Veterinary Medicines Dire...

1. Annual Report and Accounts 2020/21

Presented to the House of Commons pursuant to Section 7(3)(c) of the Government Resources and Accounts Act 2000

Ordered by the House of Commons to be printed 20 July 2021

2. Performance Report - Overview

The Veterinary Medicines Directorate (VMD) is the UK regulator of veterinary medicines and policy adviser on this to ministers. We facilitate wide availability of safe and effective medicines to prevent and treat diseases and improve welfare in animals. In doing so we ensure that this is not at the expense of human health or the environment. Veterinary medicines are important to ensure a viable livestock and fish-farming industry and healthy lives for companion and working animals. We deal with all applications for a Marketing Authorisation for veterinary medicines to specified timelines, and when necessary urgency of need. Where necessary, we take formal action against the illegal supply of veterinary medicines in order to protect human and animal health. We continue to seek opportunities to reduce regulatory burden and to improve our operational efficiency.

The VMD had a very successful year, delivering the Business Plan to budget, while maintaining services acknowledged as excellent, and maintaining a high staff engagement index. We have retained whole business ISO 9001:2015 certification, and ISO 27001:2013 for Information Security Management Systems.

For most of the year we have been operating during the transition period ensuring all exit related medicines legislation is in place and that there was no disruption to the supply of medicines within the UK. We now have new primary powers, the Medicines and Medical Devices Act, which provides the legal basis for revision of our secondary legislation. We have also been operating within the restrictions of the Covid-19 pandemic. This also threatened the supply of medicines. It also impacted negatively on our ability to undertake site inspections and in country training overseas. In response we have developed where possible virtual inspections and developed online e-learning tools as well as gaining experience in virtual conference capability. These lessons will be pulled across to working practices under more normal conditions.

The VMD leads activity across government on antimicrobial resistance (AMR) in animal health. We continued to work closely with the veterinary profession, livestock industry and other stakeholders across the public and private sectors to implement the Government’s 2019-2024 AMR strategy (20-year vision on AMR and the 5-year action plan). Our collaborative approach has been a key factor in achieving a 40% reduction in the use of antibiotics in agriculture.

3. About the Veterinary Medicines Directorate

The VMD is the UK competent authority for veterinary medicines regulation. We seek to ensure maximum availability of safe and effective medicines for prevention and treatment of diseases and improved welfare in all animal species. We also ensure that the medicines pose minimal possible risk to human health and the environment. The breadth of our functions in support of our purpose are presented below.

The Overview section of this report summarises our organisation, objectives, key risks to the achievement of our objectives, and how we have performed during the year.

Government:

Veterinary pharmaceutical industry:

Food industry:

Manage the programme for the surveillance of residues of veterinary medicines and banned substances in home-produced livestock and animal products, reporting of results and co ordinating follow-up action.

Our key challenges throughout 2020/21 and our plans for meeting them have been outlined in the VMD’s Business Priorities which are detailed from page 5 of this report.

Key future developments and/or risks are the:

Our approach to managing the principal risks is described in the Governance Statement in this report.

We operate within an overall policy and financial framework determined by the Secretary of State for Defra, through the Parliamentary Under Secretary of State for Rural Affairs and Biosecurity. More information on our governance is set out in our Framework Document.

The financial statements are prepared on a going concern basis. In common with other agencies in the Defra Group, the future financing of the VMD’s liabilities is to be met by future supply of Grant in Aid and the application of future income from fees and charges, both approved annually by Parliament. Approval for the amount required for 2021/22 has already been given and there is no reason to believe that future approvals will not be forthcoming. Furthermore, the Veterinary Medicines Regulations (Amendment) (EU Exit) 2020 was effective in January 2021, and the VMD continues to lead on activity across government on AMR in animal health, the UK government have committed to maintaining funding to implement the 2019-2024 AMR strategy and the 5-year action plan, all multi-year projects which confirms the VMD functions are necessary and should continue to be delivered and that the VMD is best placed to carry out these functions.

