Company registration number SC045439 (Scotland)
CAPITA IT SERVICES LIMITED
ANNUAL REPORT AND UNAUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
CAPITA IT SERVICES LIMITED
COMPANY INFORMATION
Directors
M W Lansdown
(Appointed 28 March 2024)
Capita Corporate Director Limited
Secretary
Capita Group Secretary Limited
Company number
SC045439
Registered office
Pavilion Building
Ellismuir Way
Tannochside Park
Uddingston
Glasgow
United Kingdom
G71 5PW
Banker
Barclays Bank PLC
1 Churchill Place
London
United Kingdom
E14 5HP
CAPITA IT SERVICES LIMITED
CONTENTS
Page
Strategic report
1 - 6
Directors' report
7 - 8
Income statement
9
Balance sheet
10
Statement of changes in equity
11
Notes to the financial statements
12 - 27
CAPITA IT SERVICES LIMITED
STRATEGIC REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 1 -

The Directors present their Strategic report and financial statements for the year ended 31 December 2023.

 

Capita IT Services Limited ('the Company') is a wholly owned subsidiary (indirectly held) of Capita plc. Capita plc, along with all its subsidiaries' is hereafter referred to as 'the Group'. The Company operates within the Group's Capita Public Service division.

Principal activities

The principal activities of the Company continued to be that of designing, installing and managing networked computing and communication systems, and providing IT outsource solutions to both external customers and fellow Group companies. In 2022, the Company transferred its various businesses to fellow Group companies as a part of Group’s restructuring and entity rationalisation programme. Following the aforementioned transfer, the Company is taking steps to orderly wind down its operations. Based on this, the Director's have concluded that a going concern basis of accounting is not appropriate.

Review of the business

As shown in the Company’s income statement on page 9, the Company's revenue has decreased from £22,419,000 in 2022 to £nil in 2023 due to the transfer of businesses in the previous year. The Company's operating profit has decreased from £344,000 in 2022 to operating loss of £390,000 in 2023.

 

The balance sheet on page 10 of the financial statements shows the Company's financial position at the year end. Net assets have decreased from £92,693,000 in 2022 to £2,460,000 in 2023 on account of payment of dividend to its parent company and losses incurred during the year. Details of amounts owed by/to its parent company and fellow subsidiary companies are shown in notes 8 and 10 to the financial statements.

 

The key financial performance indicators used by the Group, on a consolidated basis, include adjusted revenue, adjusted profit before tax, adjusted basic/diluted earnings per share, free cash flow excluding business exits, and gearing ratios. The Group manages its operations on a divisional basis and consequently, some of these indicators are monitored at a divisional level. The performance of the Capita Public Service division of the Group is discussed in the Group’s Annual Report which does not form part of this report.

CAPITA IT SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 2 -
Principal risks and uncertainties

The Company is exposed to a wide range of risks that, should they materialise, could have a detrimental impact on financial performance, reputation or operational resilience. The Company’s risk management framework provides a consistent approach to the identification, assessment, monitoring and reporting of risks and opportunities. The risk management process is based on risk registers and risk reporting at the established risk governance committees. Key risks are documented in the risk registers and have assigned risk owners who review them regularly, and report on them at least quarterly, as part of the risk reporting process. The strength of existing controls is evaluated to determine whether any further mitigating actions are needed to manage the risk level to within the risk appetite set by the Board.

 

The principal risks for the Company are:

 

Financial stability

Maintain financial stability and achieve financial targets.

 

Cyber security

Protect our systems, networks and programs from unauthorised use and access.

 

ESG

Comply with regulatory and contractual requirements to drive a purpose driven organisation with the right focus on governance.

 

Data governance and data privacy

Manage our data effectively (both clients and Capita) as a strategic asset across the organisation.

 

As a subsidiary of Capita plc, the Company is subject to controls and risk governance techniques applied across all the Group's businesses. Details of the specific risk assessments and mitigating actions are outlined on pages 57-63 of the Group's 2023 Annual Report.

CAPITA IT SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 3 -
Section 172 statement
Capita plc's section 172 statement applies to its Divisions 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(1)(a) 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 45, 46 and 47 of Capita plc's 2023 Annual Report.

