The Directors present their Strategic report and financial statements for the year ended 31 December 2020.
Capita Translation and Interpreting Limited (“the Company”) is a subsidiary (indirectly held) of Capita plc. Capita plc and its subsidiaries are hereafter referred to as “the Group”. The Company operates within the Group's Specialist Services division.
As shown in the Company's income statement on page 10, the Company's revenue has decreased from £15,888,588 in 2019 to £15,429,488 in 2020, while the operating profit has decreased from £770,688 in 2019 to £628,769 in 2020. Revenue was impacted early on in 2020 by the COVID pandemic, most notably within the Interpreting business. However this stabilised quickly as remote interpreting grew quickly in response to the COVID restrictions. This has resulted into marginal decrease in operating profit.
During the year, the Company received a dividend of US$368,186 (£295,803) from its subsidiary Capita Translation and Interpreting LLC on 16 March 2020, which was satisfied in specie via an intragroup loan for the same amount. Capita Translation and Interpreting LLC then reassigned the obligations to settle the intragroup loan arising from the dividend to Capita Translation and Interpreting (USA) LLC (a fellow subsidiary of Capita plc) by way of a novation agreement in exchange for settlement of an intragroup loan for the equivalent amount between those two entities.
The balance sheet on pages 11 - 12 of the financial statements shows the Company's financial position at the year end. Net liabilities have decreased from £2,586,311 in 2019 to £1,786,064 in 2020 due to profits generated during the year. Details of amounts owed by/to its parent Company and fellow subsidiary undertakings are shown in notes 13 and 15 to the financial statements.
Key performance indicators used by the Group are operating margins, free cash flow, capital expenditure and return on capital employed. Capita Plc and its subsidiaries manage their operations on a divisional basis and as a consequence, some of these indicators are monitored only at a divisional level. The performance of the Specialist Services division is discussed in the Group's annual report which does not form part of this report.
Principal risks and uncertainties
The Company is subject to various risks and uncertainties during the ordinary course of its business, many of which result from factors outside of its control. The Company’s risk management framework provides reasonable (but cannot provide absolute) assurance that significant risks are identified and addressed. An active risk management process identifies, assesses, mitigates and reports on strategic, financial, operational and compliance risk.
The principal themes of risk for the Company are:
Strategic : changes in economic and market conditions such as contract pricing and competition.
Financial : significant failures in internal systems of control and lack of corporate stability.
Operational: including recruitment and retention of staff, maintenance of reputation and strong supplier and customer relationships, operational IT risk, and failures in information security controls.
Compliance: non-compliance with laws and regulations. The Company must comply with an extensive range of requirements that govern its business.
To mitigate the effect of these risks and uncertainties, the Company adopts a number of systems and procedures, including:
Regularly reviewing trading conditions to be able to respond quickly to changes in market conditions.
Applying procedures and controls to manage compliance, financial and operational risks, including adhering to an internal control framework.
Capita plc has also implemented appropriate controls and risk governance techniques across all of our businesses which are discussed in the Group’s annual report which doesn’t form part of this report.
Section 172 Statement
Capita plc’s section 172 statement applies to both the Division and the Company to the extent it relates to the Company’s activities. Common policies and practices are applied across the Group through divisional management teams and a common governance framework. The following disclosure describes how the Directors have regard to the matters set out in section 172(1a) to (f) and forms the Directors’ statement as required under section 414CZA of the Companies Act 2006.
Further details of the Group’s approach to each stakeholder are provided in Capita plc’s section 172 statement on pages 38 and 39 of Capita plc’s 2020 Annual Report.
Our People What matters to them?
How we engaged? Topics of Engagement
Outcomes and actions
Key Metrics |
Flexible working, learning and development opportunities leading to career progression, fair pay and benefits as a reward for performance, two-way communication, and feedback. People surveys, regular all-employee communications. Protection of employees during Covid-19, human resources policies during Covid-19, future ways of working as a result of Covid-19, and creating an inclusive workplace. Issue of Capita specific Covid-19 guidance and regular updates, new and temporary human resource policies (eg. furlough and flexible working). Employee net promoter score, people survey completion level. |
Clients and Customers What matters to them?
