TASCOR_SERVICES_LIMITED - Accounts

The Directors present their Strategic report and financial statements for the year ended 31 December 2021.

Tascor Services Limited (“the Company”) is a wholly owned subsidiary (indirectly held) of Capita plc, along with all its subsidiaries is hereafter referred as "the Group''. The Company operates within the Portfolio division of the Group.

The principal activity of the Company continued to be that of the provision of business process outsourcing services to the criminal justice sector. There have not been any significant changes in the Company's principal activities in the year under review. The Directors are not aware, at the date of this report, of any likely major changes in the Company's activities in the next year.

As shown in the Company's income statement on page 12, the Company's revenue has decreased from £15,677,660 in 2020 to £14,992,545 during the current year owing to contract exits, whilst operating profit has increased from £2,272,324 to £2,878,322 over the same period due to a pension credit in 2021 as opposed to a pension charge in 2020.

The balance sheet on pages 14 - 15 of the financial statements shows the Company's financial position at the year end. The Company's net assets have increased from £27,368,119 in 2020 to £29,918,150 in 2021. Details of amounts owed by/to its parent company and fellow subsidiary undertakings are shown in notes 7 and 9 to the financial statements.

Key performance indicators used by Capita plc are operating margins, free cash flow, capital expenditure and return on capital employed. The Group manages its operations on a divisional basis, so some of these indicators are monitored only at a divisional level. The performance of the Portfolio division of Capita plc is discussed in the Group's annual report which does not form part of this report.

Principal risks and uncertainties

The Company is subject to various risks and uncertainties during the ordinary course of its business, many of which result from factors outside of its control.  The Company’s risk governance framework provides assurance that significant risks are identified and addressed. The Company’s risk management framework provides reasonable (but cannot provide absolute) assurance that significant risks are identified and addressed. An active risk management process identifies, assesses, mitigates and reports on strategic, financial, operational and compliance risk.

The principal themes of risk for the Company are:

• Strategic: changes in economic and market conditions such as contract pricing and competition.

• Financial: significant failures in internal systems of control and lack of corporate stability.

• Operational: including recruitment and retention of staff, maintenance of reputation and strong supplier and customer relationships, operational IT risk, and failures in information security controls.

• Compliance: non-compliance with laws and regulations. The Company must comply with an extensive range of requirements that govern its business.

To mitigate the effect of these risks and uncertainties, the Company adopts a number of systems and procedures, including:

• Regularly reviewing trading conditions to be able to respond quickly to changes in market conditions.

• Applying procedures and controls to manage compliance, financial and operational risks, including adhering to an internal control framework.

Capita plc has also implemented appropriate controls and risk governance techniques across all of its businesses, which are discussed in the Group’s annual report and doesn’t form part of this report.

Section 172 statement

Capita plc’s section 172 statement applies to both the Division 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(1a) 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 40 and 41 of Capita plc’s 2021 Annual Report.

Stakeholders

On behalf of the Board

The Directors present their Directors' report and financial statements for the year ended 31 December 2021.

The results for the year are set out on page 12.

No interim or final dividend was proposed or paid during the year (2020: £nil).

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

Capita plc 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 Group’s activities. The Company operates in accordance with Group policies, which are described in the Group’s annual report and 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.

The Company made no political donations and incurred no expenditure during the year (2020: £nil).

Details of number of employees and related costs can be found in note 14 to the financial statements.

KPMG LLP, having indicated its willingness to continue in office, will be deemed to be reappointed as auditor under section 487(2) of the Companies Act 2006.

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 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 the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and estimates that are reasonable and prudent;

•     state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     assess the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

•     use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

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.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

So far as each person who was a Director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the Company's auditor is unaware. Having made enquiries of fellow directors and the Company's auditor, each director has taken all the steps he/she might reasonably be expected to take as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

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 provision remains in force as at the date of approving the Directors' report.

We have audited the financial statements of Tascor Services Limited (“the Company”) for the year ended 31 December 2021 which comprise the Income statement, Balance Sheet, Statement of Changes in Equity, and related notes, including the accounting policies in note 1.

In our opinion the financial statements:

•     give a true and fair view of the state of the Company’s affairs as at 31 December 2021 and of its profit for the year then ended;

•     have been properly prepared in accordance with UK accounting standards, including FRS 101 and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.

