From 1 April 2021, IFRS 16 will apply to HM Land Registry. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

1.20 VAT

HM Land Registry accounts for VAT on its statutory activities under HM Treasury’s Taxing and Contracting Out of Services Directions. For non-statutory activity – which is business activity – VAT is charged and recovered according to commercial VAT rules. Irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase costs of non-current assets. Where output tax is charged or input tax is recoverable the amounts are stated net of VAT.

1.21 Dividend payments

HM Land Registry was required to pay HM Treasury an annual dividend (being 3.5% of the average capital employed during the financial year plus the latest inflation estimate for the year), provided by the Office for National Statistics (ONS). HM Land Registry considered it sufficient to calculate this figure using an annual average. There was no material impact of calculating this figure using an alternative method, such as a monthly average.

From 1 April 2020, HM Land Registry ceased to be a trading fund and transferred its operational activities into central government. This status change means that no dividend will fall payable in future years.

HM Land Registry paid HM Treasury a special dividend in respect of retained cash reserves and the cancellation of Public Dividend Capital on 31 March 2020.

2. Business segments

IFRS 8 Operating Segments requires analysis of income and expenditure by principal business activities.

There are four separate areas for statutory services carried out by HM Land Registry: registration of title; Local Land Charges (LLC); registration of Land Charges and registration of mortgages made under the Agricultural Credits Act 1928. Registration of title comprises registration change services, guaranteed queries and information services income amounts. For operational purposes, HM Land Registry combines delivery of these latter two services and this is reflected in this segmental analysis. Local Land Charges was recognised as a distinct operating segment during the current financial year, with operational performance benchmarked against the wider business case established.

HM Land Registry also provides a range of commercial services (commercial release of our data) which is shown separately as a business segment.

Detailed in the table below is the income from statutory fees and commercial charges, the cost of service and the operating surplus/(deficit) for each of the business segments. The cost of service and administrative expenses are allocated and apportioned on an appropriate basis for the service.

	Statutory			Non- statutory	2019/20	Statutory		Non- statutory	2018/19
	Registration of title	Land Charges and Agricultural Credits	Local Land Charges	Commercial income	Total	Registration of title	Land Charges and Agricultural Credits	Commercial income	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Income	294,251	7,019	126	4,467	305,863	308,745	7,004	4,504	320,253
Cost of service	(253,911)	(183)	(1,692)	(2,252)	(258,038)	(267,318)	(958)	(2,138)	(270,414)
Administrative expenses	(21,632)	(30)	(4,435)	(348)	(26,445)	(21,405)	(30)	(330)	(21,765)
Operating surplus/ (deficit)	18,708	6,806	(6,001)	1,867	21,380	20,022	6,016	2,036	28,074

The accounting policy for operating segments is referenced within Note 1.5.

2.1 Reconciliation between the operating segments and the Statement of Comprehensive Income

The table below shows the difference between the operating surplus in Note 2 and the operating surplus in the Statement of Comprehensive Income:

	Note	2019/20	2018/19
		£’000	£’000
Total operating surplus reported for operating segments	2	21,380	28,074
Reconciling items:
Miscellaneous income		2,716	2,967
Total operating surplus in the Statement of Comprehensive Income		24,096	31,041

3. Operating surplus

3.1Operating surplus is stated after charging/(crediting):

	2019/20	2018/19
	£’000	£’000
Staff costs (see note 4.1)	225,869	209,166
Provision for indemnity costs (see note 15.2)	(22,200)	4,400
Payments for indemnity including legal costs	5,350	2,620
IT services	14,854	14,835
Hire of machinery	3,032	5,628
Auditor’s remuneration – audit fee	80	98
Depreciation of tangible non-current assets – owned	4,728	4,109
Depreciation of tangible non-current assets – leased	250	241
Amortisation of intangible assets	1,022	2,972
Amortisation – Local Land Charges	3,046	2,092
Impairment in value of non-current assets	531	443
Charge for operating leases – buildings (see note 14.2)	1,627	1,570
Adjudicator costs and other professional fees	12,052	16,904
Accommodation costs	15,970	17,073
Survey and scanning costs	5,185	5,016
File store costs	3,766	3,624
Other costs	9,321	1,388
Total	284,483	292,179