4. Performance Summary

In 2020/21 the VMD delivered regulatory services to the veterinary pharmaceutical industry (VPI) to a total cost of £6.0m, these costs for authorisations and inspections work are fully recovered through fees and charges to this industry. The costs of regulation of the food industry £3.7m, are recovered through charges levied on abattoirs and other food processors. Through these fees we achieved full cost recovery.

We thoroughly monitor our financial performance and continue to seek efficiency while maintaining our standards of performance. We managed to achieve our 2020/21 targets, while maintaining our fees at or below the rates set in the Veterinary Medicines Regulation 2013 applicable to the veterinary pharmaceutical industry or SI No: 2945 applicable to the food industry charges.

The VMD also delivered a core programme of work for Defra customers. Activities include policy, enforcement and management of the R&D and AMR programmes. The VMD receive parliamentary funding for this work through Defra to an agreed budget. The approved budget for these activities was set at £5.93m, of which £5.34m was utilised, inclusive of non-cash and notional recharges.

Additional parliamentary funding was made available for the 2020/21 year as we continued preparing for EU Exit and transition, to ensure smooth continuation of medicines availability and over-sight at the point of EU Exit and to explore the opportunities that arise from exit. Resources to support EU Exit work were £9.42m, including £1.87m capital investment, for the repatriation of IT systems to replace those we no longer have access to.

The government signed agreements with ferry operators to provide freight capacity, to mitigate the risk of disruption as the UK and EU adjust to new border processes at the end of the transition period. This ferry capacity made available an alternative supply route for companies moving prioritised products into the UK, which included veterinary medicines. A further £1.40m funding was approved in-year, available on a contingent basis, to be channelled via the VMD to offset the cost of unutilised capacity. The Department for Transport reported a cost of £1.48m for unused freight capacity to be recharged up to 31 March 2021.

Our total operating expenditure for the financial year was £14.05m.

Cash flow

Cash and cash equivalents have decreased to £1.89m as at 31 March 2021 from £3.89m as at 31 March 2020, a decrease of £2m. In year, the VMD’s net cash draw down was £11.9m. The net cash requirement under the gross control funding arrangement was £13.9m.

We aim to follow and support the principles of the Better Payment Practice Code in compliance with the Public Sector Payment Policy to pay 80% of undisputed invoices within five working days. During the year we paid 99.3% of undisputed invoices within five working days.

Business priorities and Key Performance Indicators (KPIs)

We successfully delivered against our framework of Deliverables and KPIs through which we provide the best possible service to all our customers.

5. Performance Analysis

This report outlines our performance against our priorities for the financial year from 1 April 2020 to 31 March 2021. It gives examples of how we are achieving our aims and highlights important events from the year. It follows the structure of our Deliverables and KPIs for 2020/21 to show how we are meeting our objectives.

A clear, shared framework is provided to staff across the whole group of Defra organisations (including non-ministerial departments, executive agencies, non departmental and other public bodies) in Defra’s Single Departmental Plan . Actions to achieve Defra’s strategic objectives are described in detail in the plan.

We successfully delivered against the majority of our Deliverables and KPIs, the details of which are given against our business priorities below.

6. Business Priority 1 – Policy

Policy lead on behalf of Defra for veterinary medicines and AMR

Why are we doing this? The VMD has overall responsibility in the UK for veterinary medicines policy, and animal health aspects of antimicrobial resistance in England, in the broader context of Defra’s animal health and welfare responsibilities and the contribution this makes to safeguarding public health.

Key Performance Indicators

7. Business Priority 2 – Delivering effective regulation during EU Exit Transition Period and beyond

Why are we doing this? The UK has left the EU. As a consequence, we need to ensure that animal medicines availability in the UK is not compromised and that the UK remains attractive to the pharmaceutical industry for Marketing Authorisation applications and complying with all post authorisation regulations.

Key Performance Indicators

8. Business Priority 3 – Delivery of core regulatory services

A)Facilitate optimal availability and safe use of veterinary medicines

Why are we doing this? The VMD authorise veterinary medicines in the UK. Our work creates an environment that provides confidence and investment within the medicines industry and enables exports. It protects the food chain, human and animal health as well as the environment and biodiversity. It also ensures that unsafe medicines can be identified, and appropriate corrective action taken including, where appropriate, removal from the market.