The directors have prepared the financial statements on the going concern basis. As stated above they have concluded that a material uncertainty related to going concern exists. Based on our financial statements audit work, we consider that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Identifying and responding to risks of material misstatement due to fraud

To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:

• Enquiring of directors and inspection of policy documentation as to the Capita’s high-level policies and procedures to prevent and detect fraud, as well as whether they have knowledge of any actual, suspected or alleged fraud.

• Reading Board minutes.

• Considering remuneration incentive schemes and performance targets for management and directors. Using analytical procedures to identify any unusual or unexpected relationships.

We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit.

As required by auditing standards, and taking into account possible pressures to meet profit targets and revenue targets, we perform procedures to address the risk of management override of controls and the risk of fraudulent revenue recognition, in particular the risk that long term contract revenue is inaccurately recognized, recorded in the wrong period and the risk that management may be in a position to make inappropriate accounting entries, and the risk of bias in accounting estimates and judgements such as the profiling of the deferred income.

We performed procedures including:

• Identifying journal entries and other adjustments to test based on risk criteria and comparing the identified entries to supporting documentation. These included those posted by senior finance management or individuals who don’t frequent post journals, and those posted to unusual accounts, including unexpected combination of entries related to revenue, expenses, cash and borrowings.

Identifying and responding to risks of material misstatement related to compliance with laws and regulations

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience and through discussion with the directors and management (as required by auditing standards), and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations.

We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit.

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

Secondly, the Company is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, data protection laws, anti-bribery, and regulatory capital and solvency regulation recognising the financial and regulated nature of the Company’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry of the directors and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach.

Context of the ability of the audit to detect fraud or breaches of law or regulation

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.

In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.

Strategic report and directors' report

The directors are responsible for the strategic report and the directors’ report. Our opinion on the financial statements does not cover those reports and we do not express an audit opinion thereon.

Our responsibility is to read the strategic report and the directors’ report and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work:

• we have not identified material misstatements in the strategic report and the directors’ report;

• in our opinion the information given in those reports for the financial year is consistent with the financial statements; and

• in our opinion those reports have been prepared in accordance with the Companies Act 2006.

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

• the financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

As explained more fully in their statement set out on page 6, the directors are responsible for: the preparation of the financial statements and for being satisfied that they give a true and fair view; 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; assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

a) Share capital

The balance classified as share capital is the nominal proceeds on issue of the Company’s equity share capital, comprising 6 ordinary shares of £1 each.

b) Share premium

The amount paid to the Company by the shareholders, in cash or other consideration, over and above the nominal value of the shares issued to them.

c) Retained (deficit)/ earnings

Retained deficit represents net losses accumulated in the Company and retained earnings represents accumulated profits of the Company.

Tascor Services Limited a company incorporated and domiciled in United Kingdom.

In determining the appropriate basis of preparation for the annual report and financial statements for the year ended 31 December 2021, 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 financial statements. The Directors have concluded that it is appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, and sensitivities, as set out below.

Board assessment

Base case scenario

The financial forecasts used for the going concern assessment are derived from financial projections for 2022-2023 for the Company which have been subject to review and challenge by management and the Directors. The Directors have approved the projections. Under the base case scenario, completion of Capita plc’s group wide transformation programme has simplified and strengthened the business and facilitates further efficiency savings enabling sustainable growth in revenue, profit, and cash flow over the medium term.

Severe but plausible downside

In addition to the base case, the Directors have also considered severe but plausible downside scenarios. The Directors have taken account of trading downside risks, which assume the Company is not successful in delivering the anticipated levels of revenue, profit, and cash flow growth. The downside scenario used for the going concern assessment also includes potential adverse financial impacts due to additional inflationary pressure which cannot be passed on to customers, not achieving targeted margins on new or major contracts, unforeseen operational issues leading the contract losses and cash outflows, and unexpected potential fines and losses linked to incidents such as data breaches and/or cyber-attacks.

Offsetting these risks the Directors have considered available mitigations within the direct control of the Company, including reductions to variable pay rises, setting aside any bonus payments and limiting discretionary spend.