3.2 Restructure and reorganisation costs

			2019/20			2018/19
	Early retirement	Early severance	Total	Early retirement	Early severance	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Costs incurred in year	(3,133)	4	(3,129)	(3,494)	–	(3,494)
	(3,133)	4	(3,129)	(3,494)	–	(3,494)

4. Employee information

4.1 Staff costs

			2019/20				2018/19
	Permanent staff	Apprentices	Others	Total	Permanent staff	Apprentices	Others	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Salaries	167,057	810	1,269	169,136	158,851	3,844	1,416	164,111
Social security costs	16,052	36	103	16,191	15,415	171	117	15,703
Other pension costs	40,097	190	255	40,542	28,476	670	206	29,352
	223,206	1,036	1,627	225,869	202,742	4,685	1,739	209,166

4.2 Staff numbers

The average number of persons employed (Full-Time Equivalent) by HM Land Registry during the year was made up as follows:

			2019/20				2018/19
	Permanent staff	Apprentices	Others	Total	Permanent staff	Apprentices	Others	Total
Senior management	9	–	–	9	9	–	1	10
Operational	4,048	6	28	4,082	3,796	62	39	3,897
Administration	491	4	7	502	466	3	4	473
IT	509	27	7	543	467	18	8	493
	5,057	37	42	5,136	4,738	83	52	4,873

4.3

The salary and pension entitlements of the Chief Executive and the directors of HM Land Registry are included in the Remuneration and staff report on pages 65 to 76.

4.4 Pensions

The Principal Civil Service Pension Scheme (PCSPS) and the Civil Servant and Other Pension Scheme (CSOPS) – known as alpha – are unfunded multi-employer defined benefit schemes but HM Land Registry is unable to identify its share of the underlying assets and liabilities. The scheme actuary, the Government Actuary’s Department (GAD), valued the PCSPS as at 31 March 2016, with the report published on 26 February 2019. You can find details in the resource accounts of the Cabinet Office: Civil Superannuation.

For 2019/20, employers’ contributions of £39.7m were payable to the PCSPS (2018/19 £29.0m) at one of four rates in the range 20.0% to 24.5% of pensionable earnings, based on salary bands.

The Scheme Actuary reviews employer contributions usually every four years following a full scheme valuation. The contribution rates are set to meet the cost of the benefits accruing during 2019/20 to be paid when the member retires and not the benefits paid during this period to existing pensioners.

Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. Employers’ contributions of £0.25m were paid to one appointed stakeholder pension provider. Employer contributions are age-related and ranged from 8% to 14.75%.

Employers also match employee contributions up to 3% of pensionable earnings. In addition, employer contributions of £7,036, 0.5% of pensionable pay, were payable to the PCSPS to cover the cost of the future provision of lump sum benefits on death in service or ill health retirement of these employees.

Contributions due to the partnership pension providers at the balance sheet date were £3.4m. Contributions prepaid at that date were £0. Four individuals retired early on ill-health grounds; the total additional accrued pension liabilities in the year amounted to £12,480 (2018/19: £28,395).

Further information relating to pension arrangements can be found in the Remuneration and staff report on pages 65 to 76 and Note 1.7.

5. Investment income

	2019/20	2018/19
	£’000	£’000
Interest on bank deposits	3,268	3,068

6. Finance costs

	2019/20	2018/19
	£’000	£’000
Interest on obligations under finance leases	605	633

7. Dividend payable and special dividend payable

	2019/20	2018/19
	£’000	£’000
Dividend payable	24,689	27,264
Special dividend payable	483,514	–

HM Land Registry paid a one-off special dividend of £483.5m to HM Treasury on 31 March 2020. This represented the cancellation and repayment of Public Dividend Capital of £61.5m.

The closing balance of Public Dividend Capital as at 31 March 2020 is £nil.

See Note 1.21 for the accounting policy relating to dividend payments.

