5 Recycled Capital Grant Fund

5.1 General

5.1.1 This section sets out how the RCGF must be administered. For details of the Permitted Uses of the Fund see section 6.

5.1.2 When Capital Grant is Recoverable an RSL may be able to choose between Repaying the Grant to the Agency or placing it in a self-administered fund, known as the Recycled Capital Grant Fund (RCGF). It can then spent by the RSL on the Permitted Uses (Recycled). 

5.1.3 The principles governing the establishment and use of an RCGF are set out in the Recovery Determination.  Details of procedures covering the crediting, use and administration of RCGF are set out in this section of the CFG. 

5.1.4 There are some circumstances in which the Agency will expect Repayment of all or part of the Capital Grant as soon as possible after the Relevant Event.  These situations are covered in paragraph 16 of the Recovery Determination which cross-references Relevant Events (a) to (i) in paragraph 7 of the Determination.

5.1.5 For clarity, (7) (e) includes failure to complete a scheme within the original timetable or a revised time scale agreed with the Agency, and under those circumstances Recovered Grant must be repaid and not Recycled, .

5.1.6 For (7) (f) the Agency will make a judgement as to whether the error is of sufficient size to warrant Repayment; this will normally include any sum greater than £500.

5.1.7 Recovered Grant from Key Worker Living programme receipts must be repaid, not Recycled, if:
1. The RSL is a  NOT a Key Worker Living HomeBuy Agents AND,
2. the receipt is generated from the redemption of an Equity Percentage Loan (by the mortgagor, i.e. the home owner) funded under Equity Mortgage arrangements (i.e. Open Market HomeBuy and its predecessor products) within the Key Worker Living programme (or its predecessor programme, the Starter Homes Initiative.) 

Folow asterisk for further guidance.  

 

5.1.8 RSLs’ internal records of Recoveries will need to record the originating LA area in which the credit to the fund was generated (see {6.4.3}

5.1.9 RSLs’ internal records of Recoveries will therefore need to record cases where the credit to the fund originates in a rural area. (see {6.4.4})

5.2 Process for Crediting the Recycled Capital Grant Fund

5.2.1 Following any Relevant Event RSL has the option of Repaying the Recoverable Capital Grant to the Agency, instead of crediting it to an RCGF. 

5.2.2 Each RSL must weigh up any advantage of being able to Recycle Capital Grant against the cost of setting up and administering an RCGF and the likelihood of a usable balance being built up in the fund within three years.

5.2.3 Following a Relevant Event (and where the RSL chooses to credit an RCGF) the RSL will calculate the amount of Capital Grant to be Recovered (see Sec 3).  The methods of calculating this amount are detailed in this Guide.  For each Relevant Event the RSL will complete, and retain, a form showing the calculation of the amount of Capital Grant Recoverable.  This amount will be credited to the RCGF with effect from the date of the Relevant Event.  The form will also show whether the Recovery of any Capital Grant is to be deferred and whether any Capital Grant is written off.

5.2.4 Where a Relevant Event occurs for a Property produced with funds from the RCGF, a Recovery of Capital Grant calculation must be made.  The resulting figure must be credited to the RCGF or paid to the Corporation in accordance with the procedures applicable at that time.

5.2.5 Each year, an RSL must calculate and credit notional interest to the fund – as detailed in this section.  This interest becomes part of the RCGF and an RSL may spend it only within the criteria detailed in this section.

5.2.6 Where a Property is sold under Social HomeBuy or Right To Acquire (RTA) procedures, proceeds are credited to the Disposal Proceeds Fund, not the RCGF.

5.3 Administering the Recycled Capital Grant Fund

5.3.1 Circumstances Leading to Repayment of Grant Held in an RCGF

Under certain circumstances  the Agency will require Repayment in total or in part of any current balance in the RCGF. These circumstances are:
 
a) The Agency discovers that an RSL has provided incorrect information or made a material error (defined as including any sum greater than £500) in the calculation of its RCGF.
b) The Agency learns that an RSL has not applied all or part of its RCGF to a Permitted Use within three years
c) The Agency discovers that an RSL has failed to administer its RCGF according to the principles set out in the Recovery Determination and detailed in this Guide or has failed to report or supply information on the amounts of Grant in its RCGF to timetables established by the Agency (as set out in this chapter of the CFG).
d) The Agency discovers that an RSL has applied its RCGF for purposes other than those in the Determination and detailed in this Guide.
e) The Agency decides, in exercise of its regulatory and financial supervisory responsibilities, that an RSL’s financial or management circumstances are such that Grant held in an RCGF is at risk and / or the option of placing Recovered Grant into an RCGF in the future would put that Grant at risk.
f) The Agency decides that an RSL is unlikely to be able to apply all or part of its RCGF to a Permitted Use within three years.
g) The Agency agrees to an RSL’s request for de-registration under section 4(2) or (4) of the Housing Act 1996 (the Recovery will be deferred until a further Relevant Event occurs, using the definition of Relevant Events current at that future time).
h) the RSL coming under Agency supervision and the Agency deciding that retention of the money by the RSL would be inappropriate.  The Agency may cancel this direction at any time after the RSL ceases to be a supervision case.  The Agency will not return any previous RCGF balance or Recovered Capital Grant that had been paid to the Agency.

