Corporate report

Notes to the Accounts

Published 9 June 2022

1. Statement of accounting policies

The financial statements have been prepared in accordance with the 2021-22 Government Financial Reporting Manual (FReM) issued by HMT. The accounting policies contained in the FReM apply 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 which is judged to be most appropriate to the particular circumstances of the Government Legal Department (GLD) for the purpose of giving a true and fair view has been selected. The particular policies adopted by GLD are described below. They have been applied consistently in dealing with items considered material in relation to the Accounts.

In common with other government departments, the future financing of the department’s liabilities is to be met by future grants of Supply and the application of future income, both to be approved annually by Parliament. After making enquiries, the Accounting Officer has a reasonable expectation that the department has adequate resources to continue in operational existence for a period of at least 12 months from the date the financial statements are authorised for issue.

The going concern basis of accounting for the department is adopted in consideration of the requirements set out in HM Treasury’s Government 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. For the above reasons it has been considered appropriate to adopt a going concern basis for the preparation of these financial statements.

1.1 Accounting convention

These Accounts have been prepared under the historical cost convention and where material modified to account for the revaluation of property, plant and equipment and intangible assets at their value to the business by reference to their current costs.

1.2 Significant judgments and estimates

The judgments applied to non-current asset balances with regard to asset lives and impairment reviews are set out in the separate accounting policies on these assets.

Most of the larger accruals included in the accounts within the working capital balances are routine and are based on system data rather than being the result of estimates or judgments applied by management. The main exception to this is the accrual included for legal disbursement costs yet to be invoiced to the department. As most of these costs are recharged to the department’s clients both an expenditure and income accrual are included in the financial statements (£5.9m and £5.8m respectively), so the overall impact on net operating income is largely neutral. The accrual is based on an estimate of the level of outstanding disbursements costs at the financial year-end using historical transaction data. Actual results may differ from these estimates.

Provision balances are also subject to management estimates on the level of leasehold dilapidations. These balances are not currently significant.

1.3 Income

Income relates directly to the operating activities of the department. It principally comprises fees and charges for legal services provided during the year by GLD to the other central government departments, agencies and arm’s length bodies and recovery of disbursements incurred on their behalf. Fees and charges are set in accordance with HMT guidance set out in Managing Public Money.

In addition, it includes other income such as charges for the administration costs of the Bona Vacantia Division, rental income and service charge, recovery of costs for recruitment and training services provided to other government departments.

This income has been recognised as follows in line with IFRS 15 principles:

• Fees for legal services which are charged as a fixed annual fee for the service provided in that year have been recognised in full for that financial year on the basis that when the year comes to an end the service has been fully provided.
• Fees for legal services which are charged on an hourly basis for provision of advice/casework have been recognised in line with the hours recorded by staff on chargeable work.
• Fees charged to recover costs incurred by GLD where it has been agreed that these will be passed straight onto customers are recognised in line with when those costs have been recognised by GLD.

Work in progress is recognised as operating income as incurred. This represents unbilled time charges which are valued at the appropriate rate, for the financial year in which the work was undertaken and the accrued cost of disbursements.

1.4 Property, plant and equipment

Assets are carried at current value in existing use using depreciated historic cost as a proxy. The need for impairment is considered on an annual basis. Expenditure on plant, property and equipment over £5,000 is capitalised on an individual or group basis. On initial recognition they are measured at cost including any costs (such as installation) directly attributable to bringing them into working condition.

1.5 Depreciation

Plant, property and equipment are depreciated at rates calculated to write them down on a straight-line basis over their estimated useful lives. Leasehold improvements are depreciated over the term of the lease. Assets under construction are not depreciated until they are in use. Once in use they are depreciated over their expected useful life.

Asset lives are normally within the following ranges:

• Leasehold improvements limited to period remaining on lease (up to 10 years)
• Furniture and fittings 3, 5 or 10 years
• ICT network 3 to 5 years

1.6 Intangible assets

Purchased and internally developed software, purchased software licences and website costs are capitalised as intangible assets and are valued at depreciated historic cost as a proxy for fair value. The need for impairment is considered on an annual basis.