8. Property, plant and equipment

8.1 Cost or valuation

	Property		Plant and equipment
	Freehold		Leasehold	Assets under construction	IT-related assets	Other plant and equipment	Total
	Land	Buildings	Buildings
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2019	9,795	52,352	13,163	14	71,415	5,339	152,078
Additions	–	–	–	7,867	4,506	526	12,899
Assets brought into use	–	–	–	(7,881)	9,765	–	1,884
Revaluation during the year	2,460	1,829	285	–	–	–	4,574
Impairment	–	(19)	–	–	–	–	(19)
Disposals	–	–	–	–	(2,600)	–	(2,600)
At 31 March 2020	12,255	54,162	13,448	–	83,086	5,865	168,816
Accumulated depreciation
At 1 April 2019	–	19,019	5,911	–	62,670	3,840	91,440
Provided during the year	–	1,394	636	–	3,522	261	5,813
Current cost revaluation	–	(449)	(386)	–	–	–	(835)
Disposals	–	–	–	–	(2,419)	–	(2,419)
At 31 March 2020	–	19,964	6,161	–	63,773	4,101	93,999
Carrying amount at 31 March 2020	12,255	34,198	7,287	–	19,313	1,764	74,817

8.2 Cost or valuation

	Property		Plant and equipment
	Freehold		Leasehold	Assets under construction	IT-related assets	Other plant and equipment	Total
	Land	Buildings	Buildings
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2018	9,025	49,643	13,021	737	65,922	4,967	143,315
Additions	–	–	–	–	2,668	372	3,040
Assets brought into use	–	–	–	(723)	723	–	–
Revaluation during the year	300	1,496	487	–	–	–	2,283
Reclassification of assets	–	–	(300)	–	2,649	–	2,349
Impairment	–	(333)	(10)	–	–	–	(343)
Disposals	(80)	(4)	(35)	–	(547)	–	(666)
Transferred from assets held for sale	550	1,550	–	–	–	–	2,100
At 31 March 2019	9,795	52,352	13,163	14	71,415	5,339	152,078
Accumulated depreciation
At 1 April 2018	–	18,136	5,701	–	60,133	3,602	87,572
Provided during the year	–	1,394	637	–	3,076	238	5,345
Current cost revaluation	–	(510)	(395)	–	–	–	(905)
Reclassification of assets	–	–	–	–	(88)	–	(88)
Disposals	–	(1)	(32)	–	(451)	–	(484)
At 31 March 2019	–	19,019	5,911	–	62,670	3,840	91,440
Carrying amount at 31 March 2019	9,795	33,333	7,252	14	8,745	1,499	60,638

See note 1.8 for details of the property, plant and equipment accounting policy.

See note 1.9 for details of the impairment accounting policy.

See note 8.3 for details of investment properties.

The market value of land and buildings is £42.2m.

At the end of the year, the net amount relating to finance leases within the leasehold carrying amount above was £0.0m, based on external valuations (2018/19: £0.0m).However, there remains a finance lease obligation at 31 March 2020 of £4.3m (see note 14.1).

Valuation of land and property

The outbreak of the coronavirus (COVID-19), declared by the World Health Organisation as a “global pandemic” on 11 March 2020, has impacted global financial markets. Travel restrictions have been implemented by many countries.

HM Land Registry has 14 UK office locations, most offices open for many years. The valuation method for these assets is outlined in the Government Financial Reporting Manual 2019-20 (FReM) which has an adaptation from IAS 16 Property, Plant and Equipment suggesting measurement at current value in existing use. The current value is determined using the comparison method based upon recent rental activities and sales of similar properties (by size, location and condition), with resulting adjustments made for any variations. These values are demand-led, and ideally the UK property market should be stable. However, an impact of COVID-19 may be that working patterns may shift, thus reducing overall demand for office accommodation. This trend may adversely affect the values of the HM Land Registry estate.

HM Land Registry relies upon independent and professional valuation advice but challenges both the assumptions made and where changes occur. If subsequent information demonstrates that the assumptions used in valuations were inaccurate, this would affect the value of property, plant and equipment, revaluation reserve and possibly the financial outturn stated in the Statement of Comprehensive Income for the reporting period.

In making these judgements we are aware that RICS has issued a valuation practice notice which gives guidance to valuers where a valuer declares a material uncertainty attached to a valuation in light of the impact of the coronavirus (COVID-19) on markets. Cushman and Wakefield (RICS registered valuer) carried out a desktop valuation in March 2020. This valuation is based on true uncertainty, in line with RICS guidance issued on 15 April 2020. The valuation has been reflected in the financial statements but it should be noted that there is now greater uncertainty in markets on which the valuation obtained and included is based due to a lack of data at the year-end. Given the judgements made and the uncertainty that COVID-19 presents, we consider there to be a material uncertainty in this valuation at the reporting date.