Our People

 

Why they are important

They deliver our business strategy; they support the organisation to build a values-based culture; and they deliver our products and services ensuring client satisfaction.

 

What matters to them

Flexible working; learning and development opportunities leading to career progression; fair pay and benefits as a reward for performance; and two-way communication and feedback.

 

How we engaged

 

Topics of engagement

 

Outcomes and actions

The 2023 employee survey showed key indices had either improved or remained steady with a five-point increase in the eNPS compared with 2022. 63% of colleagues who responded felt proud to work at Capita. We are developing and delivering a range of action plans, including ensuring our leaders feel confidence in, and ownership of Capita’s strategy, plans and successes, developing inclusive opportunities for internal career mobility.

 

In December 2023, the Board agreed that while the appointment of employee directors had been successful, it was appropriate for the Board to consider a wider level of engagement with colleagues, including site visits arranged for individual directors to meet with local management and colleagues at Capita’s businesses. In addition, the Board has appointed Nneka Abulokwe as the designated non-executive director to engage with colleagues. Adolfo Hernandez, our new CEO, has also commenced a series of breakfast sessions to meet with colleagues of differing seniority and at different locations throughout the Group. Janine Goodchild stepped down from the Board as an employee director on 31 December 2023.

 

The UK real living wage increase was applied from 1 April 2023. At the end of 2023, we took the difficult decision to withdraw from the UK’s real living wage. Since 2020, the Group has increased the salaries of our lowest earners by 22% and the 2024 real living wage increase of 10.1% was not something we could commit to given the need for Capita to remain cost competitive and reflecting the fact that this is not a cost we are able to pass on to clients.

CAPITA IT SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 4 -

The global career path framework which defines career levels, career job content, and reward framework within Capita was launched during the year.

In October 2023, Capita was recognised by Forbes, as being one of the top companies for women, ranking at number 18 out of 400 global companies on their list.

 

We continued to promote our Speak Up policy throughout the organisation.

 

Risks to stakeholder relationship

 

Key metrics

Voluntary attrition, employee NPS, employee engagement Index and people survey completion level.

 

Clients and customers

 

Why they are important

They are recipients of Capita’s services; and Capita’s reputation depends on consistent and timely delivery of the services they need from us.

 

What matters to them

High-quality service delivery; delivery of transformation projects within agreed timeframes; and responsible and sustainable business credentials.

 

How we engaged

 

Topics of engagement

 

Outcomes and actions

Feedback provided to business units to address any issues raised; client value proposition teams supporting divisions with co-creation ideas; direct customer and sector feedback; and senior client partner programme undertaking client-focused growth sprints to build understanding of client issues and ideas to help address them.

 

Risks to stakeholder relationship

 

Key metrics

Customer NPS; specific feedback on client engagements.

CAPITA IT SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 5 -

Suppliers and Partners

 

Why they are important

They share our values and help us deliver our purpose; maintain high standards in our supply chain; and achieve social, economic and environmental benefits aligned to the Social Value Act. Our suppliers and partners provide additional expertise, skill and technology, elevating our offering.

 

What matters to them

Payments made within agreed payment terms; clear and fair procurement process; building lasting commercial relationships; and working inclusively with all types of business.

 

How we engaged

 

Topics of engagement

 

Outcomes and actions

Our supplier charter, which is available on our website, remains at the core of strengthening our commitments and sets out how we conduct business in an open, honest and transparent manner, and what we expect of our suppliers. This year, it was refreshed and relaunched.

 

To understand Capita’s Scope 3 carbon footprint, a supplier engagement programme was also undertaken with suppliers accounting for £1bn annual spend (over 50% of the supply chain by spend) to ask them to disclose their carbon emissions to CDP.

 

During 2023, 99% of our suppliers were paid within 60 days.

 

Risks to stakeholder relationship

 

Key metrics

99% of supplier payments within agreed terms; SME spend allocation; and supplier diversity profile.

CAPITA IT SERVICES LIMITED
STRATEGIC REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 6 -

Society

 

Why they are important

Capita is a provider of key services to government impacting a large proportion of the population.

 

What matters to them

Social mobility; youth skills and jobs; digital inclusion; diversity and inclusion; climate change; business ethics; accreditations and benchmarking; and cost of living crisis.