Intangible assets under construction are not amortised until they are in use. Once they are in use, they are amortised over the life of the associated project or their expected useful economic life. Asset lives are normally within the following ranges:

• Software development 3 to 5 years
• Software licences 3 to 5 years
• Website costs 5 years

1.7 Debt recovery

All aged debt is regularly reviewed to ascertain the continuing prospect of recovery and that it remains economical to continue to pursue recovery. Where recovery is considered doubtful or uneconomic, the department will provide for or write-off the debt by reducing the value of debtors within the Statement of Financial Position.

1.8 Pensions

Past and present employees are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS). This is a multi-employer scheme and it is not possible to separate the assets and liabilities, and is therefore accounted for in the same manner as defined contribution schemes. The defined benefit schemes are unfunded and are non-contributory except in respect of dependants’ benefits. The department recognises the expected cost of providing pensions on a systematic and rational basis over the period during which it benefits from employees’ services by payment to the PCSPS of amounts calculated on an accruing basis. Liability for payment of future benefits is a charge on the PCSPS. In respect of the defined contribution schemes, the department recognises the contributions payable for the year.

1.9 Contingent liabilities

Contingent liabilities are disclosed, where applicable, in the notes to the Accounts in accordance with IAS 37. Remote contingent liabilities that are not required to be disclosed by IAS 37 but are required to be reported to Parliament, where applicable, are included in the Accountability Report.

1.10 Leases

Operating lease rentals are charged to the Statement of Comprehensive Net Expenditure in equal amounts over the lease term from the date of occupation. Future payments as disclosed in Note 13 (Commitments under operating leases) are not discounted. The department does not hold any finance leases.

1.11 Taxation

Where VAT is recoverable by the department, amounts are included net of VAT. Irrecoverable VAT is included in operating costs and capital additions. The amount due to or from HM Revenue and Customs in respect of VAT is included within debtors or creditors as appropriate. Operating income is stated net of VAT.

1.12 Third party assets

The department holds various funds on behalf of its clients. These relate to ongoing legal processes. These balances are not recognised in the Statement of Financial Position but are disclosed in Note 16 to these Accounts.

1.13 IFRS issued but not yet effective

IFRS 16 Leases is effective for periods beginning on or after 1 January 2019. The new standard will be implemented from 1 April 2022 for government departments and reflected in the FReM from 2022-23. IFRS 16 Leases supersedes IAS 17 Leases and provides a single lessee accounting model and requires a lessee to recognise assets and liabilities for leases which last over 12 months, largely eliminating the current ‘off-balance sheet’ treatment of operating leases under IAS 17.

The department has assessed the impact that the application of IFRS 16 will have on the comprehensive net expenditure for the financial year ending 31 March 2023 and on the Statement of Financial Position at that date. The figures below are for existing leases as at 31 March 2022. The standard is expected to increase total expenditure in 2022-23 by approximately £0.3m. The right of use asset is expected to increase assets by approximately £34.3m, whilst the associated lease liability will increase liabilities by approximately £33.5m.

We have applied the practical expedient to take forward the previous identification of leases under IAS17 known as “grandfathering”. No exemptions were applied.

	2022-23
	£000
SoCNE Impacts IFRS 16:
Depreciation expected - 2022-23	7,626
Interest expense expected - 2022-23	326
Unwinding of IAS17 prepayment	189
IAS 17 basis rental payments expected - 2022-23	(7,860)
Increased expenditure	281
SoFP Impacts IFRS 16:
Right to Use Asset – 1 April 2022	34,329
Lease Liability – 1 April 2022	(33,495)

1.14 Operating segments

GLD’s income primarily relates to fees and charges for legal services provided during the year to clients from central government departments, agencies and ALBs. Government is treated as a single customer and therefore is treated as a single operating segment for reporting purposes.

2. Staff costs

			2021-22	2020-21
	Permanently employed staff	Others	Total	Total
	£000	£000	£000	£000
Wages and salaries	132,887	-	132,887	130,621
Social security costs	15,136	-	15,136	14,303
Other pension costs	35,772	-	35,772	34,021
Historic pension underpayment*	-	-	-	1,263
Sub Total	183,795	-	183,795	180,208
Agency and contracted staff	-	19,896	19,896	16,905
Inward Secondments	-	416	416	483
Total	183,795	20,312	204,107	197,596

No staff costs have been charged to capital.

*A payment was made to PCSPS in respect of an historic pension underpayment in 2020-21.

3. Other expenditure

	2021-22	2020-21
	£000	£000
Rentals under operating leases
Hire of plant and machinery	127	303
Other operating leases	9,129	7,735
	9,256	8,038
Non-cash items
Depreciation	2,454	2,667
Amortisation	388	382
External auditors’ remuneration*	72	71
	2,914	3,120
Purchase of goods and services
IT and communications costs	5,740	4,185
Accommodation	4,092	4,485
Library information services	3,309	3,195
Training	1,759	1,471
Recruitment	1,435	1,376
Professional and external HR services	834	945
Consultancy	342	111
Postal services	255	266
Records management	149	136
Welfare supplies and consumables	149	103
Travel and subsistence	88	125
Other	1,441	1,520
	19,593	17,918
Total other expenditure	31,763	31,763

*External auditors’ remuneration represents the notional audit fees of £72k (2020-21: £71k) for the Government Legal Department Account. No non-audit services were provided during the financial year.

4. Disbursements

	2021-22	2020-21
	£000	£000
Recoverable from client departments	39,921	35,723
Funded from Supply	474	284
Disbursements recovered from fixed fees	2,953	1,965
Gross expenditure	43,348	37,972

5. Income

	2021-22	2020-21
	£000	£000
Income from sales of goods and services:
Legal fees and charges to clients	243,259	224,901
Disbursement income	39,921	35,723
LION Subscription	1,484	1,480
	284,664	262,104
Other operating income:
Recovery of costs Bona Vacantia	4,865	4,811
Recovery of secondments out	164	800
Rental income	127	127
Other income	1,413	791
	6,569	6,529
Total income	291,233	268,633

6. Property, plant and equipment

	Leasehold improvements	ICT Network	Furniture and Fittings	2021-22 Total
	£000	£000	£000	£000
Cost or Valuation
At 1 April 2021	3,774	6,689	2,087	12,550
Additions	9	1,579	-	1,588
At 31 March 2022	3,783	8,268	2,087	14,138
Depreciation
At 1 April 2021	1,195	4,478	554	6,227
Charge in year	550	1,550	354	2,454
At 31 March 2022	1,745	6,028	908	8,681
Carrying amount at 31 March 2022	2,038	2,240	1,179	5,457
Asset financing
Owned	2,038	2,240	1,179	5,457
At 31 March 2022	2,038	2,240	1,179	5,457

	Leasehold improvements	ICT Network	Furniture and Fittings	2020-21 Total
	£000	£000	£000	£000
Cost or Valuation
At 1 April 2020	4,127	5,859	2,344	12,330
Additions	(124)	830	(257)	449
Disposals	(229)	-	-	(229)
At 31 March 2021	3,774	6,689	2,087	12,550
Carrying amount at 31 March 2021	2,579	2,211	1,533	6,323
Asset financing
Owned	2,579	2,211	1,533	6,323
At 31 March 2021	2,579	2,211	1,533	6,323

	2021-22	2020-21
Cash flow analysis for property, plant and equipment	£000	£000
Property, plant and equipment additions	1,588	449
Movement in accruals for property, plant and equipment	(256)	570
Cash flows for property, plant and equipment	1,332	1,019

Additions were negative for some categories at 31 March 2021 due to revisions to cost estimates for assets capitalised in 2019-20 relative to the amounts accrued at 31 March 2020.

7. Intangible assets

	Software licences	2021-22 Total
	£000	£000
Cost or Valuation
At 1 April 2021	1,602	1,602
Additions	-	-
At 31 March 2022	1,602	1,602
Amortisation
At 1 April 2021	863	863
Charge in year	388	388
At 31 March 2022	1,251	1,251
Carrying amount at 31 March 2022	351	351

	Software licences	2020-21 Total
	£000	£000
Cost or Valuation
At 1 April 2020	1,252	1,252
Additions	350	350
At 31 March 2021	1,602	1,602
Amortisation
At 1 April 2020	481	481
Charge in year	382	382
At 31 March 2021	863	863
Carrying amount at 31 March 2021	739	739

	2021-22	2020-21
Cash flow analysis for intangible assets	£000	£000
Intangible asset additions	-	350
Movement in accruals for intangible assets	-	-
Cash flows for intangible assets	-	350

8. Financial instruments

As the cash requirements of the department are primarily met from income from clients (other government departments) and a limited amount through the Estimates process, financial instruments play a more limited role in creating risk than would apply to a non-public sector body of a similar size. The majority of financial instruments relate to contracts to buy in non-financial items in line with the department’s expected purchase and usage requirements and the department is therefore exposed to little credit, liquidity or market risk.

9. Trade receivables and other current assets

Analysis by type	31 March 2022	31 March 2021
	£000	£000
Amounts falling due within one year:
Unbilled time	7,659	7,395
Unbilled disbursements	10,433	10,565
Trade receivables	23,513	24,093
Deposits and advances	198	238
Prepayments and accrued income	3,927	4,569
	45,730	46,860

10. Cash and cash equivalents

	2021-22	2020-21
	£000	£000
Balance at 1 April	1,678	5,672
Net change in cash and cash equivalents	25,367	(3,994)
Balance at 31 March	27,045	1,678

11. Trade payables and other current liabilities

Analysis by type	31 March 2022	31 March 2021
	£000	£000
Amounts falling due within one year:
VAT	9,826	6,880
Other taxation and social security costs	4,133	3,997
Trade payables and other payables	161	262
Accruals and deferred income	21,308	19,502
	35,428	30,641
Excess cash surrenderable to the Consolidated Fund	27,045	1,678
Total payables and other current liabilities	62,473	32,319

12. Provisions for liabilities and charges

	2021-22	2020-21
	Total	Total
	£000	£000
Balance at 1 April	388	388
Provided in the year	-	-
Balance at 31 March	388	388

Analysis of expected timing of cash flows	2021-22	2020-21
	Total	Total
	£000	£000
Not later than one year	-	103
Later than one year and not later than five years	388	-
Later than five years	-	285
	388	388

Explanatory notes

12.1 Dilapidations

A provision has been made for dilapidations obligations.

13. Commitments under operating leases

Total future minimum lease payments under operating leases are given in the table below for each of the following periods.

		2021-22		2020-21
	Buildings	Other	Buildings	Other
	£000	£000	£000	£000
Obligations under operating leases for the following periods comprise:
Not later than one year	7,826	-	8,108	140
Later than one year and not later than five years	26,677	-	30,145	-
Later than five years and not later than ten years	-	-	14,405	-
	34,503	-	52,658	140

14. Contingent liabilities

There were no contingent liabilities as at 31 March 2022 (31 March 2021: £nil).

15. Related party transactions

The department has had a significant number of material transactions with other government departments and public agencies since the nature of the department’s business is to provide legal services to central government. The Treasury Solicitor, by virtue of the Treasury Solicitor Act 1876, is also the Crown’s Nominee.

None of the Board Members, or key managerial staff has undertaken any material transactions with GLD during the year. Board Members’ remuneration is disclosed in the Remuneration Report.

The former Solicitor General, Lucy Frazer QC MP is married to the Chief Executive of Alexander Mann Solutions Ltd (AMS). AMS are contracted under a Crown Commercial Service framework arrangement to source contractors and temporary workers. In the current financial year GLD paid £14.3m to AMS. The majority of this cost relates to payments to agency staff but an element of this cost covers the services provided by AMS to source these temporary workers.

16. Third party assets: client monies

Funds are required in advance from clients to enable settlement of awards for damages and contributions toward the cost of court proceedings. The department places these funds on deposit until the final costs of a case have been calculated and settled. These are not departmental assets, as the funds are held on behalf of third parties and as a consequence do not appear in these Accounts. As at 31 March 2022, these amounted in total to £14,654k (31 March 2021: £12,183k). An analysis of the movements on these funds is shown in the below:

	2021-22	2020-21
	£000	£000
Opening balance at 1 April	12,183	18,610
Gross inflows	163,274	117,415
Gross outflows	(160,803)	(123,842)
Closing balance at 31 March	14,654	12,183

These balances are held with the Government Banking Service.

17. Events after the reporting period

In accordance with the requirements of IAS 10, events after the reporting period 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. There are none to report.