Parish Council Finance

Amendments to regulations in 2020

Following NALC’s engagement with government around local council audit timeframes final regulations are due to be made the week commencing 6 April which will extend the statutory audit deadlines for 2019/20. It is proposed that:

• The publication date for final, audited, accounts for local councils will move from 30 September to 30 November 2020

• To give local councils more flexibility, the requirement for the public inspection period to include the first 10 working days of July has been removed. Instead, local councils must commence the public inspection period on or before the first working day of September 2020

This means that draft accounts must be approved by 31 August 2020 at the latest or maybe approved earlier where possible.

Authorities must publish the dates of their public inspection period this year, and the government recommends that they provide public notice on their websites (where available) when the public inspection period would usually commence, explaining why they are departing from normal practise for 2020. We will provide updates for our members once these regulations have been made. The Joint Practitioners Action Group (JPAG) will also provide an addendum to the Practitioners Guide to layout fully for councils the new time frames that the government puts in place.

We are pleased the government has listened to the sector and recognises the need for an extension to the timeframes for audit. This extension is for two months and not the minimum of at least three months which NALC called for in our response to the consultation on the draft regulations.



A local council will obtain its required funds via a precept upon the billing authority (the Unitary or District Council within whose area the local council operates).  The precept is an order on the billing authority to pay to the local council a certain sum which is required to carry out its functions and services for the year

Before setting its precept, the local council is expected to consider its spending plans for the year and to take into account any income from other sources, so that only the net total of revenue expenditure is approved as its precept.  This procedure will normally take place between November and January for the precept for the ensuing financial year.

It should be noted that only the full council at a properly convened meeting can approve a precept.  A sub-committee can discuss and recommend a precept so long as its recommendation is approved at a later full council meeting

Power to Incur Expenditure

A local council is empowered to incur expenditure on anything which is calculated to facilitate, or is conducive or incidental to, the exercise of its statutory powers.  It cannot incur expenditure on anything that is not authorised in statute (but see Section 137 & “well-being” expenditure below).  Numerous Acts and Regulations detail the statutory powers conferred on a local council.

Section 137 Expenditure

Section 137 of the Local Government Act 1972, allows expenditure, up to a certain annual limit, on anything which, in the opinion of the council, is in the interests of the parish, or part of it, or is in the interests of all or some of its inhabitants as long as the amount awarded is commensurate with the benefit received.  (Good examples here are Armistice day wreaths or donations to local clubs and organisations).

The annual limit for Section 137 expenditure is set at a rate per elector.  This rate is reviewed annually by Government and published prior to the start of the financial year commencing 1st April.  The current rate applicable per elector for the financial year commencing 1st April 2020 is £8.32.

The Power of Well-Being

Some councils have an extended power, derived from section 2 of the Local Government Act 2000, to spend money on the well-being of the parish (as defined in the Act).  This power requires special training and qualifications for the Clerk and the Parish Councillors

Capital Finance

If a local council wishes to incur expenditure on capital items (items not considered to be normal day-to-day revenues expenses), for example purchase of land or building or refurbishing a village hall, it will have to choose between several ways of financing the expenditure – sale of an asset (e.g. land), payment by instalments, saving the funds in advance, borrowing, grant or a combination of these.

Saving in advance – the council should decide what the likely costs of the project are and how much it can realistically include in the precept for each year until the required sum is accumulated.  It should set up a Specific Reserve in its accounts into which the annual sum is transferred from its General Reserve until the required total expenditure is accumulated.  Depending upon the amount required, this may take several years.

Borrowing – a local council may not borrow money (except as an overdraft on its bank account to cover for the short-term problems encountered between paying for day-to-day expenditure and receipt of income or precept), unless permission is given by the Department For Communities and Local Government.  This is termed as “Loan Sanction”.  Loan sanction is not the granting of a loan – it is merely permission to borrow.  Once loan sanction is given, the local council is free to negotiate a loan from whichever source can give the best terms.  In reality, most local councils will apply to the Public Works Loan Board for the loan.  Once granted, a loan will obviously have to be serviced i.e. arrangements will have to be made for the repayments, including interest, to be paid and these must be included in the budget process and precept setting for future years.

Annual Accounts

Most statutory requirements relating to accounts and audit are contained in the Accounts and Audit Regulations 2011.  A local council must prepare a set of Accounts to show its transactions for the year.  This set of Accounts must be prepared in accordance with legislation at the time and is currently as follows:

For local councils with income or expenditure up to £200,000 – Receipts and Payments Account showing the actual total receipts and payments for the year.

For local councils with income or expenditure above £200,000 – Income and Expenditure Account showing the actual total receipts and payments for the year which have been adjusted to include for amounts owing and owed at the end of the year (debtors and creditors), and Balance sheet showing the state of the balances as at the year end.

In both cases, a set of Supporting Notes must be produced also.  These Notes should detail how certain required figures are arrived at in the Accounts and also must include certain other explanations.

Any council with income and expenditure above £6.5m pa will need to prepare a set of accounts showing a true and fair view of its financial activities.  Councils with expenditure or income between £200,000 and £6.5m pa can opt to prepare a full statement instead of income and expenditure accounts if they wish.  Annual expenditure or income has to be above the relevant threshold for 3 consecutive years for it to take effect.

These Statutory Accounts must be prepared and approved by the Full Council before 30th June in any year and an Annual Return completed for audit purposes.  Detailed guidance on proper accounting practice is set out in “Governance and Accountability for Local Councils – A Practitioner’s Guide”, published jointly by NALC and SLCC.

Internal Audit

Regulation 6 of The Accounts and Audit Regulations 2011 requires that each local authority “must undertake an adequate and effective  internal audit of its accounting records and of its systems of internal control”. The same Regulations require a local authority to review the effectiveness of internal audit on an annual basis.

More detailed guidance on both internal and external audit practices and procedures is given in the “Practitioners Guide"

A local council must appoint an internal auditor who is independent of the day to day transactions of the council and its members.  The auditor should not be a member of the council.  The auditor may be anyone who, in the opinion of the council, is competent to carry out the work and does not have to be a qualified person.  They can be paid for their services.

It is not necessary for the auditor to have professional indemnity insurance cover in place – the Audit Commission has stated that the internal auditor will not be held responsible for not discovering any error, omission or fraud which may come to light at a later date.

Approving Expenditure and Drawing Cheques

The council must approve all items of expenditure for payment.  It is usual practice for a list of payments to be presented at the council meeting for approval and the cheques signed at that meeting.  If cheques are signed prior to the meeting, retrospective approval must be given.

All cheques or orders for payment against the council’s bank account must be signed by at least two Members who are also authorised signatories (Local Government Act 1972 – Section 150 (5)).  Clerks or other employees should not sign cheques or orders unless two Councillors also sign.  Current signatories are:-

Cllr R Webb, Cllr R Darby, Cllr M Speed

These arrangements are expected to change with the repeal of Section 150(5) of the Local Government Act 1972.  This is to reflect modern payment methods.