 

How we engaged

 

Topics of engagement

 

Outcomes and actions

Youth and employability programme such as Social Shifters; ranked 18 on the Forbes Global list of top employers for women; a 5% reduction in our gender pay gap (compared with 2022); awarded Employer’s Network for Equality and Inclusion; achieved a silver Tidemark and an A CDP (Carbon Disclosure Project) score as well as a silver medal in EcoVadis for Capita plc.

 

Risks to stakeholder relationship

 

Key metrics

Community investment, workforce diversity and ethnicity data, including pay gaps.

On behalf of the board

M W Lansdown
Director
11 September 2024
CAPITA IT SERVICES LIMITED
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 7 -

The Directors present their Directors' Report and Financial statements for the year ended 31 December 2023.

Results and dividends

The results for the year are set out on page 9. On 12 December 2023, the Company declared a dividend of £88,000,000 (2022: £nil) to Capita IT Services Holdings Limited.

Directors

The Directors, who held office during the year and up to the date of signature of the financial statements were as follows:

S M Frewing
(Resigned 28 March 2024)
M W Lansdown
(Appointed 28 March 2024)
Capita Corporate Director Limited
Qualifying third party indemnity provisions

The Company has granted an indemnity to the directors of the Company against liability in respect of proceedings brought by third parties, subject to the conditions set out in the Companies Act 2006. Such qualifying third-party indemnity provisions remains in force as at the date of approving the directors' report.

Political donations

The Company made no political donations and incurred no political expenditure during the year (2022: £nil).

Environment

The Company recognises the importance of its environmental responsibilities, monitors its impact on the environment, and designs and implements policies to reduce any damage that might be caused by the it’s activities. The Company operates in accordance with Group policies, which are described in the Group’s 2023 annual report that does not form part of this report. Initiatives designed to minimise the Company’s impact on the environment include safe disposal of waste, recycling and reducing energy consumption.

Statement of Directors' responsibilities

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 United Kingdom ('UK') accounting standards 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 its profit or loss for that period. In preparing these financial statements, the Directors are required to:

 

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.

CAPITA IT SERVICES LIMITED
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 8 -
Strategic report

In accordance with s414c(11) of the Companies Act 2006, the Company has set out certain information in its Strategic report that is otherwise required to be disclosed in the Directors' report. This includes information regarding results and activities and a description of the principal risks and uncertainties facing the Company.

On behalf of the board
M W Lansdown
Director
11 September 2024
CAPITA IT SERVICES LIMITED
INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2023
- 9 -
2023
2022
Notes
£ 000
£000
Revenue
3
-
22,419
Cost of sales
-
0
(19,522)
Gross profit
-
2,897
Administrative expenses
(390)
(2,553)
Operating (loss)/profit
4
(390)
344
Gain on business transfer
5
-
0
12,510
Net finance income
6
505
2,994
Profit before tax
115
15,848
Income tax charge
7
(2,348)
(527)
(Loss)/profit and total comprehensive (expense)/income for the year
(2,233)
15,321

The income statement is prepared on the basis that the Company has ceased all its operations.

The notes and information on pages 12 to 27 form an integral part of these financial statements.

CAPITA IT SERVICES LIMITED
BALANCE SHEET
AS AT
31 DECEMBER 2023
31 December 2023
- 10 -
2023
2022
Notes
£ 000
£000
Current assets
Trade and other receivables
8
3,320
92,932
Cash and cash equivalents
9
34
485
Deferred tax assets
-
0
2,689
Total assets
3,354
96,106
Current liabilities
Trade and other payables
10
126
1,549
Lease liabilities
11
223
344
Provisions
12
251
376
Income tax payable
294
1,144
Total liabilities
894
3,413
Net assets
2,460
92,693
Capital and reserves
Issued share capital
13
0*
110
Retained earnings
2,460
92,583
Total equity
2,460
92,693

The notes and information on pages 12 to 27 form an integral part of these financial statements.

*represents amount less than £1000.

 

For the financial year ended 31 December 2023, the Company was entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies.

The Directors acknowledge their responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of financial statements.

The members have not required the Company to obtain an audit of its financial statements for the year in question in accordance with section 476.