How we engaged? Topics of Engagement
Outcomes and actions
Key Metrics |
High-quality service delivery, sustainability, and rapid response to support pandemic planning. Client meetings and surveys, regular meetings with key clients and customers. Remote working on client services as a result of Covid-19, current service delivery, possible future services, and co-creation of client value propositions. Receipt of regular detailed feedback summaries, application of standard Capita plc policies and procedures which includes the establishment of the Group contract review committee to ensure delivery against contractual obligations. Customer net promoter score, specific feedback on client engagements. |
Supplier and Partners What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Key Metrics |
Payments made within agreed payment terms, clear and fair procurement process, building lasting commercial relationships, and working inclusively with all types of business. Supplier meetings throughout the source to procure process, regular reviews with suppliers, and supplier questionnaires. Supplier payments, sourcing requirements, supplier performance, and the Supplier Charter. Alignment of payments with agreed terms, supplier feedback on improvements to the procurement process, improvement plans and innovation opportunities, and improved adherence to the Supplier Charter. Percentage of supplier payments within agreed terms, supplier relationship management feedback score, and supplier diversity profile. |
Society What matters to them?
How we engaged?
Topics of Engagement
Outcomes and actions
Key Metrics |
Social mobility, youth skills and jobs, digital inclusion, diversity and inclusion, climate change, and business ethics. Membership of non-governmental organisations, and charitable and community partnerships. Youth employment, tackling digital exclusion, workplace inequalities, and carbon reduction targets. Implementation of real living wage, youth and employability programme, and commitments to tackle racism and enhance ethnic diversity. Percentage reduction in carbon footprint, amount of community investment, and responsible business report 2020: capita.com/responsiblebusiness. |
On behalf of the Board
The Directors present their Directors' r eport and f inancial statements for the year ended 31 December 2020.
The results for the year are set out on page 10.
No interim or final dividend was paid or proposed during the year (201 9 : £ n il).
The Directors who held office during the year and up to the date of signature of the financial statements were as follows:
KPMG LLP , have indicated its willingness to continue in office and will be deemed to be reappointed as auditor under section 487(2) of the Companies Act 2006.
The directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced Disclosure Framework .
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and reliable;
state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;
assess the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
use the going concern basis of accounting unless they either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We have audited the financial statements of Capita Translation and Interpreting Limited (“the company”) for the year ended 31 December 2020 which comprise the Income Statement, the Balance Sheet, the Statement of Changes in Equity and related notes, including the accounting policies in note 1.
Basis for opinion
Material uncertainty related to going concern
We draw attention to note 1.1 to the financial statements which indicates that the Company is reliant on its ultimate parent undertaking, Capita plc, in regard to its ability to continue as a going concern. The most recent financial statements of Capita plc include material uncertainties that may cast significant doubt on its ability to continue as a going concern. The reliance of the Company on Capita plc accordingly means that these events and conditions constitute a material uncertainty that may cast significant doubt on the Group’s and in turn, the Company’s ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
Enquiring of directors and inspection of policy documentation as to the Company’s high-level policies and procedures to prevent and detect fraud, including the Company’s channel for “whistleblowing” as well as whether they have knowledge of any actual, suspected or alleged fraud.
Reading Board minutes.
Considering remuneration incentive schemes and performance targets for management.
Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.
As required by auditing standards, and taking into account possible pressures to meet profit and revenue targets, we perform procedures to address the risk of management override of controls, in particular the risk that management may be in a position to make inappropriate accounting entries.
On this audit we do not believe there is a fraud risk related to revenue recognition because the Company has simple revenue streams with limited complexity around revenue recognition.
We did not identify any additional fraud risks.
We performed procedures including identifying journal entries and other adjustments to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management and those posted to unusual accounts.
Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors and other management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, anti-bribery and employment law, recognising the nature of the Company’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
The directors are responsible for the strategic report and the directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.
Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:
we have not identified material misstatements in the strategic report and the directors’ report;
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
The income statement has been prepared on the basis that all operations are continuing operations.
There are no recognised gains and losses other than those passing through the income statement .
Share capital
The balance classified as share capital is the nominal proceeds on issue of the C ompany's equity share capital, comprising 100 ordinary shares.
Share premium
The amount paid to the Company by shareholders, in cash or other consideration, over and above the nominal value of the shares issued to them.
Capital redemption reserve
The C ompany can redeem shares by repaying the market value to the shareholder, whereupon the shares are cancelled. Redemption must be from distributable profits. The Capital redemption reserve represents the nominal value of the shared redeemed.
Retained deficit
The balance in retained deficit pertains to net losses accumulated in the Company.
Capita Translation and Interpreting Limited is a company incorporated and domiciled in the U nited K ingdom .
In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2020, the Company’s Directors (“the Directors”) are required to consider whether the Company can continue in operational existence for the foreseeable future, being a period of at least 12 months following the approval of these accounts. The Directors have concluded that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, and sensitivities, as set out below.
Board assessment
Base case scenario
The financial forecasts used for the going concern assessment are derived from the 2021-2023 business plans (‘BP’) for the Company which have been subject to review and challenge by management and the Directors. The Directors have approved the projections. The BP captures the benefits that the Capita group-wide transformation plan is anticipated to deliver, including sales growth together with margin improvements and cost out targets, and the costs to achieve these. Covid-19 has introduced unprecedented economic uncertainties and has led to increased judgement particularly in forecasting future financial performance. The forecast impact of Covid-19 has been incorporated within the base case forecasts, however the continuing uncertainty over how the Covid-19 pandemic might evolve, including the speed and timing of economic recovery, makes precise forecasting challenging.
Severe but plausible downside
In addition to the base case, the Directors considered severe but plausible downside scenarios, recognising the execution risk associated with the transformation programme and the broader uncertainty arising from Covid-19. The downside scenarios include trading downside risks, which assumes the transformation plan is not successful in delivering the anticipated revenue growth, together with increased attrition, and further impacts of Covid-19. In addition, the downside scenario includes potential adverse financial impacts that could arise from unforeseen operational issues leading to contract losses and cash outflows.
Offsetting these risks the Directors have considered available mitigations within the direct control of the Company, including continued reductions to variable pay rises, setting aside any bonus payments and limiting discretionary spend.
Finally, the assessment has considered the extent to which the Company is reliant on the Group. The Company is reliant on the Group in respect of the following:
provision of certain services, such as administrative support services and should the Group be unable to deliver these services, the Company would have difficulty in continuing to trade;
participation in the Group’s notional cash pooling arrangements, of which £1 , 2 63,010 was advanced at 3 1 May 2021. In the event of a default by the Group, the Company may not be able to access its facility within the pooling arrangement; and
recovery of receivables of £3, 437 , 103 from fellow Group undertakings as of 3 1 May 2021. If these receivables are not able to be recovered when forecast by the Company, then the Company may have difficulty in continuing to trade .
On 28 May 2021, the Company issued 1 Ordinary share of £1 each at a premium of £5,964,182.77 to its immediate parent undertaking, Capita Holdings Limited. Pursuant to this event, the Company is now in a net asset position. Refer note 26 for post balance sheet events.
Given the reliance the Company has on the Group, the Directors have considered the financial position of the ultimate parent undertaking as disclosed in its most recent financial statements, being for the year ended 31 December 2020 .
