Introduction of EU negative DEL regime from 2006-07 onwards

By Sandra Elliott,2014-11-25 18:48
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Introduction of EU negative DEL regime from 2006-07 onwards

Head of Accountability and

     Accountancy Services Division

    Ciaran Doran

Room G2-1

     Rathgael House

    Balloo Road


    Tel No: 028 9185 8203 (x 68203)

    Fax No: 028 9127 7690



     DAO (DFP) 16/06

     18 December 2006

Dear Accounting Officer




    1. This guidance is primarily aimed at government Departments and sets

    out the arrangements for budgeting and accounting for EU income from

    2006-07 onwards. Treasury has changed the budgeting principles so

    as to treat EU income as negative DEL* where it is in support of DEL

    expenditure. The accounting treatment of EU Income therefore follows

    the reclassification in the budgeting principles (there is no change in

    accounting policy).


2. Prior to 2006-07, the budgeting treatment of EU receipts was that they

    benefited the 'EU net payments' line (i.e. outside departmental budgets)

    and were not offset against departmental expenditure. The reason for

    this was that EU receipts reduce the abatement the UK receives from

    the EU in respect of its large positive net contribution to

    * For some bodies where the related expenditure is in AME, the DEL

    consequences described in this DAO will apply to the Department’s

    AME rather than its DEL

    Reference : FE001694

    EU finances. Departmental expenditure financed by EU receipts

    scored against departmental budgets in the normal way.

3. In Estimates and accounting terms, EU income was treated as a

    Consolidated Fund Extra Receipt (CFER). When income became due

    from EU, a CFER debtor was created which was treated as income in

    the Operating Cost Statement. An equal creditor was also required,

    showing the amount due to be paid over to the NI Consolidated Fund

    (the double entry to the General Fund).

    4. In August 2005, HM Treasury circulated a memorandum seeking

    departmental comments on the practical issues around their wish to

    consider changing the budgeting system for EU income. The main

    drivers cited for the proposed change included:

     departments had long pressed HM Treasury to simplify the

    budgeting regime in this area, and had sought automatic spending

    cover for expenditure financed by the EU; and

     HM Treasury were also keen to simplify the budgeting system for

    EU income and for government departments to manage exchange

    rate fluctuations.

    These new arrangements have now been adopted and are applicable

    from 2006-07 onwards.



Closing EU Debtor Balances at 31 March 2006

    5. Cash receipts in relation to EU debtors recorded in accounts at 31

    March 2006 are subject to the 2005-06 rules and consequently must

    be surrendered to the Consolidated Fund;


    6. EU debtor balances as at 31 March 2006 that need to be written off

    will follow the 2005-06 treatment as described in FD (DFP) 10/06.

    This treatment is also applicable to exchange rate losses on these

    balances. There will therefore be no DEL budgetary consequences

    for these balances.

EU Income from 1 April 2006 Onwards

    7. From 2006-07 EU income scores in DEL as a receipt in budgets and

    as an accruing resources in estimates and accounts. Income should

    be treated as resource, capital or capital grant to match the

    expenditure it finances. EU income is no longer required to be

    recorded in Estimates and accounts as a CFER.

    8. Write off of EU debts arising after 31 March 2006 will score in DEL in

    Department’s budgets and Estimates. All write offs will require to be

    reported as losses and the relevant approval sought.

Cost of Capital

9. Cost of Capital on ALL EU Debtors (including the balance at 31

    March 2006) will also score in DEL.

Exchange Rate Gains and Losses

    10. Foreign exchange gains below the budgetary de-minimis threshold

    may be offset against EU related losses IN YEAR ONLY until such

    time when they are fully utilised.

    11. Net foreign exchange losses in relation to EU income will score in

    DEL. Such losses require to be reported as losses and the relevant

    approval sought. Gains that are not offset against in year losses

    must be offered up as a Reduced Requirement at the earliest



    12. Whilst hedging exchange rate fluctuations is permitted by GANI

    under certain conditions, it is DFP’s view that the uncertainty of

    timing of EURO receipts from the EU, coupled with the costs

    associated with building the correct level of expertise in Departments

    are unlikely to make hedging a viable or value for money option.

13. Further detail is given in Annex A.


    14. If you have any queries regarding this letter please contact:

    Budgeting or Paul Duffy (CED)

    Estimate Issues

    028 91858081 (GTN: 68081)

    Accounting Issues Brigitte Worth (AASD)

    028 91858025 (GTN 68025)

    Laura Murphy

    028 91858133 (GTN 68133)

    15. The content of this letter has been agreed with the Northern Ireland

    Audit Office (NIAO) and other divisions within the Central Finance

    Group (DFP).

Yours sincerely