Secretary of State’s Guidance...Loans will be provided at National Loan Fund Rates of interest. 5. 13 Bridging loans can still be accessed for strategic capital purposes, for example,

Secretary of State’s Guidance

under section 42A of the National

Health Service Act 2006

Financial support available to NHS providers

Published July 2020

2

Contents

1. Introduction.. .................................................................................................... 3

2. Summary of policy changes ............................................................................. 4

3. Debt to PDC conversion .................................................................................. 6

4. Cash support for revenue requirements .......................................................... 9

5. Cash support for capital requirements ........................................................... 11

6. Financing from sources outside DHSC group ................................................ 14

7. Annex A: Updated PDC dividend policy ......................................................... 15

3

1. Introduction

1. 1 Under Section 40 of the NHS Act 2006, the Secretary of State may give

financial assistance to any NHS Foundation Trust (“FT”) including Public Dividend

Capital (“PDC”), loans, grants or other payments. The Secretary of State may also

guarantee the payment of any amount payable by an FT under an externally

financed development agreement. He has similar powers to provide financial

assistance to NHS Trusts under Schedule 5 of the NHS Act 2006.

1. 2 As required by section 42A of the NHS Act 2006 (as inserted by section 163

of the Health and Social Care Act 2012), this document provides guidance on how

the Secretary of State may exercise his powers to provide financial assistance to

NHS Trusts and FTs (“providers”).

1. 3 This guidance document has been updated to provide technical detail on the

cash regime changes published by the Department of Health and Social Care

(DHSC) and NHS England and Improvement (NHSEI) on 2 April 2020. It should be

read in conjunction with the NHS Operational Planning and Contracting Guidance

published annually by NHSEI.

1. 4 The new cash regime complements a broader set of changes to the NHS

Financial Framework which includes the introduction of the Financial Recovery Fund

(FRF) and the new NHS capital regime.

1. 5 The updated framework considers providers’ total cash requirements and

requires providers to plan for them. Initially temporary arrangements put in place to

respond to Coronavirus-19 will ensure that providers have the resources they need.

Revenue funding arrangements for the second half of the year will be published

shortly.

1. 6 Providers are expected to have the cash they need through the temporary

Coronavirus-19 arrangements and longer-term changes to the NHS financial

framework. Therefore, any requirement for further DHSC financial support must be

exceptional in nature and beyond the providers ability to manage. This would be an

extremely rare occurrence demonstrating a provider is in financial distress.

Alongside financial support DHSC and NHSEI will consider what other financial or

non-financial interventions are appropriate to improve the provider’s financial

situation under the circumstances.

https://www.england.nhs.uk/wp-content/uploads/2020/04/C0096-Cash-regime-guidance-1-April-2020.pdf

4

2. Summary of policy changes

2. 1 In summary the most significant changes in this document are:

2. 2 Interim revenue loans, including working capital facilities and interim capital

debt at 31 March 2020 are to be extinguished during 2020/21. Providers will be

issued Public Dividend Capital (PDC) to effect the repayment of outstanding

balances at 31 March 2020. Where there is a net change on a distressed provider’s

net deficit due to changes in finance payments to DHSC, the impact of the debt

repayment on PDC dividends will not create a revenue gain or loss to providers in

deficit positions, as adjustments will be made in the wider financial framework to

compensate any differences. For example, this means if a distressed provider sees a

net increase in payments to DHSC following the debt repayment, their Covid-19 top-

up payment and / or FRF allocation will increase. Changes in finance costs occur

because most providers in receipt of loans have paid a lower rate of loan interest

than the PDC dividend rate (3.5%) they would otherwise pay on their net assets. See

section 3 - page 6 for more detail.

2. 3 Cash support for revenue or cashflow requirements will be available as PDC

under exceptional circumstances. Unlike loans, scheduled principal repayments are

not set for PDC but there is a dividend payable at the current dividend rate. See

section 4 - page 9 for more detail.