These financial statements were approved by the board of directors and authorised for issue on
11 September 2024
11 September 2024
and are signed on its behalf by:
M W Lansdown
Director
Company registration number SC045439 (Scotland)
CAPITA IT SERVICES LIMITED
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
- 11 -
Share capital
Retained earnings
Total equity
£ 000
£ 000
£ 000
At 1 January 2022
110
77,262
77,372
Profit for the year
-
15,321
15,321
At 31 December 2022
110
92,583
92,693
Loss for the year
-
(2,233)
(2,233)
Transactions with owners:
Dividends paid
-
(88,000)
(88,000)
Reduction in shares
(110)
110
-
0
At 31 December 2023
0*
2,460
2,460
Share capital

The balance classified as share capital is the nominal proceeds on issue of the Company's equity share capital, comprising 1 ordinary share of £1 each.

 

On 30 October 2023, the Company reduced its ordinary share capital to 1 ordinary share of £1 nominal value through the cancellation of 109,999 ordinary shares of £1 each with a corresponding impact to retained earnings.

 

*represents amount less than £1000.

Retained earnings

Net profits accumulated in the Company after dividends are paid. On 12 December 2023, the Company declared a dividend of £88,000k (2022: £nil) to Capita IT Services Holdings Limited.

The notes and information on pages 12 to 27 form an integral part of these financial statements.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
- 12 -
1
Accounting policies
1.1
Basis of preparation

Capita IT Services Limited is a company incorporated and domiciled in the United Kingdom.

 

In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2023, 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 principal activity of the Company ceased in 2022 when the Company transferred its various businesses to other Group companies. The Directors have therefore prepared the financial statements on the basis that the Company is no longer a going concern.

The financial statements have been prepared on a breakup basis as at 31 December 2023. As a consequence, the Directors have considered the adjustments required to prepare the financial statement on a breakup basis. The expected realisable and settlement values for current assets and liabilities are not considered to be materially different from their carrying value at the balance sheet date. Therefore, the Directors have considered that no further adjustments are required as a result of preparing the financial statements on a breakup basis.

1.2
Compliance with accounting standards

The Company has applied FRS101 – 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 company, 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 with UK-adopted International Financial Reporting Standards ('IFRSs') and the Disclosure and the Transparency Rules of the UK's Financial Conduct Authority. They are available to the public and may be obtained from Capita plc’s website on https://www.capita.com/investors.

 

In these financial statements, the Company has applied the disclosure exemptions available under FRS 101 in respect of the following disclosures:

 

Since 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:

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 13 -
1.3
Change in accounting policies

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 or interpretations

Effective date

IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts

1 January 2023

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)    

1 January 2023

Definition of Accounting Estimates (Amendments to IAS 8)

1 January 2023

Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)

1 January 2023

International Tax Reform - Pillar Two Model Rules (Amendments to IAS 12)

1 January 2023

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 14 -
1.4
Revenue

The Company operates a diverse range of businesses and accordingly applies a variety of methods for revenue recognition, based on the principles set out in IFRS 15.

 

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 either when the performance obligation in the contract has been performed (so ‘point-in-time’ recognition) or ‘over-time’ when control of the performance obligation is transferred to the customer.

 

For all contracts, the Company determines if the arrangement with a customer creates enforceable rights and obligations. This assessment results in certain Master Service Agreements ('MSAs') or frameworks not meeting the definition of a contract under IFRS 15 and as such the individual call-off agreements, linked to the MSA, are treated as individual contracts.

 

The Company enters into contracts which contain extension periods, where either the customer or both parties can choose to extend the contract or there is an automatic annual renewal, and/or termination clauses that could impact the actual duration of the contract. Judgement is applied to assess the impact that these clauses have when determining the appropriate contract term. The term of the contract impacts both the period over which revenue from performance obligations may be recognised and the period over which contract fulfilment assets and capitalised costs to obtain a contract are expensed.

 

For contracts with multiple components to be delivered, for example transformation; transitions and the delivery of outsourced services; management applies judgement to consider whether those promised goods and services are:

 

At a contract's inception the total transaction price is estimated, being the amount to which the Company expects to be entitled and has rights to under the contract. This includes an assessment of any variable consideration where the Company’s performance may result in additional revenues based on the achievement of agreed Key Performance Indicators ('KPIs'). Such amounts are only included based on the expected value or the most likely outcome, and only to the extent that it is highly probable that no revenue reversal will occur.