Reliance on Capita plc ('the Group')

The Director’s assessment of going concern has considered the extent to which the Company is reliant on the Group. The Company is reliant on the Group in respect of the following:

• provision of certain services, such as administrative support services and should the Group be unable to deliver these services, the Company would have difficulty in continuing to trade;

• participation in the Group’s notional cash pooling arrangements, of which £233,412 was held at 31 July 2022. In the event of a default by the Group, the Company may not be able to access its cash balance within the pooling arrangement;

• recovery of receivables of £241,689 from fellow Group undertakings as of 31 July 2022. If these receivables are not able to be recovered when forecast by the Company, then the Company may have difficulty in continuing to trade;

• additional funding that may be required if the company suffers potential losses in future; and

• revenue from other group entities and/or key contracts that may be terminated in the event of a default by the Group.

Given the reliance the Company has on the Group, the Directors have considered the financial position of the ultimate parent undertaking as disclosed in its most recent consolidated financial statements, being for the six months period ended 30 June 2022.

Ultimate parent undertaking - Capita plc

The Capita plc Board (‘the Board’) concluded that it was appropriate to adopt the going concern basis, having undertaken a rigorous assessment of the financial forecasts, key uncertainties, and sensitivities, when preparing the Group’s condensed consolidated financial statements at 30 June 2022. These condensed consolidated financial statements were approved by the Board on 4 August 2022 and are available on the Group’s website (www.capita.com/investors). Below is a summary of the position at 4 August 2022:

Accounting standards require that ‘the foreseeable future’ for going concern assessment covers a period of at least twelve months from the date of approval of these condensed consolidated financial statements, although those standards do not specify how far beyond twelve months a Board should consider. In its going concern assessment, the Board has considered the period from the date of approval of these condensed consolidated financial statements to 31 December 2023, which is just less than eighteen months from the date of approval of the Group condensed consolidated financial statements ('the going concern period') and includes the scheduled repayments of private placement loan notes in the second half of 2023.

The base case financial forecasts demonstrate liquidity headroom and compliance with all covenant measures throughout the going concern period to 31 December 2023. The base case projections used for going concern assessment purposes reflect business disposals completed up to the date of approval of these condensed consolidated financial statements but do not reflect the benefit of any further disposals that are in the pipeline. The liquidity headroom assessment in the base case projections reflects the Group’s existing committed financing facilities and debt redemptions and does not reflect any potential future refinancing.

The principal mitigation to the possibility of insufficient liquidity in the severe but plausible downside scenario is the continuation of the Board approved disposal programme which covers businesses that do not align with the Group’s longer-term strategy. The Group has a strong track record of executing major disposals. In 2021, the Board targeted to achieve £700m of disposal proceeds by 30 June 2022 and has exceeded this target. The disposal programme continues, with further disposal processes launched in 2022. The Board is confident that the disposal programme will be delivered, thereby introducing substantial net cash proceeds to the Group, albeit with a corresponding removal of consolidated profits and cash flows associated with the disposal businesses.

In addition to the ongoing disposal programme, the Group may seek to mitigate the liquidity risks which might arise in the downside scenario by seeking further sources of financing beyond its existing committed funding facilities. The Board has been successful in obtaining new and extended financing facilities in recent years, most recently the extension of the RCF which was signed in July 2022.

Material uncertainty related to the Group

The Board recognises that the disposal programme requires agreement from third parties and that major disposals may be subject to shareholder and, potentially, lender and regulatory approval. Similarly, any new refinancing requires agreement with lenders. Such agreements and approvals are outside the direct control of the Group. Therefore, given that some of the mitigating actions which might be taken to strengthen the Group's liquidity position in the severe but plausible downside scenario are outside the control of the Group, this gives rise to material uncertainties, as defined in accounting standards, relating to events and circumstances which may cast significant doubt about the Group’s ability to continue as a going concern and to continue in operation and discharge its liabilities in the normal course of business.

Adoption of going concern basis by the Group:

Reflecting the Board’s confidence in the benefits expected from the completion of the transformation programme and execution of the approved disposal programme coupled with the potential to obtain further financing beyond its existing committed funding facilities, the Group continues to adopt the going concern basis in preparing these condensed consolidated financial statements. The Board has concluded that the Group will be able to continue in operation and meet their liabilities as they fall due over the period to 31 December 2023. Consequently, these condensed consolidated financial statements do not include any adjustments that would be required if the going concern basis of preparation were to be inappropriate.