2. 4 The NHS capital regime will introduce capital spending envelopes; allocated

to regional Sustainability and Transformation Partnerships (STP) and Integrated

Care Systems (ICS) (“STP/ICS”) for local prioritisation of system driven operational

capital expenditure. System driven operational capital will continue to be self-

financed from cash reserves and the depreciation element in tariff. However, as a

transitional measure a limited amount of cash support for emergency capital

requirements will be available with PDC where the budgetary (Capital Departmental

Expenditure Limit - CDEL) impact of any capital spend is prioritised by the STP/ICS

and NHSEI regional team but is unaffordable to individual providers. See section 5 -

page 11 for more detail.

2. 5 By exception, DHSC may also consider requests from providers on a case by

case basis for:

5

a) Capital loans, but only where a provider demonstrates it is clearly

affordable within the overall STP/ICS budget allocation and where

providers evidence they can service loan repayments. See section 5 -

page 12 for more detail.

b) Working capital facilities where providers are not distressed but have an

exceptional short-term revenue or cashflow requirement and can agree to

a fixed repayment date within one year. See section 4 - page 9 for more

detail.

2. 6 PDC dividend changes: See section 7 – page 14 for more detail.

a) Assets under construction (AUC) for specified large, nationally directed

schemes only, will receive PDC dividend relief. Eligible schemes will be

identified by DHSC and notified directly. Providers should not assume

AUC PDC dividend relief in plans unless they have been notified in writing

that their scheme is eligible.

b) Where cash support for revenue and cashflow requirements is drawn, the

value of the support will be added to providers’ net-asset position in the

year it is drawn to cover the opportunity cost of unplanned cash diverted

to support the provider in that year. No adjustment is needed in

subsequent years.

c) DHSC and NHSEI will review the PDC dividend rate as it applies across

the NHS financial architecture in 2020/21.

6

3. Debt to PDC conversion

3. 1 Interim revenue support loans, (including interim support working capital

facilities) and interim capital support loans will be removed from provider balance

sheets in 2020/21. This will be transacted by DHSC issuing PDC to providers which

will finance loan principal repayments.

3. 2 The products captured by the PDC conversion are listed below by product

type and reference codes:

• Interim revenue support loan – ISUCL, ISWBL

• Interim capital support loan – ISCIL

• Interim support revolving working capital facility – ISRWF

• Normal course of business (NCB) working capital facilities/ NCB revenue

loans – but only where providers held an interim support product as listed

above on 31 March 2020.

3. 3 Each product will have a unique reference code, so providers are encouraged

to refer to the list above to assess which type of loans they currently hold. Any

products not included in the list are excluded from the PDC conversion. For the

avoidance of doubt, normal course of business (NCB) capital loans, bridging loans,

and other revenue loans / working capital facilities deemed to be normal course of

business are excluded from the PDC conversion.

3. 4 The eligible loan balances will be reconciled for the year ended 31 March

2020. Once year-end validation processes have been completed eligible loans will

be frozen meaning DHSC will stop charging interest and collecting principal

repayments from 1 April 2020. Interest charges to 31 March 2020 will need to be

paid by 30 September.

3. 5 DHSC will publish validated loan balances for conversion alongside the

Department’s 2019/20 Annual Report and Financial Statements.

3. 6 Removal of debt from provider balance sheets will have financial implications

for providers’ Statement of Net Comprehensive Expenditure as well as the

Statement of Financial Position. Net relevant assets and PDC dividends will no

longer be reduced by debt held and providers will no longer suffer loan interest

payable.

7

3. 7 Where there is a net change on a distressed provider’s net deficit due to

changes in finance payments to DHSC, the impact of the PDC conversion on

dividends will not create a revenue gain or loss to providers in deficit positions, as

adjustments will be made in the wider financial framework to compensate any

differences. Longer term arrangements will be announced alongside the revenue

regime.

3. 8 For example, this means if a distressed provider sees a net increase in

payments to DHSC following the PDC conversion, their Covid-19 top-up payment

and / or FRF allocation will increase. Changes in finance costs occur because most

providers in receipt of loans have paid a lower rate of loan interest than the PDC

dividend rate they would otherwise pay on their net assets.

3. 9 We are aware of a small number of interim capital loans issued to finance

enabling works in advance of STP capital (PDC) being released. The intention was

for these loans to be repaid once the full PDC award was released. These loans will

be converted to PDC now with the final STP award being reduced by the conversion

amount. However, providers that have a Memorandum of Understanding (MoU)

already issued with the full funding STP award should repay any loans issued in

relation to that scheme.

