Capital Charges Capital charges in the NHS were first introduced on 1 April 1991, subsequent to the White Paper "Working for Patients". The objectives of capital charging are to promote an awareness of the true cost of capital; improve decision making on asset acquisition and disposal; promote an efficient use of assets; and recognise the cost of capital.
For NHS bodies in Scotland, capital charges are taken to mean depreciation and amortisation and a return on the cost of capital charged annually to the Operating Cost Statement.
Details of the procedures to be applied in calculating capital charges can be found in
the Capital Accounting Manual issued by SEHD.
Depreciation is a measure of the cost or revalued amount of tangible fixed assets that have been consumed during the period. Depreciation is the term normally applied to tangible fixed assets, while amortisation is used in respect of intangible assets - the two terms are otherwise equivalent. NHS bodies are required to maintain fixed asset registers to record the value of fixed assets to be used for the calculation of depreciation and amortisation.
The cost of capital charge (currently 3.5%) is applied to the average net relevant assets (NRA) of the body to determine the cost of capital for an accounting period. The cost of capital charge is applied to most assets and liabilities in the balance sheet, with liabilities attracting a negative charge (i.e. a credit). The cost of capital charge ensures an appropriate return on taxpayers' equity. Balances with OPG and donated assets are excluded from the calculation since these do not entail disbursement of public funds.
The SEHD require all health bodies to submit Capital Charges estimates for the following financial year no later than the preceding February. All anticipated asset transactions will need to be predicted up to 15 months ahead and realistic estimates are required for budgeting purposes. Funding for capital charges has been frozen since 1998-99 and is incorporated within bodies' Revenue Resource Limits.