Conclusion

Although the Company has a reliance on the Group as detailed above, even in a severe but plausible downside for both the Company and the Group, the Directors are confident the Company will continue to have adequate financial resources to continue in operation and discharge its liabilities as they fall due over the period to 31 December 2023 (the “going concern period”). Consequently, the annual report and financial statements have been prepared on the going concern basis.

In addition, the Company’s parent company is also currently exploring the option to sell the Company and the intentions of any potential acquirer due to the change in ownership of the Company are not certain at the date of approval of these financial statements, which means that the Directors are unable to assess or control all scenarios for the Company’s future, including its funding and the post-sale group structure.

As the Group’s condensed consolidated financial statements have identified material uncertainties giving rise to significant doubt over the Group’s ability to continue as a going concern, given the Company’s reliance on the Group as set out above, as well as the uncertainty around planned disposal, these conditions and events give rise to a material uncertainty which may cast significant doubt about the Company’s ability to continue as a going concern and, therefore, that the Company may be unable to continue in operation and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments which would be required if the going concern basis of preparation were to be deemed inappropriate.

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 undertaking, 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 Transparency Rules of the UK's Financial Conduct Authority. These 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:

• A cash flow statement and related notes;

• Comparative period reconciliations for share capital, property, plant and equipment and intangible assets;

• Disclosures in respect of capital management;

• The effects of new but not yet effective IFRSs;

• Certain disclosures as required by IFRS 15 (Revenue from Contract with Customers); and

• Disclosures in respect of the compensation of key management personnel.

As 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:

• Certain disclosures required by IFRS 2 Share Based Payments in respect of group settled share-based payments;

• Certain disclosures required by IAS 36 Impairments of assets in respect of the impairment of goodwill and indefinite life intangible assets;

• Certain disclosures required by IFRS 3 Business Combinations in respect of business combinations undertaken by the Company, in the current and prior periods including the comparative period reconciliation for goodwill; and

• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures.

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37)

The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. The amendments apply for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the date when the amendments are first applied. At the date of initial application, the cumulative effect of applying the amendments is recognised as an opening balance adjustment to retained earnings or other components of equity, as appropriate. The comparatives are not restated.

The Company is in the advanced stages of the assessment of the amended standard and based on its current assessment, it is not expected to have any material impact to the Company’s financial statements.

Revenue is earned within the United Kingdom.

The Company operates a number of diverse businesses and therefore it uses a variety of methods for revenue recognition based on the principles set out in IFRS 15. Many of the contracts entered are long term and complex in nature given the breadth of solutions the Company offers.

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.

In determining the amount of revenue and profits to record, and related balance sheet items (such as contract fulfilment assets, capitalisation of costs to obtain a contract, trade receivables, accrued income and deferred income) to recognise in the period, management is required to form a number of key judgements and assumptions. This includes an assessment of the costs the Company incurs to deliver the contractual commitments and whether such costs should be expensed as incurred or capitalised. These judgements are inherently subjective and may cover future events such as the achievement of contractual milestones, performance KPIs and planned cost savings. In addition, for certain contracts, key assumptions are made concerning contract extensions and amendments, as well as opportunities to use the contract developed systems and technologies on other similar projects.

Revenue is recognised either when the performance obligation in the contract has been performed (so 'point in time' recognition) or 'over time' as 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.

For contracts with multiple components to be delivered such as transformation, transitions and the delivery of outsourced services, management applies judgement to consider whether those promised goods and services are (i) distinct - to be accounted for as two separate performance obligations; (ii) not distinct - to be combined with other promised goods or services until a bundle is identified that is distinct or (iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.

At contract inception the total transaction price is estimated, being the amount to which the Company expects to

be entitled and has rights to under the present 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 KPIs. Such amounts are only included based on the expected value or the most likely outcome method, 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 agreed.