Financial Statements

3. 10 Providers should agree accounting treatment and appropriate disclosures for

their Annual Report and Financial Statements with their local auditors. We do not

expect any adjustment to Statement of Financial Position at 31 March 2020 as a

result of this change. All loans at 31 March 2020 will be repayable in less than one

year. Please refer to DHSC group accounting manual 2019 to 2020: additional

guidance FAQ13.

3. 11 For the avoidance of doubt, the transaction will be a repayment of loans using

PDC issued by DHSC. There should be no impairment of loan balances for 31 March

2020 financial statements and no write off in 31 March 2021 in Financial Statements.

3. 12 If any of these loans are scheduled to expire ahead of 30 September,

providers are not required to request a loan extension.

2020/21 PDC dividend opening adjustment

3. 13 In the PDC dividend calculation, providers should not change their opening

net-asset balance brought forward from 31 March 2020 which will include loans at

that date. However, within the PDC dividend calculation providers should make an

‘opening adjustment’ to remove interim loan balances at 1st April which is the

8

effective date of the conversion. This will ensure the PDC dividend calculation is not

misstated. See PDC dividend policy – section 7.

Further instructions will be issued regarding next steps

3. 14 Before or in August 2020, providers will receive individual letters confirming

loans and amounts being converted to PDC. Given the volume of debt that will be

converted to PDC, the transactions will be phased over a number of months.

Providers will receive details from DHSC and NHSEI via email on the key next steps

and logistical timings.

9

4. Cash support for revenue

requirements

4. 1 Future cash support for revenue requirements and cashflow needs will be

available for necessary and essential expenditure to protect continuity of patient

services. Providers will have to demonstrate their revenue cash requirements to

NHSEI. This support will take the form of PDC where there is no set repayment

schedule but there is a dividend payable at the current dividend rate.

4. 2 Where cash support for revenue and cashflow requirements is drawn the

value of the support will be added to providers’ net-asset position in the year it is

drawn, to cover the opportunity cost of unplanned cash diverted to support the

provider in that year. No adjustment is needed in subsequent years.

4. 3 Following changes to the revenue regime that have been announced the need

for cash support for revenue requirements will become increasingly rare and should

only arise in exceptional circumstances. The temporary block payment and national

top-up arrangements in response to Coronavirus-19 will ensure providers have

sufficient funding to respond to the crisis and in the longer term the introduction of

FRF will take effect once the temporary arrangements end. Revenue funding

arrangements for the second half of the year will be published shortly.

Applying for revenue cash support

4. 4 The current monthly process for accessing revenue support will continue. The

NHSEI capital and cash team [email protected] is the main

contact point for providers. This means submitting requests and supporting

information to NHSEI. The deadline for submitting requests is 4-5 weeks before the

monthly payment date and will be confirmed on a monthly basis. Once NHSEI have

validated the requests, they will be submitted to DHSC for approval and issuance of

PDC on the Monday before the 18th of each month. Providers will be required to sign

a Memorandum of Understanding (MoU).

4. 5 Alongside financial support, DHSC and NHSEI will consider what other

financial or non-financial interventions are appropriate to improve the provider’s

financial situation under the circumstances. If providers apply for revenue cash

support they must work with NHSEI to improve their financial position. DHSC

reserves the right to attach additional conditions to any financing issued.

mailto:[email protected]

10

Working capital facilities

4. 6 The primary route for revenue cash support for providers facing

exceptional financial difficulties should be the monthly PDC process. However,

we may consider specific requests from solvent providers for short term working

capital facilities. This will take the form of a repayable working capital facility with an

interest charge. Providers should speak to their NHSEI regional team who will liaise

with the NHSEI capital and cash team if they require a facility. As a pre-requisite a

provider must provide evidence of the short-term nature of the cash requirement and

a specific repayment date of the loan principal and interest within one year. If there

are any concerns over the ability of the provider to repay the principal and interest

due, DHSC reserves the right to convert the application into a request for cash

support for revenue requirements. In the event of default, any such facility will be

converted into PDC as cash support for revenue requirements.