Key Performance Indicators

*Performance indicators for the main types of marketing authorisation application work, some inspection work, the recording and assessment of pharmacovigilance data, and the publication of summary of product characteristics (SPC) and public assessment reports.

B)Surveillance, research and enforcement activities that influence the responsible, safe and effective use of veterinary medicines in the UK

Why are we doing this?: To detect unsafe products or activities and to take corrective action to ensure confidence in veterinary medicines, assist competitiveness, aid consumer confidence, assist with safety and help to ensure medicines, in particular antibiotics, are used responsibly to maintain effectiveness.

Key Performance Indicators

C) To support the capacity building efforts of international regulatory authorities to ensure high quality veterinary medicines that are used safety and effectively to protect human and animal health and the environment

Why are we doing this?: There is increasing international recognition of the importance of regulation of veterinary medicines driven by a combination of interest in stewardship and appropriate use of antibiotics as well as development of livestock business for low and middle-income countries. UK international action is expected for both cross government 20-year AMR vision and 5-year AMR national action plan and Sustainable Development Goals. The expertise of the VMD to support capacity development is recognised by our designation (together with our partner agencies APHA and Cefas) as a United Nations (UN) Food and Agriculture Organization (FAO) AMR Reference Centre. Non-government funding is available to be accessed.

Key Performance Indicators

D)Effective customer and stakeholder engagement

Why are we doing this? To raise awareness of the work of the VMD and why it is important that veterinary medicines are properly regulated and used. To enable effective feedback on our work. To enable maximum utilisation of VMD datasets.

Key Performance Indicators

9. Business Priority 4 – Capacity and Capability

To ensure funding streams are used efficiently to maintain capability and capacity to deliver business objectives in a sustainable and environmentally friendly way.

Why are we doing this?: To enable the VMD to deliver its business objectives by maintaining staffing and other support structures at a level that ensures the business is fit for purpose now that it has left the EU and enters the transition period. Through risk management we aim to identify and respond to issues that could adversely affect the business. We seek continuous improvement to enable us to meet current and future business needs and to ensure we remain competitive alongside other National Competent Authorities.

Key Performance Indicators

*We are working to reduce the days lost through absences where the causes can be managed by the individual or through reasonable adjustments in line with the Defra Sickness Absence Management Policy. For this indicator we will differentiate and report on the progress made on both short-term incidental absences and those resulting from serious long term diagnosed illnesses and injuries.

10. Business Priority 5 – Value for Money

Achieve cost recovery and delivery of Value for Money.

Why are we doing this?To ensure that we can demonstrate to all customers how we achieve best value for money. To ensure an appropriate regulatory framework is in place that supports growth whilst providing appropriate safeguards to protect the food chain, human and animal health and the environment. To ensure that the costs of activities that are carried out to support delivery of our international capacity building objectives are adequately financed, outside our policy budget and industry fee structure.

Key Performance Indicators

11. Social and Community Issues and Environmental Matters

Defra launched its Defra group equality, diversity and inclusion strategy 2020 to 2024 in June 2020 covering the period 2020 to 2024. The aim of the strategy is to ensure Defra group, which includes the VMD, is a great place to work and to deliver our aspirations to be an organisation with a diverse, open and inclusive culture.

The Strategy’s 5 themes of: more inclusive cultures; build and sustain representative workforce; making the UK a great place to live for all; improve Equality Diversity and Inclusion capability and confidence; communicate, raise awareness and report progress.

All our staff are required to complete training on:

All our assessments of Marketing Authorisations include an environmental impact assessment to ensure that the use and disposal of veterinary medicines do not adversely affect the environment.

For more information please see Defra’s Annual Report and Accounts – section headed: “Commentary on Sustainable Performance”, which covers the VMD.

Under the Greening Government Commitments we have a commitment to reduce our greenhouse gas emissions, the amount of waste we generate and our water consumption. Defra’s Built Environment Sustainability Team (BEST) provides us with quarterly figures on each of the following categories.

