Highways Agency Annual Report and Accounts 2011-2012

SECTION 10: Financial Statements
1.8 Research and Development
Expenditure on research is not capitalised. Expenditure on development is capitalised and written off over
the useful life of the asset if it meets the criteria specified in the FReM. Expenditure that does not meet
the criteria for capitalisation is treated as an expense and shown in the Statement of Comprehensive Net
Expenditure in the year in which it is incurred.
Non-current assets acquired for use in research and development are depreciated over the life of the
associated project.
1.9 Operating Income
Operating income is income that relates directly to the operating activities of the Agency.
It principally comprises fees and charges for services provided on a full-cost basis to external customers
in both the public and private sectors. It includes not only income appropriated in aid of the Estimate but
also income due to the Consolidated Fund, which in accordance with the FReM is treated as operating
income. Operating income is stated net of VAT, and is measured at the fair value of the consideration
received or receivable.
1.10 Administration and Programme Expenditure
The Statement of Comprehensive Net Expenditure is analysed between administration and programme
income and expenditure. The classification of expenditure and income as administration or as programme
follows the definition of administration costs set by HM Treasury. In line with other Arms Length Bodies,
the classification applied by the Agency was reviewed and clarified as part of the SR10 exercise. This
resulted in some expenditure being reclassified between the two categories to ensure the Agency’s
approach was consistent with that now being applied across central government.
Administration costs reflect the costs of running the Agency and include expenditure on administrative
staff (such as wages and salaries, training and development and travel expenditure) and associated costs
including accommodation, IT and office supplies.
Programme costs reflect the costs of operating, managing, maintaining and improving the motorway and
trunk road network. They include staff costs where they directly relate to service delivery.
1.11 Pensions and other employee benefits
Past and present employees are covered by the provisions of the Principal Civil Service Pension
Scheme (PCSPS), which are described in Note 3. The defined schemes are unfunded and are mostly
non-contributory except in respect of dependants’ benefits. The Agency recognises the expected
cost of these elements 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
Agency recognises the contributions payable for the year.
The Agency recognises liabilities for short-term employee benefits (which fall due within twelve months
of the period in which they are earned). In practice, all material short-term employee benefits are settled
during the period in which they are earned.
The Agency is required to pay, as termination benefits, the additional cost of benefits, beyond the normal
PCSPS benefits, in respect of employees who retire early, unless the retirements are on approved medical
grounds. The Agency recognises the full cost of benefits (including pensions payable up to the normal
retirement age and lump sums) as an expense and liability when it becomes demonstrably committed to
providing those benefits.
1.12 Leases
At their inception, leases are classified as operating or finance leases, based on the extent to which the
risks and rewards of ownership lie with the Agency. In making the classification, the Agency does not
separate the land and buildings elements of arrangements which cover both elements.
Arrangements, including some PFI contracts that are not service concessions, whose fulfilment is
Highways Agency Annual Report and Accounts 2011-12