5.3.2 For (a) and (b) the Agency will require Repayment of the specific sum involved. 

5.3.3 For (c) to (i) the Agency will require Repayment of all or part of the current balance (and for (c) and (d) additionally any Grant from the RCGF already spent by the RSL using processes or for purposes which do not comply with those set out in the Determination and CFG;).

5.3.4 The Agency may also direct that Capital Grant Recoverable upon future Relevant Events is repaid to the Agency for as long as the Agency considers appropriate. 

5.3.5 In all cases notional interest that was added to the sum to be repaid will also be Recovered

5.3.6 In addition to the circumstances listed above, the Agency may withdraw the option of applying Capital Grants through an RCGF if it considers that it would be appropriate to do so in the circumstances of a particular case.

5.3.7 Where Repayment of monies previously credited to an RCGF is required, the Agency will issue an explanatory letter and invoice to the RSL, including the payment schedule and terms.

5.4 Accounting Arrangements for the Recycled Capital Grant Fund

5.4.1 RSLs must maintain a designated fund within their accounts entitled ‘Recycled Capital Grant Fund’.  This fund must be kept entirely separate from the Disposal Proceeds Fund .  There is no requirement to maintain a separate bank account for this fund.

5.4.2 The fund must be supported by an audit trail detailing inputs such as Capital Grant that has been Recovered and notional interest, and any withdrawals made.

5.4.3 RSLs may be asked to produce evidence of the audit trail; any Grant Recovery forms and other supporting documentary evidence should be retained for ten years.

5.4.4 Rules covering the disclosure of RCGF balances and transactions are contained within {The Accounting Requirements for Registered Social Landlords: General Determination LINK}

5.5 Addition of Notional Interest

5.5.1 At 31 March each year, RSLs must add notional interest to their RCGF. 

5.5.2 While the RCGF balance is £250,000 or less, the notional rate that the RSL must use is that which an RSL would obtain by placing the money in the high interest deposit account operated by its own clearing bank.  Therefore an RSL should keep a record of these rates available for its auditor.

5.5.3 While the RCGF balance is greater than £250,000, the notional rate is linked to the Bank of England’s base lending rate, as follows:

Size of RCGF Rate of notional interest
£250,001 to £500,000 Base lending rate minus 75 basis points
£500,001 to £750,000 Base lending rate minus 50 basis points
£750,001 to £1,000,000 Base lending rate minus 25 basis points
Over £1,000,000 Base lending rate

 
5.5.4 The rates quoted are annual rates.  RSLs must calculate notional interest on a daily basis, to take account of varying balances, according to a 365 day year convention, that is:

Balance  x  rate  x  (days for which this balance held/365)

5.5.5 RSLs who pay Corporation Tax on their RCGF interest earnings may deduct that tax from their RCGF balance at the standard Corporation Tax rate applying.

5.5.6 In the calculation, notional interest must be compounded at 31 March of each year.  The RSL must clearly identify whether RCGF credits are Recovered Grant or notional interest.  However, when using RCGF funds, the RSL will simply be drawing against the balance on the account, and does not need to identify whether it is using money that was Recovered Grant or notional interest.

For a worked example, refer to DPF 2.5.6

5.5.7 In calculating notional interest, Recovered Grant must be credited to the RCGF on the date of  the Relevant Event.  Withdrawals should be debited on the date of the Start on Site and/ or other payment milestones. For details on Payment Milestones, refer to  PROG MGMT 5.

5.5.8 Where one RSL is transferring all or some of its RCGF balance to another RSL (for details of the circumstances under which this is acceptable, please see 5.9), notional interest is added at the end of the year. The transferring organisation will calculate interest on the balance up to the date of the transfer debit; the receiving organisation from the date of the credit.

5.5.9 All such transfers must be recorded as withdrawals and inputs from / to the relevant RSL’s RCGF

5.6 Repayment of RCGF

5.6.1 If an RSL does not Recycle the Grant within three years, the Agency will collect it (including nominal interest) and Recycle the money through the NAHP. See section 5.8 below regarding collection processes. See section 5.8 below regarding collection processes.