11

5. Cash support for capital

requirements

5. 1 Cash support for capital requirements available to providers has changed to

complement the changes in the NHS capital regime. Under the new NHS capital

regime STP/ICS have been given affordable CDEL envelopes for system driven

operational capital. All capital expenditure must be managed within the CDEL

allocations given to STP/ICS. DHSC cannot approve requests for financial support

beyond what is affordable in STP/ICS CDEL envelopes.

5. 2 DHSC capital support is for cash only, which will be provided as PDC. This

capital support is restricted to providers with emergency requirements to protect

patient and staff safety, and to ensure continuity of services where the required

expenditure is unaffordable to individual organisations. (See Criteria and evidence

requirement for further details).

5. 3 This means any capital support request must have written confirmation it has

been prioritised by the relevant STP/ICS in agreement with the NHSE/I regional

team before it will be considered for approval.

5. 4 Capital support being provided as PDC is a temporary measure intended to

be phased out over a number of years as the sector returns to financial balance.

Criteria and evidence requirement for capital support

5. 5 Capital support can only be used for remedial works to address any risks to

patients, staff or visitors. A broad outline is set out below of areas of spend

commonly funded. This is not an exhaustive list. We do not expect providers to incur

disproportionate cost to evidence applications.

Specific purpose Evidenced by:

• Equipment replacement

• Fire safety

• Estates/infrastructure works

• Backlog maintenance

• IT failure

• Care Quality Commission (CQC) reports

• Current or impending breaches to: a) health and safety regulations, b) statutory requirements.

• Reports from external safety or advisory bodies

• Asset life exceeding accepted industry standards where this is giving rise to significant and immediate patient, staff and visitor safety risks.

• Description of consequences if support was not provided.

12

Applying for capital cash support

5. 6 Providers will need to submit an application to NHSEI for consideration.

Application templates and further guidance will be distributed by NHSEI to all

providers who have an emergency capital requirement prioritised in their STP/ICS

capital plans. Before applications for capital support are submitted, providers should

work with the NHSEI regional team to establish STP/ICS level affordability of the

required support. Escalation routes are available where there is an immediate safety

risk.

5. 7 NHSEI will evaluate applications considering factors which include but are not

limited to; STP/ICS and regional affordability and STP/ICS prioritisation, statement of

need, deliverability, providers financial position and a capital source and application

of funding statement. NHSEI will also review capital expenditure that providers are

funding from own resources to ensure providers do not self-finance non-urgent

works at the same time as submitting emergency applications for urgent works.

5. 8 Providers receiving capital support must monitor the delivery and success of

the scheme(s) to ensure that the purpose of the award is being met. NHSEI and

DHSC may request information on the delivery of the schemes.

5. 9 Once an STP/ICS has prioritised a request and NHSEI has confirmed the

provider cannot afford to self-finance, PDC will be available for successful

applications.

Other requirements for capital finance

5. 10 DHSC may consider making loans available for other requirements on a case

by case basis. Providers must demonstrate that the CDEL requirement is clearly

affordable within the STP/ICS envelope. There must be evidence to support

affordability of loan and interest repayments.

5. 11 Some common purposes that capital loans may be requested for are set out

in the table below. This is not an exhaustive list. Providers should contact the NHSEI

regional team in the first instance regarding any requirement for a capital loans and

no applications should be submitted to NHSEI capital and cash team without

establishing regional STP/ICS level capital affordability.

13

Specific purpose

Further details

Smaller scale operational capital investment including bridging loans

This is non-strategic spend to help supplement self-financed investment. This allows providers to bring forward spend and finance repayments from depreciation. Bridging loans allow providers to start capital investment before surplus land is sold. The proceeds are used to repay the loan. Availability of capital and bridging loans are subject to STP/ICS CDEL affordability.

Merger and acquisition (M&A) support

There is no central capital budget to support M&A activity. This will be funded from STP/ICS capital envelopes where prioritised. Where the success of a merger is contingent on extra capital funding, providers must request or secure this funding before proceeding with the merger. Further details can be found in the NHS guidance on mergers.

Intra STP/ICS cash transfers through DHSC

DHSC can facilitate cash transfers between providers within a STP/ICS. This is when provider A repays PDC for DHSC to re-issue that PDC to provider B. If required, DHSC can also facilitate the flow of cash back to provider A if provider B is required to repay the PDC in the future.