 

The transaction price does not include estimates of consideration resulting from change orders for additional goods and services unless these are already agreed.

 

Once the total transaction price is determined, the Company allocates this to the identified performance obligations in proportion to their relative standalone selling prices and recognises revenue when (or while) those performance obligations are satisfied.

 

The Company infrequently sells standard products with observable standalone prices due to the specialised services required by customers, consequently the Company applies judgement to determine an appropriate standalone selling price. More frequently, the Company sells customers bespoke solutions, and in these cases the Company typically uses the expected cost-plus margin or a contractually stated price approach to estimate the standalone selling price of each performance obligation.

 

The Company may offer price step downs during the life of a contract, but with no change to the underlying scope of services to be delivered. In general, any such variable consideration, price step down or discount is included in the total transaction price to be allocated across all performance obligations unless it relates to only one performance obligation in the contract.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 15 -
Revenue (continued)

For each performance obligation to be recognised over-time, the Company applies a revenue recognition method that faithfully depicts the Company’s performance in transferring control of the goods or services to the customer. This decision requires assessment of the real nature of the goods or services that the Company has promised to transfer to the customer. The Company applies the relevant output or input method consistently to similar performance obligations in other contracts.

 

When using the output method, the Company recognises revenue on the basis of direct measurements of the value to the customer of the goods and services transferred to date relative to the remaining goods and services under the contract. Where the output method is used, in particular for long-term service contracts where the series guidance is applied, the Company often uses a method of time elapsed which requires minimal estimation. Certain long-term contracts use output methods based upon estimations of: user numbers; service activity levels; or fees collected.

 

When transfer of control is most closely aligned to the Company's efforts in delivering the service, the input method is used to measure progress, and revenue is recognised in direct proportion to costs incurred. This is a faithful depiction of the transfer of services because costs (or other inputs) most accurately reflect the incremental benefits received by the customer from efforts to date.

 

If performance obligations in a contract do not meet the over-time criteria, the Company recognises revenue at a point-in-time when the service or good is delivered.

 

Contract modifications

The Company’s contracts are often amended for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new or changes existing, enforceable rights and obligations.

 

The effect of a contract modification on the transaction price and the Company’s measure of progress for the performance obligation to which it relates, is recognised as an adjustment to revenue in one of the following ways:

a) prospectively as an additional separate contract;

b) prospectively as a termination of the existing contract and creation of a new contract;

c) as part of the original contract using a cumulative catch up; or

d) as a combination of (b) and (c).

 

In respect of contracts for which the Company has decided there is a series of distinct goods and services that are substantially the same and have the same pattern of transfer where revenue is recognised over-time, the modification will always be treated under either (a) or (b); (d) may arise when a contract has a part-termination and a modification of the remaining performance obligations.

 

The facts and circumstances of any contract modification are considered individually because the types of modifications will vary contract by contract and may result in different accounting outcomes. Judgement is applied in relation to the accounting for such modifications where the final terms or legal contracts have not been agreed prior to the period end. In these cases management need to determine if a modification has been approved and if it either creates new or changes existing, enforceable rights and obligations of the parties. Depending upon the outcome of such negotiations, the timing and amount of revenue recognised may be different in the relevant accounting periods. Modification and amendments to contracts are undertaken through an agreed formal process. For example, if a change in scope has been approved but the corresponding change in price is still being negotiated, management uses its judgement to estimate the change to the total transaction price. Importantly, any variable consideration is only recognised to the extent that it is highly probable that no revenue reversal will occur. For example, if pricing is subject to indexation based on an external metric (such as the Consumer Price Index ('CPI') or such as the Retail Price Index ('RPI')) then revenue related to the indexation will only be recognised after the relevant indexation is confirmed. Future indexation will not be recognised because it is not highly probable that a significant reversal of an indexation adjustment will not occur.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 16 -
Revenue (continued)

Principal vs agent

The Company has arrangements with some of its customers whereby it needs to determine if it acts as a principal or an agent because more than one party is involved in providing the goods and services to the customer. The Company is a principal if it controls a promised good or service before transferring that good or service to the customer. The Company is an agent if its role is to arrange for another entity to provide the goods or services. Factors considered in making this assessment are most notably: the discretion the Company has in establishing the price for the specified good or service; whether the Company has inventory risk; and whether or not the Company is primarily responsible for fulfilling the promise to deliver the service or good.