Once the total transaction price is determined, the Company allocates this to the identified performance obligations in proportion to their relative stand-alone selling prices and recognises revenue when (or as) those performance obligations are satisfied. The Company infrequently sells standard products with observable standalone prices due to the specialised services required by customers and therefore the Company applies judgement to determine an appropriate standalone selling price. More frequently, the Company sells a customer bespoke solution, 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.

For each performance obligation, the Company determines if revenue will be recognised over time or at a point in time. Where the Company recognises revenue over time for long term contracts, this is in general due to the Company performing and the customer simultaneously receiving and consuming the benefits provided over the life of the contract.

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, for long term service contracts where the series guidance is applied (see below for further details), the Company often uses a method of time elapsed which requires minimal estimation. Certain long-term contracts use output methods based upon estimation of number of users, level of service activity or fees collected.

If performance obligations in a contract do not meet the overtime criteria, the Company recognises revenue at a point in time (see below for further details).

The Company disaggregates revenue from contracts with customers by contract type, as 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.

Long term contractual - greater than two years

The Company provides a range of services in various segments under customer contracts with a duration of more than two years.

The nature of contracts or performance obligations categorised within this revenue type is diverse and includes long term outsourced service arrangements in the public sector.

The Company considers that the services provided meet the definition of a series of distinct goods and services as they are (i) substantially the same and (ii) have the same pattern of transfer (as the series constitutes services provided in distinct time increments (e.g., daily, monthly, quarterly or annual services)) and therefore treats the series as one performance obligation. Even if the underlying activities performed by the Company to satisfy a promise vary significantly throughout the day and from day to day, that fact, by itself, does not mean the distinct goods or services are not substantially the same.

For the majority of long service contracts with customers in this category, the Company recognises revenue using the output method as it best reflects the nature in which the Company is transferring control of the goods or services to the customer.

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 the 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:

1. prospectively as an additional separate contract;

2. prospectively as a termination of the existing contract and creation of a new contract;

3. as part of the original contract using a cumulative catch up; or

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

For 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 as 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 as 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 via 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 use their judgement to estimate the change to the total transaction price. Importantly any variable consideration is only recognised to the extent that it is highly probably that no revenue reversal will occur.

Principal versus agent

The Company has arrangements with some of its customers whereby it needs to determine if it acts as a principal or an agent as more than one party is involved in providing the goods and services to the customer. The Company acts as 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 is primarily responsible for fulfilling the promise to deliver the service or good. This assessment of control requires judgement 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 amount reflecting the margin earned.

Deferred and accrued income

The Company’s customer contracts include a diverse range of payment schedules dependent upon the nature and type of goods and services being provided. The Company often agrees payment schedules at the inception of long term contracts under which it receives payments throughout the term of the contracts. These payment schedules may include performance-based payments or progress payments as well as regular monthly or quarterly payments for ongoing service delivery. Payments for transactional goods and services may be at delivery date, in arrears or part payment in advance. Where payments made are greater than the revenue recognised at the period end date, the Company recognises a deferred income contract liability for this difference. Where payments made are less than the revenue recognised at the period end date, the Company recognises an accrued income contract asset for this difference.

The Company participates in a defined contribution pension scheme where contributions are charged to the profit and loss account in the year in which they are due. This scheme is funded and contributions are paid to a separately administered fund. The assets of this scheme are held separately from the Company. The Company remits monthly pension contributions to Capita Business Services Ltd (“CBSL”), a fellow subsidiary undertaking, which pays the Group liability centrally. Any unpaid contributions at the year-end have been accrued in the accounts of CBSL.

In addition, the Company participates in a number of defined benefit pension schemes which require contributions to be made to separate trustee-administered funds.

Where the Company participates in public sector defined benefit pension schemes (other than the West Sussex County Council Pension Fund, see below), this is for a finite period and there are contractual protections in place to limit the financial risks to the Company of these schemes and as such are reported on a defined contribution basis recognising a cost equal to its contribution payable during the period.