Sustainability Data

The costs for our energy, water and waste disposal are part of the overall Defra Corporate Recharge costs and are not billed separately. The VMD building is located on a shared site with the APHA in Weybridge and all our waste goes into one system to help incinerate less flammable waste such as animal bedding. The glass and metals are extracted and flash heat treated to ensure biosecurity.

*Flight records are not available prior to 2013, therefore this figure is used for our baseline.

+Figures are given as the number of airline journeys.

The main direct impacts for the VMD are in our electricity and gas consumption. Due to the Covid-19 pandemic we have not been operating normally in the office so this year’s usage is unusually low. Normally significant changes to consumption cannot be made without capital investment, for example to introduce more energy efficient heat sources, to reduce solar gain.

Our main waste is paper and other office related materials. We have produced 92% less waste against the target for 2020/21. Due to the Covid-19 pandemic we have not been operating normally in the office so this year’s waste is unusually low.

We continue to reduce our water use. Our main use is in the toilet facilities, which have ‘water pigs’ in the cisterns. Although we have used less this year due to the office not being normally staffed, in a normal year we cannot do more to reduce toilet facility water usage without capital investment in new hardware. The two showers are already low volume units.

Due to the Covid-19 pandemic and the resultant restrictions there has been a significant reduction in travel. Meetings moved to online video conferencing and for the majority of the year it was not possible to carry out on-site inspections.

During this reporting period we have realised travelling efficiencies and carried out fewer on-site inspections as a consequence of the Covid-19 pandemic, which has resulted in lower vehicle mileage.

Professor SP Borriello CBChief Executive 12 July 2021

12. Accountability Report - Corporate Governance Report

13. Director’s Report

The VMD employs two Directors in addition to the Chief Executive.

The notice period for Executive Directors and senior officials is 3 months.

The composition of the Management Board (including non-executive directors), which provides leadership for directing or controlling the major activities during the year is described within the Governance Statement in this report.

The Board members had no company directorships or other significant interests which conflicted with their management responsibilities in the financial year 2020/21.

There were no personal data-related incidents in 2020/21.

14. Statement of Accounting Officer’s Responsibilities

Under the Government Resources and Accounts Act 2000 HM Treasury has directed the VMD to prepare for each financial year a statement of accounts in the form and on the basis set out in the Accounts Direction.

The Accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of the VMD and of its income and expenditure, statement of financial position and cash flows for the financial year.

In preparing the Accounts the Accounting Officer is required to comply with the requirements of the Government Financial Reporting Manual (FReM) and in particular to:

The Accounting Officer for Defra has designated the Chief Executive of the VMD as Accounting Officer of the VMD. The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances for which the Accounting Officer is answerable, for keeping proper records and for safeguarding the Agency’s assets, are set out in Managing Public Money published by HM Treasury.

The Accounts have been prepared under a direction issued on 23 December 2020 by HM Treasury under Section 7(2) of the Government Resources and Accounts Act 2000 and are audited by the Comptroller and Auditor General.

Our income and expenditure was monitored under a gross control total by HM Treasury and was also incorporated into the Defra Resource Accounting total.

As the Accounting Officer, I have taken all steps that I ought to have taken to make myself aware of any relevant audit information and to establish that VMD’s auditors are aware of that information. So far as I am aware, there is no relevant audit information of which the auditors are unaware.

15. Governance Statement

The Accounting Officer is responsible for maintaining a system of internal control that supports the achievement of the Agency’s policies, aims and objectives, while safeguarding public funds and departmental assets. This is in accordance with the responsibilities assigned in the HM Treasury publication; Managing Public Money.

Assurance and audit findings in this governance statement overall confirm that we have complied with the governance arrangements effectively.

The VMD is an Executive Agency of Defra. We are the UK policy lead on veterinary medicines and, as the national competent authority, are responsible for the implementation of all aspects of the VMD and related legislation.

The Agency is led by the Chief Executive Officer (CEO), who is accountable to the Secretary of State for Defra for our performance and operation and for the achievement of our business priorities in accordance with its targets and key deliverables.