 

This assessment of control requires judgement in particular in relation to certain service contracts. An example is the provision of certain recruitment and learning services where the Company may be assessed to be agent or principal dependent upon the facts and circumstances of the arrangement and the nature of the services being delivered.

 

Where the Company is acting as a principal, revenue is recorded on a gross basis. Where the Company is acting as an agent, revenue is recorded at a net basis, recognising only the commission or fee earned as revenue.

 

Licenses

Software licences delivered by the Company can either be right to access (‘active’) or right to use (‘passive’) licences, which determines the timing of revenue recognition. The assessment of whether a licence is active, or passive involves judgement.

 

The key determinant of an active license is whether or not the Company is required to undertake continuing activities that significantly affect the licensed intellectual property (or the customer has a reasonable expectation that it will do so) and the customer is, therefore, exposed to positive (or negative) impacts resulting from those changes. Where the Company is responsible for any maintenance, continuing support, updates and upgrade, the sale of the initial software is not distinct. All other licences which have significant standalone functionality are treated as passive licences.

 

When software upgrades are sold as part of the software licence agreement (i.e. software upgrades are promised to the customer), the Company applies judgement to assess whether the software upgrade is distinct from the licence (i.e. a separate performance obligation). If the upgrades are considered fundamental to the ongoing use of the software by the customer, the upgrades are not considered distinct and not accounted for as a separate performance obligation.

 

For each contract that includes a separate licence performance obligation, the Company considers all the facts and circumstances in determining whether the licence revenue is recognised over-time (active) or at a point-in-time (passive) from the go-live date of the licence.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 17 -
Revenue (continued)

At each balance sheet date, the Company assesses whether there is any indication that accrued contract income assets may be impaired by considering whether or not any revenue reversal could 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.

 

Contract types

The Company disaggregates revenue from contracts with customers by contract type, because management believe this best depicts how the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows are affected by economic factors. Categories are: short-term contractual – less than two years; and transactional. The years being measured from the service commencement date.

 

Short-term contractual - less than two years

The nature of contracts or performance obligations within this revenue type includes:

(i) short-term outsourced service arrangements in the public and private sectors; and

(ii) software maintenance contracts.

 

The Company has assessed that maintenance and support (i.e., on-call support, remote support) for software licences is a performance obligation that can be considered capable of being distinct and separately identifiable in a contract if the customer has a passive licence. These recurring services are substantially the same because the nature of the promise is for the Company to ‘stand ready’ to perform maintenance and support when required by the customer.

 

Each day of ‘standing ready’ is distinct from each subsequent day and is transferred in the same pattern to the customer.

 

Transactional (point-in-time) contracts

The Company delivers a range of goods or services that are transactional services for which revenue is recognised at the point-in-time when control of the goods or services has transferred to the customer. This may be at the point of physical delivery of goods or services and acceptance by the 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 within this revenue type includes:

(i) provision of computing hardware goods;

(ii) passive software license agreements;

(iii) commission received as agent from the sale of third-party software; and

(iv) fees received in relation to delivery of professional services.

1.5
Financial instruments

Trade and other receivables

The trade and other receivables have been measured and presented at their expected realisable values.

 

Trade and other payables

The trade and other payables have been measured and presented at their expected settlement values.

 

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 an original maturity of 3 months or less.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 18 -
1.6
Taxation

Tax on the profit or loss for the 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 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 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 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.

1.7
Provisions

Provisions are recognised when the Company has a present legal or constructive obligation arising from past events, it is probable that cash will be paid to settle it, and the amount can be estimated reliably.

 

If the effect of the time value of money is material, provisions are discounted using the yield on government bonds which have a similar timing and currency of cash flows to the provision being discounted. Where required adjustments are made to the yields to reflect the risks specific to the cash flows being discounted. The unwinding of the discount is recognised as a financing cost in the income statement.