The Company participated in the West Sussex County Council Pension Fund (“the Fund”) which is part of the national Local Government Pension Scheme, a defined benefits pension arrangement. The Company’s participation in the Fund ceased when the contract expired on 16 January 2020. Under the terms of participation, when the Company ceased to employ any active members it triggered an assessment of the Company’s notional section in the Fund. On 2 February 2022 the Fund confirmed that, in accordance with their funding strategy statement, a cessation valuation as at 16 January 2020 had been carried out and an exit credit payment of £192,587 is due from the Fund to the Company. The amount was fixed and not subject to change. The Company previously expected that an exit deficit amount would be payable by the Company to the Fund, and for which the Company was carrying a sufficient level of provision in the financial statements. The Fund made the payment to the Company on 17 March 2022. No further amounts will be due to the Company and the Fund's assessed liability to the Company has been settled.

The Company also participated in the Capita Pension & Life Assurance Scheme (the “Capita DB Scheme”). During 2020, the Company ceased to employ any active members in the Capita DB Scheme 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. The Section 75 debt was paid by Capita plc on behalf of the Company in 2021 with the Company’s liability to the Capita DB Scheme being settled.

As there is no contractual agreement or stated Group policy for charging the net defined benefit cost of the Capita DB Scheme to participating entities, the net defined benefit cost is recognised fully by the Principal Employer (CBSL). During the period the Company participated in the Capita DB Scheme it recognised a cost equal to its contribution payable during the period. The contributions payable by the participating entities are determined on the following basis:-

• The Capita DB Scheme provides benefits on a defined benefit basis funded from assets held in a separate trustee-administered fund.

• The Capita DB Scheme is a non-segregated scheme with around 200 different sections in the scheme where each section provides benefits on a particular basis (some based on final salary, some based on career average earnings) to particular groups of employees.

• At each full actuarial valuation of the Capita DB Scheme (carried out triennially), the contribution rates for those sections where there are remaining active members are calculated. These are then rationalised such that sections with similar employer contribution rates (when expressed as a percentage of pensionable pay) are grouped together and an average employer contribution rate for each of the rationalised groups calculated.

• The Company's contribution is consequently calculated by applying the appropriate average employer contribution rate to the pensionable pay of its employees participating in the Capita DB Scheme.

A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent qualified actuary for the Trustee of the Capita DB Scheme, with the last full valuation carried out as at 31 March 2020. The next full actuarial valuation is due to be carried out with an effective date of 31 March 2023.

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.

Investments and other financial assets

Classification

The Company classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through OCI or through profit or loss); and

• those to be measured at amortised cost.

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows.

Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade date (that is, the date on which the Company commits to purchase or sell the asset). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVPL are expensed in profit or loss.

Impairment

The Company assesses, on a forward-looking basis, the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

Trade and other receivables

The Company assesses on a forward-looking basis the expected credit losses associated with its receivables carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade receivables, the Company applies the simplified approach permitted by IFRS 9, resulting in trade receivables recognised and carried at original invoice amount less an allowance for any uncollectible amounts based on expected credit losses.

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 original maturities of three months or less. Bank overdrafts are shown within current financial liabilities.

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when recovery is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. The Company provides, on a discounted basis, for the future rent expense and related cost of leasehold property (net of estimated sub-lease income) where the space is vacant or currently not planned to be used for ongoing operations.

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to income statement.

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

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are the measurement of revenue and profit recognition on certain contractual arrangements. There are judgments to be applied to the measurement of revenue and resulting profit recognition due to the size and complexity of the Company's contract, including the timing of revenue recognition and the recognition of assets and liabilities (for example, an assessment of onerous contract) that result from the performance of the contract.

The total revenue of the Company for the year has been derived from its principal activity wholly undertaken in the United Kingdom.

Audit fees are borne by the ultimate parent undertaking, Capita plc. The audit fee for the current period was £12,600 (2020: £25,000). The Company has taken advantage of the exemption provided by regulations 6(2)(b) of The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) Regulations 2008 not to provide information in respect of fees for other (non-audit) services as this information is required to be given in the Group accounts of the ultimate parent undertaking, which it is required to prepare in accordance with the Companies Act 2006.

The reconciliation between tax charge and the accounting profit multiplied by the UK corporation tax rate for the years ended 31 December 2021 and 2020 is as follows:

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% to 25%. The deferred tax asset at 31 December 2021 has been calculated based on this rate, resulting in a £213,547 tax credit to the income statement in 2021.

*Other receivables relates to the refund receivable from West Sussex County Council Pension Fund (Refer to Note 14).