Ultimate parent undertaking - Capita Plc
The Capita plc Board (‘the Board’) concluded that it was appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties and sensitivities, when preparing the Group’s consolidated financial statements to 31 December 2020. These financial statements were approved by the Board on 16 March 2021 and are available on the Group’s website ( www.capita.com/investors ). Below is a summary of the position as at 16 March 2021:
Accounting standards require that the foreseeable future covers a period of at least 12 months from the date of approval of the financial statements, although they do not specify how far beyond 12 months a Board should consider. In the prior year, the Board considered an extended period out to 31 August 2022 (30 months) which aligned with the expiry of the revolving credit facility (RCF). The Board continued to consider the period out to 31 August 2022 for the purpose of the going concern assessment, which reflects a period of at least 18 months from the date of approval of the Group consolidated financial statements (the going concern period). While this is a shorter period, it does align with the expiry of the RCF which is a key consideration. The Board also considered any committed outflows beyond this period in forming their assessment.
To address the resilience of the Group to its severe but plausible downside scenarios, the Board has been exploring a refinancing of the debt maturities to reprofile the debt repayments to align with the completion of the transformation programme while also providing the financial support necessary to complete the required investments. While refinancing was not completed in 2020, the Board did successfully arrange backstop facilities in February and August 2020, is already in discussion with lenders, and is targeting completion of a refinancing in 2021.
In addition to refinancing, the Board has approved a continuation of the previously announced disposal programme which covers businesses that do not align with the longer-term strategy for the Group. The Group has a strong track record of executing major planned disposals and the Board is confident that the disposal programme can be delivered given the strength of the underlying businesses and the value they deliver. The planned disposals will introduce considerable net cash proceeds to the Group, albeit with a corresponding removal of consolidated profits associated with these businesses.
Material uncertainties related to the group
The Board recognises that any refinancing, should the severe downside play out, would require third party agreements from lenders. Furthermore, the disposal programme requires agreement from third parties, and major disposals may be subject to shareholder and lender approval. Such agreements and approvals are outside the direct control of the Group. Accordingly, these events give rise to material uncertainties, as defined in auditing and accounting standards, relating to events and circumstances which may cast significant doubt about the Group’s and Parent’s ability to continue as a going concern and, therefore, that the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business.
Reflecting the Board’s confidence in the transformation programme, ability to refinance, and execution of the approved disposal programme, the Company continues to adopt the going concern basis in preparing the financial statements. The Board has concluded that the Group and Parent Company will continue to have adequate financial resources to realise their assets and discharge their liabilities as they fall due over the period to 31 August 2022. Consequently, these financial statements do not include any adjustments which would be required if the going concern basis of preparation is inappropriate.
Conclusion
Although the Company has a reliance on the Group as detailed above, even in a severe but plausible downside for both the Company and the Group, the Directors are confident the Company will continue to have adequate financial resources to release its assets and discharge its liabilities as they fall due over the period to 31 August 2022. Consequently, the annual report and financial statements have been prepared on the going concern basis.
However, as the Group’s financial statements have identified material uncertainties giving rise to significant doubt over the Group’s ability to continue as a going concern, given the Company’s reliance on the Group as set out above, this in turn gives rise to a material uncertainty relating to events and circumstances which may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, that the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments which would be required if the going concern basis of preparation were to be deemed inappropriate.
The Company has applied FRS 101 – Reduced Disclosure Framework in the preparation of its financial statements. The Company has prepared and presented these financial statements by applying the recognition, measurement, and disclosure requirements of international accounting standards in conformity with the requirements of the Companies, Act 2006.
The Company's ultimate parent undertaking, Capita plc, includes the Company in its consolidated statements. The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies, Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and are available to the public and may be obtained from Capita plc’s website on http://capita.com/investors .
In these financial statements, the Company has applied the disclosure exemptions available under FRS 101 in respect of the following disclosures:
A cash flow statement and related notes;
Comparative period reconciliations for share capital, tangible fixed assets and intangible assets;
Disclosures in respect of transactions with wholly owned subsidiaries;
Disclosures in respect of capital management;
The effects of new but not yet effective IFRSs;
Certain disclosures as required by IFRS 15;
Disclosures in respect of the compensation of key management personnel ; and
Disclosures as required by IFRS 16.