HM Land Registry uses its offices for the purpose of fulfilling a statutory duty of land and property registration and guarantee of title. The offices are not utilised for their investment potential, and the value of the estate as at 31 March 2020 is £53.8m. The accumulated revaluation reserve is £25.0m, and this represents an unrealised gain of 46% of the total office estate value. Any adverse movement in this total would be charged against the revaluation reserve initially, and while net (liabilities)/assets in the Statement of Financial Position may alter overall, this variation would be unlikely to affect future operational performance as well as short-term and medium-term management decision-making, or materially vary HM Land Registry’s operating model.

8.3 Investment properties

	2019/20	2018/19
	£’000	£’000
At 1 April	2,950	2,750
Revaluation during the year	180	–
Reclassification of assets	–	300
Disposals	–	(100)
At 31 March	3,130	2,950

Investment properties comprises a number of properties that are leased to third parties either in part or whole. The leases have different non-cancellable periods with current break option points ranging from six months to eight years. One lease has an annual rent review period, two are five yearly and one has none. Increases are linked to market rent based on comparables. None have an automatic right of renewal. Further information about these leases is included in note 14.2.

The fair values of investment properties were determined by an external independent property valuer, having appropriate recognised professional qualifications and recent experience in the locations and categories of the properties being valued. The independent valuer provides the fair values of HM Land Registry’s investment properties annually (see note 1.8 for details of the valuer).

The fair values of investment properties are all Level 3 on the fair value hierarchy because they are valued by reference to valuation techniques using inputs that are not based on observable market data.

There were no transfers between Level 2 and Level 3 fair value disclosures during the year.

Each investment property is measured based upon active market prices adjusted where necessary for any difference in nature, location or condition of each specific property. The active market price is the market rent taking into account any expected or anticipated periods of non-occupancy by a future tenant.

9. Intangible assets

9.1 Cost or valuation

	E-security	Portal	Business Gateway	Assets under development	Local Land Charges	Software licences	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2019	9,691	15,967	1,766	5,889	19,113	44,209	96,635
Additions	–	–	–	6,481	2,450	919	9,850
Assets brought into use	–	–	–	(1,884)	(1,461)	1,461	(1,884)
Disposals	–	–	–	–	(1,402)	(5,031)	(6,433)
At 31 March 2020	9,691	15,967	1,766	10,486	18,700	41,558	98,168
Amortisation
At 1 April 2019	9,691	15,967	1,766	–	2,091	41,893	71,408
Charge for the year	–	–	–	–	3,046	1,022	4,068
Disposals	–	–	–	–	–	(4,945)	(4,945)
At 31 March 2020	9,691	15,967	1,766	–	5,137	37,970	70,531
Carrying amount at 31 March 2020	–	–	–	10,486	13,563	3,588	27,637

9.2 Cost or valuation

	E-security	Portal	Business Gateway	Assets under development	Local Land Charges	Software licences	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April 2018	9,691	15,967	1,766	14,995	–	43,049	85,468
Additions	–	–	–	10,007	–	3,809	13,816
Assets brought into use	–	–	–	(19,113)	19,113	–	–
Reclassification	–	–	–	–	–	(2,649)	(2,649)
At 31 March 2019	9,691	15,967	1,766	5,889	19,113	44,209	96,635
Amortisation
At 1 April 2018	9,691	15,967	1,766	–	–	41,012	68,436
Charge for the year	–	–	–	–	2,091	793	2,884
Reclassification of assets	–	–	–	–	–	88	88
At 31 March 2019	9,691	15,967	1,766	–	2,091	41,893	71,408
Carrying amount at 31 March 2019	–	–	–	5,889	17,022	2,316	25,227

See note 1.10 for details of the intangible assets accounting policy.

The e-security, portal and Business Gateway assets had all been fully amortised by the start of the financial year, but are included in the accounts as they are still in use. Assets under development relate to the capitalisation of Local Land Charges costs during the year, case management improvements, mainframe to cloud-based migration and digital mortgage. More details about digital mortgage can be found on GOV.UK (search ‘HM Land Registry digital mortgage service contingent liability’).