Property provisions (dilapidations) are made where the Company is required to perform repairs on leased properties prior to the properties being vacated at the end of their lease term. Provisions for such costs are made where a legal obligation is identified and the liability can be reasonably quantified.

Other provisions of £416,384 are made up of legal dispute provisions which are expected to unwind within one year and is in relation to legal claims where the Company is in negotiation as to the extent of any redress due.

Contract provision of £10,000 pertaining to Sussex contract has been released since the contract ceased on 16 January 2020

The Company participates in both defined benefit and defined contribution pension schemes.

Contributions in respect of defined contribution pension schemes payable by the Company during the year amounted to £212,302 (2020: £461,105).

The pension credit for the West Sussex County Council Pension Fund for the year was £755,000 (2020: pension charge of £800,000).

Where the Company participates in public sector defined benefit pension schemes (other than the West Sussex County Council Pension Fund, see below), this is for a finite period and there are contractual protections in place allowing actuarial and investment risk to be passed on to the end customer via recoveries for contributions paid. The nature of these arrangements vary from contract to contract but typically allows for the majority of contributions payable to the schemes in excess of an initial rate agreed at the inception to be recovered from the end customer, as well as exit payments payable to the schemes at the cessation of the contract (where applicable), such that the Company’s net exposure to actuarial and investment risk is immaterial.

Judgement is required in determining the appropriate accounting treatment for the participation in these schemes, in particular as to whether actuarial and investment risk fall in substance on the Company. It is considered that the net risk to the Company from these defined benefit arrangements is immaterial and therefore the costs in relation to all of the above schemes are reported on a defined contribution basis recognising a cost equal to its contribution payable during the period. No amounts are recognised on the Company’s balance sheet.

The pension charge for these public sectors defined benefit pension schemes is included in the above defined contribution amount.

The Capita Pension and Life Assurance Scheme (the "Capita DB Scheme")

The Company participated in the Capita DB Scheme, a defined benefit pension scheme.

During 2020, the Company ceased to employ any active members in the Capita DB Scheme 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. The Section 75 debt was paid by Capita plc on behalf of the Company in 2021 with the Company’s liability to the Capita DB Scheme being settled.

The Capita DB Scheme is a non-segregated scheme with around 200 different sections in the scheme where each section provides benefits on a particular basis (some based on final salary, some based on average career earnings) to particular groups of employees.

A full actuarial valuation of the Capita DB Scheme is carried out every three years by an independent qualified actuary for the Trustee of the Capita DB Scheme, with the last full valuation carried out as at 31 March 2020. Amongst the main purposes of the valuation is to agree a contribution plan such that the pension scheme has sufficient assets available to meet future benefit payments, based on assumptions agreed between the Trustee of the Capita DB Scheme and the Principal Employer (Capita Business Services Ltd, a fellow subsidiary undertaking). The 31 March 2020 valuation showed a funding deficit of £182.2m (31 March 2017: £185.0m). This equates to a funding level of 89.0% (31 March 2017: 86.1%).

As a result of the full actuarial valuation, the Principal Employer and the Trustee of the Capita DB Scheme agreed a funding plan to eliminate the deficit – the Principal Employer has agreed to pay additional contributions totalling £124m between July 2021 and December 2023.

In addition, the Principal Employer has agreed to make additional, non-statutory, contributions of £15m each year in 2024, 2025 and 2026 to meet a secondary funding target. The aim of which is to target, by 2026, the position of having sufficient assets to invest in a portfolio of low risk assets that will generate income to pay members’ benefits as they fall due.

Finally, the Principal Employer agreed an average employer contribution rate of 36.0% (excluding employee contributions made as part of a salary sacrifice arrangement) towards the expected cost of benefits accruing.

The next full actuarial valuation is due to be carried out with an effective date of 31 March 2023.

For the purpose of the consolidated accounts of Capita plc, an independent qualified actuary projected the results of the 31 March 2020 full actuarial valuation to 31 December 2021 taking account of the relevant accounting requirements.

The principal assumptions for the accounting valuation as at 31 December 2021 were as follows: rate of increase in RPI/CPI price inflation – 3.30% pa/2.65% pa (2020: 2.90% pa/2.15% pa); rate of salary increase – 3.30% pa (2020: 2.90% pa); rate of increase for pensions in payment (where RPI inflation capped at 5% pa applies) – 3.20% pa (2020: 2.85% pa); discount rate – 1.90% pa (2020: 1.30% pa).

The Capita DB Scheme assets at fair value as at 31 December 2021 totalled £1,732.5m (2020: £1,568.8m). The actuarially assessed value of Capita DB Scheme liabilities as at 31 December 2021 was £1,725.3m (2020: £1,810.6m) indicating that the Capita DB Scheme had a net asset of £7.2m (2020: net liability of £241.8m). These figures are quoted gross of deferred tax. The full disclosure is available in the consolidated accounts of Capita plc.

For the purpose of these accounts, this Company’s interest in the Capita DB Scheme is reported on a defined contribution basis recognising a cost equal to its contributions payable over the period. The pension charge for the Company in relation to the Capita DB Scheme for the year is included in the above defined contribution amount.

West Sussex County Council Pension Fund ("the Fund")

The Company participated in the West Sussex County Council Pension Fund ("the Fund") which is part of the national Local Government Pension Scheme, a defined benefits pension arrangement.

The Company’s participation in the Fund ceased when the contract expired on 16 January 2020. Under the terms of participation, when the Company ceased to employ any active members it triggered an assessment of the Company’s notional section in the Fund. On 2 February 2022 the Fund confirmed that, in accordance with their funding strategy statement, a cessation valuation as at 16 January 2020 had been carried out and an exit credit payment of £192,587 is due from the Fund to the Company. The amount was fixed and not subject to change. The Company previously expected that an exit deficit amount would be payable by the Company to the Fund, and for which the Company was carrying a sufficient level of provision in the financial statements. The difference between the Company’s previous expectation (a payment to the Fund of up to £0.56m) and the actual amount receivable by the Company has been treated as a settlement item – a gain of £0.765m. The Fund made the payment to the Company on 17 March 2022. No further amounts will be due to the Company and the Fund's assessed liability to the Company has been settled.

Responsibility for the governance of the Fund lies with the West Sussex Pension Advisory Board (the “Board”) which operates under a framework of corporate governance and is responsible for following the relevant statutory regulations. The funding regime is set out in the Local Government Pension Scheme (Administration) Regulations 2008 (as amended).

The assets of the Fund are held in a separate fund (administered on behalf of the Board) to meet long-term pension liabilities to beneficiaries. The Board invests the assets in line with the Investment Strategy Statement. The Investment Strategy Statement has been established after taking into consideration the liabilities of the Fund and the investment risk that the Board is willing to accept.

Amounts recognised in the income statement in respect of the Fund are as follows:

Amounts recognised in other comprehensive income in respect of the Fund are as follows:

The amounts included in the balance sheet arising from the Company's obligations in respect of the Fund are as follows:

Movements in the present value of defined benefit obligations

The defined benefit obligations arise from plans funded as follows:

Movements in the fair value of plan assets:

The actual return on plan assets was £nil (2020 : £nil).

The average monthly number of employees (including non-executive directors) were:

Their aggregate remuneration comprised:

The number of Directors for whom retirement benefits are accruing under defined benefit schemes amounted to 2 (2020: 2). No Directors exercised their share options during the year (2020: nil).

The Company has provided in the normal course of its business performance bonds and bank guarantees of £344,000 (2020: £343,000). These are guaranteed by the Company's ultimate parent undertaking Capita plc.

The Company's immediate parent undertaking is Capita Business Services Ltd, a company incorporated in England and Wales.

The Company's ultimate parent undertaking 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, England, EC2V 7NQ.

In February 2022, the Company received notification of exit credit from the West Sussex County Council Pension Fund. This event has been considered as an adjusting event and accordingly, Employee benefit asset of £195,000 has been reclassified as a receivable.

As on March 2022, the Company's share capital was reduced to 1 Ordinary share of £1 nominal value through the cancellation of 5 Ordinary shares of £1 each. The Company's share premium account was also reduced by £28,499,996 to nil.

In April 2022, the Company declared interim dividend of £29,826,398 which is settled by way of intercompany loan payable to Capita Business Services Limited.