The Secretary of State for Defra determines the overall policy and financial framework within which we operate and the Defra ownership function is exercised by the Defra Director General for Food, Farming and Biosecurity (DG FFaB). The DG FFaB provides advice and challenge on our strategic direction and performance to the VMD management. The CEO formally reports on Agency performance to Defra through the quarterly DG FFaB meetings.

The VMD Management Board (MB) meets quarterly and is the internal governance board providing advice, support and challenge on; the delivery of the key objectives; achieving value for money, and regularity and propriety in the administration and operation of the VMD. Chaired by a Non-executive Director (NED) Julia Drown, the MB consists of the CEO, the Deputy CEO, the Chief Operating Officer (COO), the Head of Finance, two other NEDs, David Corner and David Catlow and the Defra FFaB system DG. The Chief Veterinary Officer, a Defra representative and selected Heads of Teams, as appropriate and applicable to the tabled agenda, are also invited to attend. Minutes of MB meetings are published on GOV.UK.

The Audit and Risk Assurance Committee (ARAC), a sub-committee of the MB, also meets quarterly and provides advice to the CEO on the adequacy and effectiveness of the VMD’s governance and risk management frameworks. Chaired by a NED, David Corner, and consisting of the other two NEDs, the Committee considers reports from a number of senior staff, Defra’s internal auditor (the Government Internal Audit Agency; GIAA) and the external auditor (the National Audit Office). Minutes of ARAC meetings are published on GOV.UK.

Executive Management Board (EMB) from 1 April up to 24 November 2020 the EMB comprised of the CEO, Director of Authorisations, the Director of Operations. Following a restructuring in November, the EMB is formed of the CEO, the Deputy CEO (Director of Authorisations), and the Chief Operating Officer (Head of Business Support Division) who collectively form the Executive Team (the Directorate) that sets the direction for the Agency and has the overall authority to run the Agency on a day-to-day basis. The EMB also includes of all Heads of Divisions and Offices and others may be called upon to attend for specific agenda items.

The focus of HM Treasury’s Corporate Governance Code (CGC) is on ministerial departments and sets out the protocol, accountabilities and role of Departmental Boards. We apply the principles of the code, which requires that Boards operate according to recognised precepts of good corporate governance in business:

It also requires that arrangements are in place for an annual evaluation of the effectiveness of the Board and for results of the evaluation to be acted upon.

The MB and ARAC assessed their effectiveness and the quality of the management information and performance data at each meeting and found both to be acceptable. A more formal assessment was carried out following their March 2021 meetings whereby Committee members and regular attendees of the Boards completed a questionnaire. The review was very positive for the MB and confirmed that it has a clear understanding of its role, has the correct membership and is operating effectively. For ARAC, it was agreed that it is performing well and has a clear understanding of its assurance role. The results were discussed at the July 2021 meetings and some minor observations will be taken into the next period.

The EMB has formally assessed its compliance with the CGC and its effectiveness as evidenced by the delivery of the 2020/21 targets and key deliverables, and the results of the 2020 annual staff survey. The outcomes of the EMB are reported to staff through the weekly Chief Executive’s Newsletter and where appropriate Office Notices. To increase involvement and increase challenge from outside the Executive Team, individual Heads of Team are invited on a rolling basis for a month each to attend and contribute to the meeting.

All VMD staff and Board members are required annually to declare interests which could emerge as a conflict of interest. There is a standing agenda item on declarations of interest at the start of every Board meeting and members who have declared a specific conflict leave the meeting during the discussion of that item. During 2020/21 no Board member conflicts of interest were identified. NED declarations of interest are published on GOV.UK.

The Veterinary Products Committee is an independent scientific advisory committee which advises the VMD on veterinary medicinal products and animal feed additives.

The VPC held meetings in June, October and February. Minutes of meetings and further information is published on GOV.UK. The Committee considered and gave advice to the VMD for 2 applications to change the legal categories of authorised products and for an application for an Animal Test Certificate for a vaccine. It also formed a working group to consider the impact of ectoparasiticides for companion animals on the environment and continued to monitor veterinary pharmacovigilance activities through the reports compiled by the VMD’s Pharmacovigilance team. In addition, the Committee held it’s virtual open day in November jointly with VMD.