5.6.2  Whilst three years is the normal time allowed for Recycling, the Agency may collect RCGF sooner under certain circumstances (for details please see 5.7).

5.6.3Where RCGF is repaid to the Agency the amount must be debited on the date of Repayment.

5.6.4 The notional interest due will be calculated by the Agency and identified in the invoice sent to the RSL by the Agency.

5.6.5 The RSL must pay the invoice within the due date, or they will be liable for interest fro late payment.

5.6.6 RSLs must not simply send payment to the Agency without having received an invoice from the Agency.

5.6.7  An RSL may chose to Repay to the Agency Capital Grant within its RCGF at any time during the allowed three year period.  Full details should be forwarded to the Agency’s Financial Assistant at maple House,  and an invoice will be sent to the RSL.

5.6.8 The Agency will allow RSLs to roll-over balances into subsequent years i.e. to be able to keep the Recovered Grant in the RCGF for more than three years where the Agency believes this is in the interest of social housing provision, or results from an acknowledged error by the Agency.  RSLs should approach the relevant regional team to request such a roll-over providing a full explanation of why the fund has not been spent within the permitted 3 years, together with details of why it needs to be rolled over and what the RSL proposes to spend it on.
These will be agreed only in exceptional circumstances and at the sole discretion of the Agency.

5.6.9  Any agreement to roll-over will be for only one year, and further roll-over is again subject to the Agency’s discretion.

5.7 How to identify "three year Grant"

5.7.1 RSLs must identify the amount of three year RCGF Repayable, if any, while preparing for electronic data entry of their annual return.

5.7.2 The three years starts from the end of the RCGF year in which an RSL deposited Grant in its RCGF.

5.7.3 When calculating the amount payable to the Corporation, the RSL may deem Grants placed in the RCGF to have been spent in the order first in, first out. If, by 31 March 2006, an RSL has spent, in total, more than it deposited during 2002/3, it has nothing to pay.

5.7.4 If, by 31 March, an RSL had entered into a contractual commitment to incur expenditure on Permitted Uses, it could regard the RCGF element as having been spent.

Only the following count as contractual commitments:

• An exchange of contracts to acquire;
• Signing a building contract;
• Confirming to a HomeBuy applicant that they can seek a property to purchase (for HomeBuy Agents only.)

5.7.5 Contracts devised to avoid payment of three-year Grant are not acceptable. The Corporation expects contractual commitments to result in the contracted expenditure being incurred within six months. On a building contract, that would mean signing building contracts and starting on site within six months.

5.7.6 RSLs must make payment of any outstanding three-year old Grant to the Corporation only when they receive an invoice from the Corporation.

5.8 Collection process

5.8.1 Following a review of an RSL’s Annual RCGF Return (see section 7.2)  the Corporation will raise an invoice for any three years old Grant plus the interest that the RSL had calculated up to 31 March, the date of the annual return.  The Corporation will ask the RSL to calculate and pay additional interest from 1 April to the date of the invoice. RSLs should not send a payment until they receive the Corporation's invoice.

5.8.2 If a payment arrives later than the date required by the invoice, the Corporation will calculate and invoice for additional interest, as set out in the invoice.

5.9 Transferring Balances Between RSLs

5.9.1 An RSL may, in the circumstances defined below, transfer all or some of its RCGF to another RSL, where this helps create a usable balance and/or supports the quick and efficient use of RCGF to meet regional priorities. 

5.9.2 Transfers may occur between RSLs which are:

1. members of a group structure (although each member of the group must have its own RCGF;)
2. members of a Development Partnership which is currently in receipt of SHG
3. specialist associations (eg BME or supported housing providers)
   

5.9.3 Transfers may also occur (subject to prior agreement of the Regional Investment Team covering the transferring association) where these are:

• to another local association;
• to a similar type of association (eg a housing co-operative)

5.9.4 The receiving organisation must ensure:

• it documents the transfer;
  it receives notification of the date on which each sum within the transferring RCGF was first credited
• the date on which it credits its own RCGF is no more than one day after the date of debiting the RCGF shown by the transferor.

5.9.5 Transfer does not restart the 3 year timetable: the time limit for spending the Recovered Grant within 3 years of the original Relevant Event remains.

5.9.6 Transfers must be specifically identified in Annual Returns, to avoid the possibility of double counting withdrawals and inputs. 

5.9.7 Where a transfer of engagements occurs the process described above should be used, with a transfer of the full RCGF balance to the receiving RSL.  At the year end anAnnual Return should be made for both the receiving RSL and the transferring RSL (the latter covering the period to transfer.)