 

The value of the provision is determined based on assumptions and estimates in relation to the amount, timing and likelihood of actual cash flows, which are dependent on future events. Where no reliable basis of estimation can be made, no provision is recorded. However, contingent liabilities disclosures are given when there is a greater than remote probability of outflow of economic benefits.

 

On an ongoing basis, management monitor provisions and their accurate estimation when compared to final outcomes.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 19 -
1.8
Employee benefits

 

During 2022, the Company ceased to employ any active members in the Group’s main defined benefit pension scheme ('HPS') which triggered a cessation event. As such a Section 75 debt (which is a statutory debt due from a participating employer to the trustees of a multi-employer defined benefit pension scheme which is in deficit) became due. However, the Trustee of the HPS agreed that the pension liabilities attributable to the Company would be transferred to Capita Business Services Ltd (the Principal Employer of the HPS), which removed the Section 75 debt due from the Company. This Flexible Apportionment Arrangement was agreed in principle during 2022 and finalised in 2023. As a result of the arrangement, the Company is no longer a formal participating employer in the HPS.

1.9
Leases

The Company leases 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. 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 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. Right-of-use assets exclude leases with low values and terms of twelve months or less.

 

The Company as a lessee - Right-of-use assets and lease liabilities

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 lease commencement date, 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 acquire 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, 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 credit risk adjustment; and an entity-specific adjustment. 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.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
1
Accounting policies
(Continued)
- 20 -

Leases (continued)

 

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 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 it is anticipated that the Company will exercise 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.

The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less, or for leases of low-value assets including IT equipment. The payments associated with these leases are recognised in the income statement on a straight-line basis over the lease term.

1.10
Foreign exchange

Monetary assets and liabilities denominated in foreign currencies are translated into British pounds sterling at the rates of exchange ruling at the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. All foreign exchanges gains/losses are recognised in the income statement.

2
Significant accounting judgements, estimates and assumptions

The preparation of financial statements in accordance 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 presented periods. Although these judgements and assumptions are based on the Directors’ best knowledge of the amount, events or actions, actual results may differ.

 

No significant judgements, estimates and assumptions have been used in the preparation of these financial statements.

3
Revenue

During the year, there is no revenue since the Company has transferred its various businesses in the previous year.

2023
2022
£ 000
£ 000
Revenue from operating activities
-
22,419
CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 21 -
4
Operating (loss)/profit
2023
2022
Operating (loss)/profit for the year is stated after charging/(crediting):
£ 000
£ 000
Expense/(income) from foreign exchange differences
408
(530)
Depreciation of property, plant and equipment
-
39
Amortisation of intangible assets
-
3
Short term lease rentals
131
170
5
Gain on business transfer
2023
2022
£ 000
£ 000
Gain on business transfer
-
12,510
-
0
12,510

Gain on business transfer was on account of transfer of trade and associated assets and liabilities to other Group subsidiary companies.

6
Net finance income
2023
2022
£ 000
£ 000
Interest income
Interest receivable from Group companies
517
3,024
517
3,024
Interest expense
Interest expense on bank overdrafts and loans
-
0
(14)
Interest expense on lease liabilities
(12)
(16)
(12)
(30)
Total net finance income
505
2,994
CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 22 -
7
Income tax
The major components of income tax charge are:
2023
2022
£ 000
£ 000
Current tax
UK corporation tax
27
634
Adjustments in respect of prior periods
(368)
377
(341)
1,011
Deferred tax
Origination and reversal of temporary differences
-
0
(7)
Adjustment in respect of prior periods
2,689
(477)
2,689
(484)
Total tax charge
2,348
527
CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
7
Income tax
(Continued)
- 23 -

The charge for the year can be reconciled to the profit per the income statement as follows:

2023
2022
£ 000
£ 000
Profit before taxation
115
15,848
Expected tax charge based on the weighted average Corporation Tax rate of 23.52% (2022: 19.00%)
27
3,011
Non-taxable income
-
0
(2,377)
Adjustment in respect of current income tax of prior periods
(368)
377
Impact of changes in statutory tax rates
-
0
(7)
Adjustment in respect of deferred tax of prior periods
2,689
(477)
Total adjustments
2,321
(2,484)
Total tax charge reported in the income statement
2,348
527
Balance sheet
Income statement
2023
2022
2023
2022
£ 000
£ 000
£ 000
£ 000
Deferred tax assets
Decelerated capital allowances
-
0
2,683
2,683
(490)
Other short term timing differences
-
0
6
6
6
Deferred tax assets
-
0
2,689
Deferred tax charge/(credit) to income statement
2,689
(484)

A change to the main UK corporation tax rate was substantively enacted on 24 May 2021. The rate applicable from 1 April 2023 increases from 19.00% to 25%. The deferred tax asset at 31 December 2023 has been calculated based on this rate.

