| Description | Capital charging regime for NHSScotland bodies |
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| ISBN | N/A |
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| Official Print Publication Date | |
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| Website Publication Date | June 23, 2003 |
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Capital charges in the NHS were first introduced on 1
April 1991, subsequent to the White Paper "Working for
Patients". The objectives of capital charging are to
promote an awareness of the true cost of capital; improve
decision making on asset acquisition and disposal; promote
an efficient use of assets; and recognise the cost of
capital.
For NHS bodies in Scotland, capital charges are taken to
mean depreciation and amortisation and a return on the cost
of capital charged annually to the Operating Cost
Statement.
Details of
the procedures to be applied in calculating capital charges
can be found in
the Capital Accounting Manual issued by SEHD.
Depreciation is a measure of the cost or revalued amount
of tangible fixed assets that have been consumed during the
period. Depreciation is the term normally applied to
tangible fixed assets, while amortisation is used in
respect of intangible assets - the two terms are otherwise
equivalent. NHS bodies are required to maintain fixed asset
registers to record the value of fixed assets to be used
for the calculation of depreciation and amortisation.
The cost of capital charge (currently 3.5%) is applied
to the average net relevant assets (NRA) of the body to
determine the cost of capital for an accounting period. The
cost of capital charge is applied to most assets and
liabilities in the balance sheet, with liabilities
attracting a negative charge (i.e. a credit). The cost of
capital charge ensures an appropriate return on taxpayers'
equity. Balances with OPG and donated assets are excluded
from the calculation since these do not entail disbursement
of public funds.
The SEHD require all health bodies to submit Capital
Charges estimates for the following financial year no later
than the preceding February. All anticipated asset
transactions will need to be predicted up to 15 months
ahead and realistic estimates are required for budgeting
purposes. Funding for capital charges has been frozen since
1998-99 and is incorporated within bodies' Revenue Resource
Limits.