10. Contract assets

	2019/20	2018/19
	£’000	£’000
Work-in-progress	9,845	5,670
	9,845	5,670

Contract assets relate to internal costs of staff and directly attributable overheads in preparing completion of registration for the customer.

11. Trade and other receivables

11.1 Current

	2019/20	2018/19
	£’000	£’000
Trade receivables	3,194	3,456
Other receivables	1,561	1,991
Prepayments and accrued income	4,792	4,832
	9,547	10,279

The average credit period taken on provision of services is 4.0 days. No interest is charged on the receivables. An allowance has been made for estimated irrecoverable amounts from the provision of services and this allowance has been determined by reference to past default experience.

Individual application receipts are only processed once the relevant fee has been accounted for. In respect of contract assets, this fee has already been collected and therefore no impairment is recognised. The total collectable is spread over a high volume of different customers with associated low-value fees. Accordingly, the likelihood of non-collection of fees and credit risk exposure have both been determined as insignificant in terms of overall risk, with these assessments unchanged in light of the impact of the coronavirus (COVID-19).

11.2 Non-current

	2019/20	2018/19
	£’000	£’000
Other receivables	180	199
Prepayments	745	1,299
	925	1,498

The carrying amounts of trade and other receivables are deemed to be an approximation of their fair values.

12. Cash at bank and in hand

	2019/20	2018/19
	£’000	£’000
Government Banking Service	2	504,081
Commercial banks and cash-in-hand	20,092	15,717
	20,094	519,798

HM Land Registry’s financial assets are bank balances and cash and trade and other receivables, which represent the maximum exposure to credit risk in relation to financial assets. The credit risk is primarily attributable to trade and other receivables and is spread over a large number of customers. The amounts presented in the Statement of Financial Position are net of allowances for doubtful receivables, estimated by management based on past experience and an assessment of the current economic climate. Credit risk exposure was limited during the current financial year because prior to the payment of the HM Treasury special dividend on 31 March 2020, HM Land Registry’s bank balances were primarily held with the Government Banking Service, with limited funds retained within commercial banking facilities.

13. Trade and other payables

13.1 Current

	2019/20	2018/19
	£’000	£’000
Trade payables	584	738
Taxation and social security	4,087	4,987
Other payables	4,109	3,635
Accruals	34,574	27,542
Net obligations under finance leases – buildings	273	241
Contract liabilities	40,567	23,661
Dividend payable	6,322	6,810
	90,516	67,614

The average credit period taken for trade purchases is 2.5 days. The carrying amounts of trade payables are deemed to be an approximation of their fair values.

13.2 Non-current

	2019/20	2018/19
	£’000	£’000
Net obligations under finance leases – buildings	4,009	4,282
	4,009	4,282

14. Obligations under leases

14.1 Finance leases

	Minimum lease payments		Present value of minimum lease payments
	2019/20	2018/19	2019/20	2018/19
Amounts payable under finance leases	£’000	£’000	£’000	£’000
Within one year	846	846	273	241
In the second to fifth years inclusive	3,384	3,383	1,512	1,333
After five years	3,384	4,230	2,497	2,949
	7,614	8,459	4,282	4,523
Less future finance charges	(3,332)	(3,936)
Present value of lease obligations	(4,282)	4,523
Less amount due for settlement within 12 months (shown under current liabilities)			(273)	(241)
Amount due for settlement after 12 months			4,009	4,282

14.2 Operating leases

Leases as lessee

	2019/20	2018/19
	£’000	£’000
Minimum lease payments under operating leases recognised in the year	1,627	1,570
	1,627	1,570

At the Statement of Financial Position date, HM Land Registry had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	2019/20	2018/19
	£’000	£’000
Within one year	4	267
In the second to fifth years inclusive	1,116	951
After five years	408	409
Total lease payments payable in year	1,528	1,627
Lease payments payable over total lease terms	8,958	9,921

Operating lease payments represent rentals payable by HM Land Registry for land and buildings, including the Nottingham and Peterborough local offices.

Leases as lessor

HM Land Registry leases investment properties (see note 8.3).