5. 12 Capital loans may be repayable over any period up to 25 years, subject to the

term not exceeding the useful economic life of any underlying asset or investment.

Loans will be provided at National Loan Fund Rates of interest.

5. 13 Bridging loans can still be accessed for strategic capital purposes, for

example, as enablers to STP capital or Health Infrastructure Plan (HIP) schemes.

Smaller value bridging loans can be considered through the capital loans route

subject to affordability within STP/ICS capital envelopes.

https://improvement.nhs.uk/resources/supporting-nhs-providers-considering-transactions-and-mergers/

14

6. Financing from outside the DHSC

group

6. 1 FTs in distress and NHS Trusts may borrow from private sector sources or

other governmental bodies/departments only if the transaction delivers better value

for money than financing through DHSC. FTs in distress and NHS Trusts must seek

prior approval from DHSC via NHSEI. Similarly, DHSC may also provide guarantees

to providers’ external borrowing.

6. 2 However, in all these cases, because non-government lenders face higher

costs, it is unlikely that there will be a value for money case for borrowing outside of

the DHSC group. Interest rates applied by DHSC can be found on the National Loan

Fund website. Capital investment financed externally consumes capital resource and

will therefore score against the STP/ICS capital envelope in the normal way.

6. 3 External borrowing arrangements that are deemed novel, contentious or

repercussive will require HM Treasury approval.

https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D7A.6

15

7. Annex A – updated PDC dividend

policy

What is Public Dividend Capital?

7. 1 Public dividend capital (PDC) is a unique form of Government financing

provided to public sector organisations. PDC is recorded on the Statement of

Financial Position (SoFP) of providers and is an asset of the Consolidated Fund.

7. 2 Providers should not assume they have automatic right or access to PDC.

Once drawn, it should deliver a rate of return capable of servicing the dividend

charge payable to DHSC. The dividend rate is currently fixed at 3.5% but there is

scope for DHSC to vary the dividend rate to reflect market conditions and investment

patterns. The current rate will be reviewed in 2020/21.

7. 3 The rules governing PDC for NHS Trust and NHS FTs are provided in the

NHS Act 2006. This allows for the use of PDC as originating capital for NHS Trusts,

and initial PDC for NHS FTs. The Act also sets out the Secretary of State’s powers

in determining the conditions under which PDC can be issued. Consequently, with

the consent of the Treasury, the Secretary of State may determine, in respect of an

NHS Trust:

o The dividend which is payable at any time on any PDC issued, or

treated as issued to an NHS Trust or NHS FT under the 2006 Act;

o The amount of any such PDC which must be repaid at any time; and

o Any other terms on which any PDC is issued, or treated as issued.

7. 4 PDC is the DHSC investment in each provider that, although repayable, does

not have a defined repayment schedule so often is not repaid. Therefore, new

issuances of PDC especially for nationally directed schemes are often referred to as

“grants”. But for accounting purposes, it appears in the provider’s taxpayer’s equity

section of the Statement of Financial Position. As PDC has a broad definition in

legislation, DHSC, with the agreement of HMT, can decide how it should be treated

and managed.

PDC dividend charge

7. 5 DHSC group accounting manual (GAM) will have the latest calculation and in-

year updates of the PDC dividend charge.

16

7. 6 The Secretary of State requires that providers pay a PDC dividend based on a

charge of 3.5% on actual average relevant net assets, including subsidiaries (but not

consolidated NHS charities), during the financial year as determined in the

draft/unaudited accounts submitted to NHSEI. Any difference between the amount of

PDC dividend paid (in September and March), and final dividend expense (draft

accounts), for the financial year must be recorded as a receivable or payable in the

SoFP.

7. 7 Once determined for the draft accounts, the PDC dividend expense is not

recalculated to take account of any changes in net assets that may be recognised as

a result of the audit of the accounts, or due to calculation errors subsequently

identified in respect of prior years. The PDC dividend payable (or receivable) is only

adjusted in audited accounts to correct for errors in the calculation of the PDC

dividend itself made in the draft accounts for that reporting year.

7. 8 The calculation of relevant net assets is as follows:

Total public dividend capital and reserves X

Less: Net book value of donated and grant funded assets (X)

Less: Charitable funds (before any consolidation adjustments for charitable

funds)

(X)

Less: Net cash balances in GBS accounts (excluding cash balances in

GBS accounts that relate to a short-term working capital facility)

(X)

Less: Outstanding PDC Dividend prepayments (X)

Plus: Outstanding PDC Dividend payables X

New changes

Less: Approved expenditure on COVID 19 capital assets

Less: Assets under construction for nationally directed schemes

Add: Cash support for revenue requirements PDC drawn in-year

(X)

(X)

X

Total Relevant Net Assets X

17

7. 9 The adjustment to net relevant assets calculation in respect of the

Government Banking Service (GBS) must be calculated on the basis of average

daily cleared balances. In practice therefore, GBS values are not deducted from 1

April and 31 March net relevant assets calculations as spot values at those dates.

Rather, average net relevant assets including GBS for the year is calculated, and

then the average daily cleared GBS balances deducted from that figure to arrive at

the relevant net assets amount for the calculation of the dividend. National Loans

Fund deposits are considered to be analogous to GBS balances for the calculation of

relevant net assets and must also be calculated on an average daily basis.

2020/21 PDC dividend opening adjustment – for debt conversion to PDC

7. 10 In the PDC dividend calculation, providers should not change their opening

net-asset balance brought forward from 31 March 2020 which will include loans at

that date. However, within the PDC dividend calculation providers should make an

‘opening adjustment’ to remove interim loan balances at 1st April which is the

effective date of the conversion. This will ensure the PDC dividend calculation is not

misstated. See worked example below.

Notes explaining changes

Covid-19 assets

7. 11 Certain assets have been purchased in 2019/20 or 2020/21 in response to

COVID-19 and centrally funded with additional PDC where they have been approved

through DHSC and NHSEI national and regional finance teams.

7. 12 Providers will be permitted to make an adjustment to their PDC dividend

calculation in 2020/21 only to remove the value of PDC received to fund assets

acquired through this route and receive relief on the associated PDC dividend

payable. For assets purchased in 2019/20, these should have been excluded from

the net assets calculation as per paragraphs 43-44 in FAQ 4 UPDATED - PDC

Policy Update, DHSC group accounting manual 2019 to 2020: additional guidance.

7. 13 DHSC and NHSEI will compare adjustments in the PDC calculation to

COVID-19 capital spend approvals, evidence of spend and further details of assets

acquired will be requested where these do not match our records. Providers are

required to maintain adequate records and make corrections to PDC calculations in

the event of any errors such as revenue items capitalised in error.

Assets under constriction (AUC)

7. 14 From 1 April 2020 assets under construction for specific nationally directed

schemes will no longer attract a PDC dividend until they are brought into use for the

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878970/dhsc-gam-2019-to-2020-additional-guidance-version-3.pdf

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/878970/dhsc-gam-2019-to-2020-additional-guidance-version-3.pdf

18

purposes intended and reclassified from assets under construction to completed

fixed assets in the providers’ financial statements. This will alleviate revenue

pressures for providers until the asset is operational and generating an income.

7. 15 The relief is solely at the discretion of DHSC, in consultation with NHSEI, but

is targeted at large nationally directed schemes which create material revenue

impacts for providers. Those providers that receive this relief will be informed directly

and Eligible schemes will be notified directly in writing and will need to make

adjustments to their PDC dividend calculation as set out in the example in this

guidance. Providers should not assume AUC PDC dividend relief in plans unless

they have been notified in writing that their scheme is eligible.

7. 16 AUC relief can be claimed prior to final business case (FBC) approval on early

enabling works (either self or PDC financed) or on fees funding that build up the

asset. However, continuation of the relief is subject to providers obtaining relevant

business case approvals in good time and complying with approval conditions set by

NHSEI and DHSC.

7. 17 While this will provide temporary relief for providers engaged in large

nationally directed infrastructure projects, it is essential that recipients make

provision in plans to start making PDC dividend payments on the value of the assets

from the point they are brought into use for the purposes intended and are

reclassified from assets under construction. There will be no further relief from PDC

dividend payments at this point and any provider that fails to make appropriate

provision will not be considered for relief on any future projects. DHSC reserves the

right to collect any under payments of dividends in future years.