As the consolidated financial statements of Capita plc include equivalent disclosures, the Company has also taken the disclosure exemptions under FRS 101 available in respect of the following disclosure:
Certain disclosures required by IFRS 2 Share Based Payments in respect of Group settled share based payments;
Certain disclosures required by IAS 36 Impairments of assets in respect of the impairment of goodwill and indefinite life intangible assets;
Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company, in the current and prior periods including the comparative period reconciliation for goodwill; and
Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures .
The Company has adopted the new amendments to standards detailed below but they do not have a material effect on the Company’s financial statements.
New amendments |
Effective date |
Amendments to References to the Conceptual Framework in IFRS Standards |
1 January 2020 |
Definition of Material (Amendments to IAS 1 and IAS 8) |
1 January 2020 |
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7) |
1 January 2020 |
Definition of a Business (Amendments to IFRS 3) |
1 January 2020 |
Revenue is earned within the United Kingdom.
The revenue and profits recognised in any period are based on the delivery of performance obligations and an assessment of when control is transferred to the customer.
Revenue is recognised when the performance obligation in the contract has been performed (so 'point in time' recognition ).
Transactional (Point in time) contracts
The Company delivers a range of services that are transactional services for which revenue is recognised at the point in time when control of services has transferred to the customer. This may be at the point of acceptance by a customer or when the customer obtains control of an asset or service in a contract with customer-specified acceptance criteria. The nature of contracts or performance obligations categorised within this revenue type includes fees received in relation to delivery of professional translation and interpreting services.
Contract related assets and liabilities
As a result of the contracts which the Company enters into with its customers, a number of different assets and liabilities are recognised on the Company’s balance sheet. These include but are not limited to:
Accrued income
Deferred income
Deferred and accrued income
The Company’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and services being provided. The Company often agrees payment schedules at the inception . Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance. Where payments made are greater than the revenue recognised at the period end date, the Company recognises a deferred income contract liability for this difference. Where payments made are less than the revenue recognised at the period end date, the Company recognises an accrued income contract asset for this difference.
At each reporting date, the Company assesses whether there is any indication that accrued income assets may be impaired by considering whether the revenue remains highly probable that no revenue reversal will occur. Where an indicator of impairment exists, the Company makes a formal estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
Goodwill is stated at cost less any accumulated impairment losses. It is not amortised but is tested annually for impairment. This is not in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 which requires that all goodwill be amortised. The directors consider that this would fail to give a true and fair view of the profit for the year and that the economic measure of performance in any period is properly made by reference only to any impairment that may have arisen. It is not practicable to quantify the effect on the financial statements of this departure.
On adoption of FRS 101, the C ompany restated business combinations that took place between 1 January 2004 and 31 December 2010. Certain items were recognised as other intangible assets from goodwill and amortised over their expected useful life and goodwill amortisation was restated to reverse the impact of amortisation over that period. The C ompany, therefore, restated its opening balance in 2012 to reflect the position had IFRS 3 'Business Combinations' been in effect since 1 January 2004. This is in accordance with the position recorded in the ultimate parent company's consolidated accounts, which the D irectors believe is the most appropriate and consistent approach to take on business combinations since the adoption of IFRS in the comparative period for the year ending 31 December 2005. Prior to 1 January 2004 business combinations were accounted for under UK GAAP.
Property, plant and equipment other than freehold land are stated at cost less depreciation. Freehold land is not depreciated. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life, as follows:
The carrying values of property, plant and equipment are reviewed for impairment if events or changes in circumstance indicate that the carrying value may not be recoverable and are written down immediately to their recoverable amount. Useful lives and residual values are reviewed annually and where adjustments are required these are made prospectively.
All investments are initially recorded at their cost. Subsequently they are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable.
The Company leases various assets, comprising land and buildings.
The determination whether an arrangement is, or contains, a lease is based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
The following sets out the Company’s lease accounting policy for all leases with the exception of leases with low value and term of 12 months or less which are expensed to the consolidated income statement.