At 31 March the future minimum lease payments under non-cancellable leases are receivable as follows:

	2019/20	2018/19
	£’000	£’000
Within one year	–	–
In the second to fifth years inclusive	–	–
After five years	428	398
	428	398

During the year, rental income from investment properties of £0.2m was receivable. Whereas previously the properties were let under Memorandum of Terms of Occupation (MOTO) to other public sector organisations, these are now let on commercial terms.

15 Provisions for liabilities and charges

15.1 Early release schemes and other

	Early retirement	Other	Total	Early retirement	Other	Total
			2019/20			2018/19
	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April	4,911	961	5,872	7,105	445	7,550
Provided in the year	–	–	–	–	721	721
Revaluation of provision	(12)	–	(12)	115	–	115
Provision utilised in the year	(1,311)	(760)	(2,071)	(2,309)	(205)	(2,514)
Provision written back unused	(3,122)	(145)	(3,267)	–	–	–
At 31 March	466	56	522	4,911	961	5,872
Included in current liabilities	461	56	517	3,984	961	4,945
Included in non-current liabilities	5	–	5	927	–	927
			522			5,872

The early retirement provision (ERP) gives retirement benefits to certain employees. These benefits conform to the rules of the Principal Civil Service Pension Scheme (PCSPS). HM Land Registry bears the cost of these benefits until the normal retirement age of the employees retired under the scheme. Total payments in the year amounted to £1.3m in 2019/20, of which £1.3m had been provided for within the ERP provision in the 2019/20 accounts. The total pension liability up to normal retiring age in respect of each employee is charged to the Statement of Comprehensive Income in the year in which the employee takes early retirement and a provision for future pension payments is created. Pension and related benefit payments to the retired employee until normal retiring age are then charged annually against the provision.

Other provisions relate to property dilapidation costs.

15.2 Indemnity Fund

The Land Registration Act 2002 places a legal liability on HM Land Registry to indemnify for losses resulting from errors or omissions on the register of title. This includes errors resulting from frauds perpetrated by third parties. As a statutory insurer of titles in England and Wales, indemnity payments are not confined to mistakes made by HM Land Registry. HM Land Registry provides for these claims under its Indemnity Fund both for known claims and claims incurred but not reported (IBNR).

		IBNR	2019/20	Outstanding provision	IBNR	2018/19
	Outstanding provision	provision	Total		provision	Total
	£’000	£’000	£’000	£’000	£’000	£’000
At 1 April	11,200	84,200	95,400	10,800	80,200	91,000
Provided in the year	5,350	–	5,350	2,620	–	2,620
Provisions utilised in the year	(5,350)	–	(5,350)	(2,620)	–	(2,620)
Claims revaluation	(4,700)	–	(4,700)	400	–	400
IBNR revaluation	–	(17,500)	(17,500)	–	4,000	4,000
At 31 March	6,500	66,700	73,200	11,200	84,200	95,400

Following the actuarial review by the Government Actuary’s Department (GAD), the fund in respect of reported but not settled claims (Outstanding provision) has decreased in 2019/20 by £4.7m (2018/19: £0.4m increase). The provision for claims incurred but not reported (IBNR provision) has decreased in 2019/20 by £17.5m (2018/19: £4.0m increase).

The reason for the £4.7m decrease in outstanding claims is due to a decrease in the value of pending indemnity claims.

The £17.5m IBNR provision movement was as a result of a £17.5m decrease in the IBNR provision due to fraud and error claims having different settlement values, different settlement patterns and lower projected claim numbers.

The Outstanding provision (for claims received but not yet settled) is an estimate and as it involves projecting future payments, the final amounts paid on these claims are uncertain. The main uncertainties are:

• the proportion of outstanding claims that will ultimately be paid
• the value of the payments made
• the effect of any legal judgements

The presence of large outstanding claims can add significantly to this uncertainty.

The IBNR provision is greater and inherently more uncertain than the Outstanding provision. Unlike the Outstanding provision, which is based on existing claims information, the IBNR provision covers potential claims that may be made as a result of errors that have already been introduced into the register as a result of day-to-day update activity (either through fraud and forgery or administrative error). The main uncertainties within the IBNR provision are:

• the number of unreported errors currently within the register is unknown
• at what point in the future these errors will be discovered and claims made
• how much the cost of the corresponding claims will be

Claims can take many years to be reported and subsequently settled.

In estimating the IBNR provision, the actuary projects the number and timing of future claim reports and average claim sizes, using assumptions about claims settlement patterns, the expected effects of any known legal judgements and claims inflation. The resulting projected future claims cash flows are then discounted to a net present value at the accounting date using HM Treasury-prescribed discount rates.

The assumptions used in the projections are based on analysis of historical claims data, allowance for recent trends and consideration of the potential effects of underlying factors such as the volume of HM Land Registry activity and numbers of registered titles. We provide input to the actuary on these assumptions, based on the knowledge of the legal team that handles the claims.

Uncertainty in the provisions – sensitivity analysis

The values of the Indemnity Fund provisions are subject to future uncertain final settlement value, both for known claims and claims incurred but not reported (IBNR). The uncertainty in value of outstanding claims could lead to a variation in the proposed provision. A range of scenarios have been considered in respect of the assumptions on:

• the proportion of claims that settle for zero
• the average claim size
• the HM Treasury prescribed discount rate
• the number of claims that will be received
• the rate of inflation

These scenarios have been considered in isolation and combination as shown in the sensitivity analysis table below.

On the basis of this analysis work it is reasonably foreseeable that the value of liabilities could be in the region of £6.5m (Outstanding provision) or £66.7m (IBNR provision).

It is possible that in extreme favourable scenarios the value of liabilities could be as little as £6.3m (Outstanding provision) and £44.7m (IBNR provision).

We have also considered extreme adverse scenarios, where the value of liabilities is as much as £6.7m (Outstanding provision) and £89.3m (IBNR provision).

The long-term open-ended nature of statutory indemnity means these figures do not represent the maximum possible liability. However, we believe the likelihood of such scenarios to be small.

The degree of uncertainty at future accounting dates may be different from that illustrated here. This could be for a number of reasons, for example because the profile of claims has changed or because the outlook on future claim trends has changed.

At future accounting dates, it should be expected that:

• the outstanding provision will fluctuate depending on the volume of claims reported at the time, especially large claims
• all else being equal, the IBNR provision will increase over time because of inflationary forces
• both the Outstanding provision and the IBNR provision will be particularly sensitive to the number and value of fraud and forgery claims as these are the most financially significant category of claims

The Indemnity Fund provision of £73.2m is a best estimate. Additionally, the future values of Indemnity Fund provisions are subject to inherent uncertainties.

Sensitivity analysis

	2019/20	2019/20	2019/20
	Outstanding provision	Outstanding provision	Percentage movement
	Maximum	Minimum
	£m	£m	%
Provided in these accounts (reasonably foreseeable value – see note 15.2) 6.5		6.5	0
Impact of scenarios
Discount rate
1. Increase Treasury prescribed discount rate by 0.5% pa	–0.1		– 1
2. Decrease Treasury prescribed discount rate by 0.5% pa		0.1	1
Settlement costs
3. Increase settlement costs for the first development year by 5% for error claims	0.1		2
4. Decrease settlement costs for the first development year by 5% for error claims		–0.1	– 2
5. Increase settlement costs for the first development year by 5% for fraud claims	0.2		3
6. Decrease settlement costs for the first development year by 5% for fraud claims		–0.2	– 3
Extreme favourable scenarios
(1) + (4) + (6)		6.3
Extreme adverse scenarios
(2) + (3) + (5)	6.7

	2019/20		2019/20
	IBNR provision		Percentage movement
	Maximum	Minimum	Increase	Decrease
		£m	£m	%
Provided in these accounts (reasonably foreseeable value – see note 15.2)	66.7	66.7	0	0
Impact of scenarios
Favourable but foreseeable scenarios
Nil claims proportion
1. Change the nil claims proportion for attritional claims by +/- 5%	2.7	–2.7	4	– 4
2. Change the nil claims proportion for large claims by +/- 5%	2	–2.0	3	– 3
Average cost per claim
3. Change average cost per claim for attritional error claims by +/- 10%	2	–2.0	3	– 3
4. Change average cost per claim for large error claims by +/- 10%	2	–2.0	3	– 3
5. Change average cost per claim for attritional fraud claims by +/- 10%	2	–2.0	3	– 3
6. Change average cost per claim for large fraud claims by +/- 10%	1.3	–1.3	2	– 2
Discount rate
7. Increase Treasury prescribed discount rate by 0.5% pa		–2.7		– 4
8. Decrease Treasury prescribed discount rate by 0.5% pa	2.7		4
Projected number of IBNR claims
9. Increase projected number of attritional IBNR claims by 10% for incident years since 2013/14	1.3		2
10. Decrease projected number of attritional IBNR claims by 10% for incident years		–1.3		– 2
11. Increase projected number of large IBNR claims by 10% for incident years since 2013/14	1.3		2
12. Decrease projected number of large IBNR claims by 10% for incident years		–1.3		– 2
Future claims inflation
13. Increase assumed future claims inflation by 1%	5.3		8
14. Decrease assumed future claims inflation by 1%		–4.7		– 7
Extreme favourable scenarios
(1)+(2)+(3)+(4)+(5)+(6)+(7)+(10)+(12)+(14)		44.7
Extreme adverse scenarios
(1)+(2)+(3)+(4)+(5)+(6)+(8)+(9)+(11)+(13)	89.3

16. Capital commitments

	2019/20	2018/19
	£’000	£’000
Capital expenditure	750	–
Contracted for but not provided in these accounts	750	–

17. Contingent liabilities

17.1 Indemnity

The Land Registration Act 2002 places a legal liability on HM Land Registry to indemnify for losses resulting from errors or omissions in the register of title. This includes errors resulting from frauds perpetrated by third parties. As a statutory insurer of titles in England and Wales, indemnity payments are not confined to mistakes made by HM Land Registry. HM Land Registry provides for these claims under its Indemnity Fund both for known claims and claims incurred but not reported (IBNR) (see note 15.2) based upon the assumed likelihood that claims will be successful.

As at 31 March 2020, the value of pending indemnity claims made to HM Land Registry is shown below. The estimated settlement value of these claims included within the Indemnity Fund provision is £6.5m (see note 15.2).

Errors or omissions

	2019/20	2018/19
	£’000	£’000
Mistakes	7,064	10,510
Fraud and forgery	15,107	18,967
	22,171	29,477

17.2 Employment tribunals

At 31 March 2020, HM Land Registry has one employment tribunal case, which is considered a contingent liability. At this time, it is not possible to estimate its likely outcome and timing. IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires only the general nature of the dispute to be disclosed.

18. Notes to the Cash Flow Statement

18.1 Reconciliation of operating surplus to net cash inflow from operating activities

	2019/20	2018/19
	£’000	£’000
Operating surplus	24,096	31,041
Impact of changes in accounting policy*	–	(826)
Restructure and reorganisation costs	3,129	3,494
Local Land Charges revenue costs	–	(4,681)
Depreciation of property, plant and equipment	4,978	4,351
Amortisation of intangible assets	4,068	2,972
Impairment in value of non-current assets	512	443
Decrease in provisions	(1,837)	(4,709)
(Increase)/decrease in inventories	(4,176)	978
Decrease/(increase) in receivables	1,306	(485)
Increase in payables	13,521	6,569
(Decrease)/increase in Indemnity Fund	(22,200)	4,400
Net cash inflow from operating activities	23,397	43,547

*The movement in inventories has been restated to reflect the impact of IFRS 15.

18.2 Reconciliation of net cash flow to movement in net cash

	2019/20	2018/19
	£’000	£’000
Net cash at the beginning of the year	519,798	308,739
(Decrease)/increase in cash in the year	(499,704)	211,059
Net cash at the end of the year	20,094	519,798

19. Related party disclosures

In accordance with IAS 24 Related Party Disclosures, as interpreted by the FReM, the following information is provided on related party transactions.

Until 31 March 2020, HM Land Registry was an executive agency, trading fund and government department, with BEIS as the parent department. During the year HM Land Registry had a number of material transactions with other government departments and other central government bodies. Most of these transactions have been with Ordnance Survey and HM Courts and Tribunals Service.

None of the board members, or members of the key management staff or other related parties, have had influence over any material transactions undertaken by HM Land Registry.

20. Events after the reporting period

In accordance with the requirements of IAS 10 Events After the Reporting Period, events after the Statement of Financial Position date are considered up to the date on which the accounts are authorised for issue. This is interpreted as the date of the certificate and report of the Comptroller and Auditor General.