 

 

 

 

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 24 -
8
Trade and other receivables
Current
2023
2022
£ 000
£ 000
Trade receivables
-
0
41
VAT recoverable
26
-
0
Amounts due from Group companies
3,294
92,891
3,320
92,932

Amounts due from Group companies are repayable on demand. These are not chargeable to interest except for the amounts due from Capita plc, on which interest is charged as per the prevailing Bank of England rates.

9
Cash and cash equivalents
2023
2022
£ 000
£ 000
Cash at bank and in hand
34
485
34
485
10
Trade and other payables
Current
2023
2022
£ 000
£ 000
Trade payables
31
513
Amount due to Group companies
89
615
Accruals
-
0
414
Other taxes and social security
6
7
126
1,549

Amounts due to Group companies are repayable on demand.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 25 -
11
Lease liabilities
2023
2022
£ 000
£ 000
Current liabilities
223
344
2023
2022
Amounts recognised in the income statement include the following:
£ 000
£ 000
Interest on lease liabilities
12
16

The total cash outflow for leases was £132,391 (2022: £132,392) consisting of interest paid of £11,667 (2022: £16,309) and capital element of £120,724 (2022: £116,083).

2023
2022
Maturity analysis - contractual undiscounted cash flows
£ 000
£ 000
Less than one year
132
132
One to two years
99
132
More than two years
-
0
99
Total undiscounted liabilities at 31 December
231
363
12
Provisions
2023
2022
£ 000
£ 000
Current
251
376
251
376
Restructuring
£ 000
At 1 January 2023
376
Utilised during the year
(125)
At 31 December 2023
251

The restructuring provision relates to unavoidable running costs, such as insurance and security, of leasehold property where the space is vacant or currently not planned to be used, and for dilapidation costs, for ongoing operations. The expectation is that this expenditure will be incurred over the remaining period of the lease.

 

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 26 -
13
Share capital
2023
2022
2023
2022
Number
Number
£
£
Allotted, called up and fully paid
Ordinary of £1 each
At 1 January and 31 December
1
110,000
1
110,000

On 30 October 2023, the Company reduced its ordinary share capital to 1 ordinary share of £1 nominal value through the cancellation of 109,999 ordinary shares of £1 each with a corresponding impact to retained earnings.

14
Employee benefits

Prior to the transfer of assets and liabilities during 2022, the Company participated in both defined benefit and defined contribution pension schemes.

 

The pension charge for the defined contribution pension schemes for the year was £nil (2022: £187,000). The pension charge in relation to the HPS was £nil (2022: £51,000).

15
Employees

The average monthly number of employees (including directors) year were:

2023
2022
Number
Number
Operations
-
0
91
Sales
-
0
23
Administration
1
1
Total
1
115

Their aggregate remuneration comprised:

2023
2022
£ 000
£ 000
Wages and salaries
-
0
6,978
Social security costs
-
787
Pension costs
-
0
238
-
0
8,003
16
Directors' remuneration

All directors are paid by other companies within the Capita Group. The Company has not paid any fees or other remuneration to the Group based Directors related to the directorship role they provided to the Company as a part of their Group-wide executive management role. The Company has estimated that allocation of the qualifying services that these Group based Directors provided to the Company is inconsequential.

CAPITA IT SERVICES LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2023
- 27 -
17
Controlling party

The Company's immediate parent company is Capita IT Services Holdings Limited, a Company incorporated in England and Wales.

 

The Company's ultimate parent company is Capita plc, a Company incorporated in England and Wales. The accounts of Capita plc are available from the registered office at 65 Gresham Street, London, EC2V 7NQ.

18
Post balance sheet date events

There are no significant events occurring after the balance sheet date.

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