7. 18 The DHSC Capital Delivery PMO portfolio will capture and monitor progress

on all schemes in receipt of AUC PDC Dividend relief. In the event of significant

delays to either (a) planned completion of projects (b) obtaining FBC approval if

claiming AUC pre-FBC, DHSC will raise enquiries with the scheme and this could

have implications for PDC relief available to the scheme in future.

7. 19 If the specified AUC were on balance sheet as at 31 March 2020, providers

should make an opening adjustment within the PDC dividend calculation to remove it

as at 1st April 2020. This is the effective date that the relief applies from.

Revenue PDC dividend

7. 20 Where cash support for revenue and cashflow requirements is drawn, the

value of the support must be added to providers' net-asset position to cover the

opportunity cost of unplanned cash diverted to support the provider in that year.

19

7. 21 PDC dividends continue to be collected in the same way in September and

March. Each time a provider draws revenue support PDC, the gross value of

revenue support PDC drawn is added immediately to the provider's net assets. This

will increase the overall dividend payment due, to recoup the opportunity cost which

will be collected in the next PDC dividend payment which covers the date of the

draw. The additional dividend applies to the financial year that the revenue cash

support is drawn and an adjustment should only be made once for each draw.

7. 22 If a provider draws cash support again in subsequent years, the revenue PDC

drawn for that year only should be added to net-assets.

7. 23 The total value of PDC drawn will incur a one-off additional dividend at the

current PDC dividend rate whenever it is drawn in the financial year and is not pro-

rated.

Example calculation of overall dividend payment

7. 24 An example is set out below without AUC relief and revenue PDC dividend

Example calculation: £’000

Opening capital and reserves (including GBS and NLF balances and prior to

consolidation of charitable funds) 123,000

Less: Opening donated and granted assets net book value 3,000

Add: Opening adjustment to remove all interim debt 50,000

Less: Opening adjustment to remove all relevant assets under construction (NBV) 0

Total Opening relevant net assets [A] 170,000

Closing capital and reserves (including GBS and NLF balances and prior to consolidation

of charitable funds) 128,500

Less: Closing donated and granted assets (NBV) and PDC issued for COVID 19 assets 15,000

Less: Relevant assets under construction (NBV) 0

Add: Cash support for revenue requirements PDC drawn in-year 0

Total Closing relevant net assets [B] 113,500

Average relevant net assets (including GBS and NLF) [(A+B)/2]=[C] 141,750

Less: Average daily cleared/available GBS balances and NLF deposits over the year [D] 7,500

Average relevant net assets for PDC dividend calculation [C-D]=[E] 134,250

Total PDC dividend expense [E*3.5%] 4,699

20

Example with AUC relief






Less: Opening adjustment to remove all relevant assets under construction (NBV) 7,000





Less: Relevant assets under construction (NBV) 7,000

Add: Cash support for revenue requirements PDC drawn in-year 0






Example with Revenue PDC dividend






Less: Opening adjustment to remove all relevant assets under construction (NBV) 0





Less: Relevant assets under construction (NBV) 0

21

Add: Cash support for revenue requirements PDC drawn in-year 10,000






Other technical information

7. 25 Where a provider exists for only part of the financial year, the final calculated

PDC dividend should be pro-rated to reflect the number of months the provider was

in existence. Where a provider is formed on or after 1 April, opening net relevant

assets should be calculated after the transfer in of assets and liabilities from any

predecessor bodies. For providers ceasing to exist on or before 31 March, closing

net relevant assets should be calculated before the transfer of assets and liabilities

to any successor bodies.

7. 26 Where an existing provider acquires the services and accompanying net

assets/liabilities of a demising provider towards the start or end of a financial year,

this may have a distorting effect on the PDC dividend calculation. In such

circumstances, closing net relevant assets should exclude the transferred net

assets/liabilities, to initially compute average relevant net assets for the continuing

provider without the effect of the acquisition. The part year effect of the acquired net

assets/liabilities should then be added to the average relevant net assets, before

calculating the 3.5% charge. For example, where an acquisition occurred on 1 July

9/12 of the net relevant assets acquired would be included. In the subsequent

financial year, opening net relevant assets should relate to the full asset base of the

enlarged provider.

22

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