The Company as a lessee - Right-of-use assets and lease liabilities
At the inception of the lease, the Company recognises a right-of-use asset at cost, which comprises the present value of minimum lease payments determined at the inception of the lease. Right-of-use assets are depreciated using the straight-line method over the shorter of estimated life or the lease term. Depreciation is included within administrative expenses in the consolidated income statement. Amendment to lease terms resulting in a change in payments or the length of the lease results in an adjustment to the right-of-use asset and liability. Right-of-use assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be fully recoverable.
The Company recognises lease liabilities where a lease contract exists and right-of-use assets representing the right to use the underlying leased assets.At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of the lease payments to be made over the lease term.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Incremental borrowing rates are determined monthly and depend on the term, country, currency and start date of the lease. The incremental borrowing rate is determined based on a series of inputs including: the risk-free rate based on swap market data; a country-specific risk adjustment; a credit risk adjustment; and an entity-specific adjustment where the entity risk profile is different to that of the Group.
The lease liability is subsequently remeasured (with a corresponding adjustment to the related right-of-use asset) when there is a change in future lease payments due to a renegotiation or market rent review, a change of an index or rate or a reassessment of the lease term.
Lease payments are apportioned between a finance charge and a reduction of the lease liability based on the constant interest rate applied to the remaining balance of the liability. Interest expense is included within net finance costs in the consolidated income statement. Lease payments comprise fixed payments, including in-substance fixed payments such as service charges and variable lease payments that depend on an index or a rate, initially measured using the minimum index or rate at inception date. The payments also include any lease incentives and any penalty payments for terminating the lease, if the lease term reflects the lessee exercising that option. The lease term determined comprises the non-cancellable period of the lease contract. Periods covered by an option to extend the lease are included if the Company has reasonable certainty that the option will be exercised, and periods covered by an option to terminate are included if it is reasonably certain that this will not be exercised. The Company has elected to apply the practical expedient in IFRS 16 paragraph 15 not to separate non-lease components such as service charges from lease rental charges.
Tax on the profit or loss for year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences:
except where the deferred tax liability arises from the initial recognition of goodwill;
except where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
(i) Classification
T he Company classifies its financial assets in the following measurement categories:
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.
(ii) Recognition and derecognition
Regular way purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
(iii) Measurement
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.
Changes in the fair value of financial assets at FVPL are recognised in other gains/(losses) in the income statement as applicable.
(iv) Impairment
T he Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Company applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables.
Trade and other receivables
The Company assesses on a forward-looking basis the expected credit losses associated with its receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within current financial liabilities.
The preparation of financial statements in conformity with generally accepted accounting principles requires the Directors to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported income and expense during the reported periods. Although these judgements and assumptions are based on the Directors' best knowledge of the amount, events or actions, actual results may differ.
Audit fees are borne by the ultimate parent undertaking, Capita plc. The audit fee for the current period was £ 25,000 (2019: £ 15,502) . The Company has taken advantage of the exemption provided by regulations 6(2)(b) of The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 not to provide information in respect of fees for other (non-audit) services as this information is required to be given in the group accounts of the ultimate parent undertaking, which it is required to prepare in accordance with the Companies Act 2006.
The reconciliation between tax charge and the accounting profit multiplied by the UK corporation tax rate for the years ended 31 December 2020 and 2019 is as follows:
The property provision represents a dilapidations provision. The C ompany is required to perform repairs on leased properties, prior to the properties being vacated at the end of their lease term. Dilapidation provisions for such costs are where a legal obligation is identified and the liability can be reasonably quantified.
The nominal proceeds on issue of the company's equity share capital, comprising £1 ordinary shares.
The total costs charged to income in respect of defined contribution plans is £ 184,722 (2019 - £ 196,569 ).
The average monthly number of employees (including non-executive D irectors) w ere :
Their aggregate remuneration comprised: