Disposals Proceeds Fund
Introduction
This section of the Guide covers the Disposals Proceeds Fund (DPF), including guidance on qualifying expenditure provided from the fund. This section should be read in conjunction with the House Sales Scheme (HSS).
Associations in operating the HSS must transfer the net surplus on sales together with the Voluntary Purchase Grant (VPG) received to a fund - Disposals Proceeds Fund - which can generally only be used for the purposes of providing replacement properties.
Overview
The Disposals Proceeds Fund (DPF) is a fund, which is made up of the cumulative balance of the following:
- a. All monies received and receivable arising from the House Sales Scheme. That is, sales proceeds received and receivable from the purchaser, VPG received and receivable from the Northern Ireland Housing Executive (Development Programme Group) (NIHE (DPG)), less allowable costs and less Association’s original contribution.;
Plus - b. Repayments of VPG discount ;
Plus - c. Vesting Order Compensation (including interest) received from the NIHE in respect of vested properties;
Less - d. Transfers out of the fund arising from qualifying expenditure spent within 2 years of DPF monies being transferred into the DPF; and
Less - e. DPF monies repaid/repayable to the NIHE (DPG) due to being unspent within 2 years of the date of sale completion which gave rise to said funds.
Date of Legal Completion
The key date with respect to accounting for transfers into DPF is the date of legal completion of the property sale which gives rise to DPF monies. Therefore, the full Net Surplus on a property sale under the House Sales Scheme will be transferred to the DPF from the date of legal completion of the property sold.
Net Surplus
The Net Surplus under the House Sales Scheme is the sum of:
- a. Consideration paid or payable by the purchaser to the Association;
Plus - b. VPG paid or payable by the NIHE (DPG);
Less - c. Allowable costs; and
Less - d. Association’s original contribution.
Under the Legislation upon the sale of a property to a sitting tenant, who meets the conditions set out in the HSS, NIHE (DPG) has an obligation to meet any valid VPG claim. For this reason, NIHE (DPG) determines that both VPG received and receivable by an Association will be transferred into the DPF from the date of legal completion of sale of the relevant property which gave rise to the VPG payment/claim.
Allowable Costs
The expenses which constitute Allowable Costs are as follows:
- Valuation Fees
- Legal Fees
- Survey Fees (sale of flats only)
- VPG Administrative Allowance
Association’s original contribution
This is the Association’s original contribution to the scheme. That is the difference between the unit historic cost of development and the Housing Association Grant received.
Unit Historic Cost is calculated by totalling all of the construction costs or the initial costs to bring the property into use for the property which is being sold under the House Sales Scheme. In determining the historic cost, account must be taken of the provision and acquisition costs associated with the property – i.e., the total costs incurred to build the particular property or, alternatively, the total costs incurred to purchase and make the property habitable for tenants.
Total costs are based on the Total Qualifying Costs and Non-Qualifying Costs of the Scheme as a whole. These amounts should be based on the initial Scheme Application forms (such as the NT1/TA1 Form) detailing Qualifying Costs. The calculation of the unit HAG or any other public funding which contributed to the provision of the house being sold should mirror the calculation of unit Historic Cost. That is, the unit HAG received should be matched to the unit historic cost incurred in providing the house that has been sold.
Examples
- Property Provided with Housing Association Grant (HAG) or other public subsidy
- Property Provided without Housing Association Grant (HAG) or other public subsidy
- On Sale of Property under HSS, Historic Cost is determined to be £nil
Repayment of VPG in the event of Resale or Buy Back
Any VPG discount repaid to the Association arising from a former tenant selling the property within the period outlined in the HSS, will be credited to the DPF. The monies will be deemed to transfer into the DPF on the date of legal completion of the sale or buy back which gave rise to the repayment. The Association will have 2 years from the date monies are transferred into the DPF to spend the repayment of VPG discount.
Vesting Order Compensation plus interest
Any Vesting Order Compensation plus interest paid by the NIHE to the Association arising from a property vesting will be credited to the DPF less any Long Term Loan due back to the Department. The monies will be deemed to transfer to the DPF on the date the NIHE pays the Vesting Order compensation. The Association will have 2 years from the date monies are transferred into the DPF to spend the Vesting Order compensation on qualifying expenditure.
Order of Expenditure
On incurring qualifying expenditure, discrete balances within DPF (i.e., each net surplus and each repayment of VPG) will be deemed to be spent on a First In First Out (’FIFO’) basis. More information on how to account for movements in DPF balances:
Internal Accounting and Administration
A clear audit trail must be maintained, documenting all transactions involving the DPF. The DPF need not be cash backed, but monies must be available when needed to provide for qualifying expenditure or when DPF monies are repayable to NIHE (DPG).
Associations are required to provide the Department with monitoring information on DPF transactions. Associations will be responsible for certifying that the correct amount has been paid into the DPF and this will be confirmed on a quarterly basis. Associations will be required to submit a period statement (Form DPF) confirming whether any of its DPF balance is repayable to NIHE (DPG) as at the relevant period end. This form will be issued to Associations before each period end with a deadline by which to return to NIHE (DPG). Associations will also be required to provide a detailed plan of expenditure. This plan should identify future schemes that will be funded in full or part by DPF monies. Where future schemes are not identifiable the Association must provide an indication of when the monies will be spent.
Statutory Accounting Requirement
Associations must include the DPF within creditors and separately disclose the balance within the note to the statutory accounts, Table 6 - Creditors.
The note should include the opening balance in the fund, transfers in, transfers out and the closing balance in the fund at year end.
Recovery of Funds Not Utilised within 2 Years
Any Net Surplus, repayment of VPG and Vesting Order Compensation not used on qualifying expenditure within the 2 years of transferring to the DPF will be recovered by NIHE (DPG). It is the Association’s responsibility to notify NIHE (DPG) of any Net Surplus, VPG repayment and Vesting Order Compensation not spent within the 2-year time limit.
Any amount repayable to NIHE (DPG) will be deemed to transfer out of the DPF. The amount repayable should be accounted for as a creditor payable to NIHE (DPG) and late payment interest will accrue on said amount from the date it is repayable until the date it is remitted to NIHE (DPG) at a rate which is in line with the Treasury Cost of Capital. An example of how to calculate late payment interest is provided below.
Late Payment Interest
The rate of late interest will be the Treasury Cost of Capital. In respect of Late Interest this is to be calculated on a daily basis according to a 365-day per year convention (one additional day will be added in a leap year; that is, for a year with 29 February, the day count will total 366 days). Therefore for an ordinary “non-leap” year:
- Creditor payable to NIHE (DPG) x Rate x (number of days / 365 days).
Associations suspended from the Development Programme
Associations which have their access to scheme approvals suspended or restricted due to the Association’s failure to comply with the Department’s published procedures will not be permitted to use their DPF monies for any purpose until the suspension has been lifted. The period of suspension will have no impact on the 2-year period within which an Association has to utilise DPF monies. For these reasons, suspended Associations will have the following options with respect to DPF:
- a. Repay DPF balances to NIHE (DPG) immediately on suspension; or
- b. Retain DPF monies for use after the suspension/ restriction has been lifted, if within a 2-year period.
In exceptional circumstances the Department may approve applications from Associations making a case to spend the DPF during their period of suspension.
Qualifying Expenditure
All schemes or works to existing stock funded by DPF will require the approval of NIHE (DPG) in accordance with the relevant sections of the Housing Association Guide - Scheme Approval
Associations may acquire replacement properties prior to any subsequent application to NIHE (DPG) for Project Approval.
However if Associations make these speculative purchases they do so at risk. Associations are expected to accept the risks involved in making such purchases, which may subsequently turn out not to be justified or supported by NIHE (DPG).
Accounting treatment of qualifying expenditure
DPF resources utilised on qualifying expenditure should mirror the Association’s recognition of capital expenditure in its financial accounts. The Department expects that an Association’s accounting treatment of capital expenditure will follow the 2014 Housing SORP and FRS 102.
DPF monies spent on qualifying expenditure will be subject to the same rules as Housing Association Grant.
The accounting entries for qualifying expenditure of DPF monies on qualifying expenditure are as follows:
Disposal of properties funded by DPF monies under the House Sales Scheme
This will be treated as any other House Sales Scheme disposal, the exception being that the Association’s original contribution will be calculated as the difference between the Historic Cost of the property less the DPF funding and HAG.
Disposal of properties funded by DPF monies on the open market (where authorised)
Associations should add the full sales proceeds to the DPF balance, less Association’s original contribution as calculated in Example 1 above, and the costs of selling the property.
Regulation and Inspection
In accordance with its regulatory function the Department’s inspectors will seek to satisfy themselves that Associations are complying with the DPF process and with the requirements of the Guide.