The overall governance structure and associated assurance, as well as advice and challenge, are enriched by the VPC and discussions between the CEO and the Chief Veterinary Officer. We hold external certification to ISO 9001:2015 (Quality Management), which covers all our operational processes. We also hold external certification to ISO 27001:2013 (Information Security Management Systems).

During the year we have worked effectively with GIAA to review:

to confirm the VMD’s assurance and control framework is fit for purpose.

Our Civil Service People Survey engagement index score (the survey’s measure of those areas that most shape our experience at work) is 70% (65% last year).

16. Governance and control

We are committed to high standards, reinforced by the Civil Service Code, of integrity, honesty and professionalism in all that we do. We encourage all employees to use Defra’s Whistleblowing Policy if they need to raise a concern about a past, present or imminent wrongdoing within Defra/VMD; or any wrongdoings which conflict with the Civil Service Code.

An appropriate quality assurance framework is in place to assess business models relevant to the Agency. We obtain through MB and ARAC assurance that the associated risks are properly managed. There are no business models which currently fall within the definition ‘business critical models’ as set out by HM Treasury.

In December 2020 our independent auditor (SGS) confirmed the VMD’s continuing certification under ISO 9001:2015 (Quality Management) and ISO 27001:2013 (Information Security) following our Surveillance audit. Areas of audit covered were: Reporting of illegal veterinary products/ handling reports of unauthorised products, AMR Surveillance and Residues and legislation/ Policy Development. This represents independent assurance that our systems and processes meet these internationally recognised standards. For ISO 9001:2015 no non-conformities were found; several opportunities for improvement were suggested. For ISO 27001:2013 two minor non-conformities were identified and a small number of opportunities for improvement were recommended. We are addressing the non-conformities. We are considering all the suggested opportunities for improvement from both audits which we are free to accept or reject under the terms of these audits.

Our Quality Management System (QMS) ensures processes and procedures are documented and managed effectively. Trained VMD auditors, Defra Internal Auditors the National Audit Office (NAO) and SGS each provide us with assurance that processes are being followed and improvements are made on an ongoing basis. Our Quality Management System is certified to ISO 9001:2015.

We operate a Business Continuity Management system to ensure the operation of key activities in the event of a serious incident, including our off-site IT back-up systems. As a result of the Covid-19 pandemic we had to implement our Business Continuity Plan and have all staff working remotely which was achieved in 2 days for the vast majority and 7 days for 12 Agency staff who needed Virtual Private Network licences and we reviewed and reissued our Business Continuity Plan in November 2020.

We have an established governance structure to ensure that information assets are handled appropriately. To support the Information Systems Security Officer, the Agency’s IT Security Officer provides a focal point for Information Asset Owners to seek guidance on effective approaches to managing risk. Information data handling courses are embedded in induction processes and each year all staff are required to complete the Responsible for Information training course.

Data security remains critical and is assured by the VMD’s maintenance of the Cabinet Office Security Standards and external certification to ISO 27001:2013.

There were no data security lapses that were deemed to be significant or critical during 2020/21.

We continued to be part of a wider Defra Data Protection Network to ensure our implementation of the General Data Protection Regulations (GDPR) reflected the latest thinking and practice. We met regularly to share knowledge as GDPR bedded-in and developed through custom and practice. We have also continued to work with our IT systems’ developers to ensure we applied the requirements of GDPR to our new systems.

Our primary role is in the authorisation of veterinary medicines, which is always based on assessing the benefit of medicines against their risks. Consequently, the very nature of our work is to examine risks, to reduce these to an acceptable level, and then to consider the residual risks against the benefits. This philosophy in managing risks is adopted in the approach to risk management across the organisation to identify key risks that could threaten the achievement of the VMD’s objectives.This process of risk management was in place for the year and up to the date of approval of the Annual Report and Accounts.

Our Strategic Risk Register and significant issues are regularly reviewed by the EMB, MB and ARAC and updated as necessary. The degree of risk is measured by considering the likelihood and impact of those risks and issues, and in 2020/21 these were:

Covid-19 pandemic

Operational

Reputational

Financial

Staffing

Governance or structural changes

EU Exit and International

Delivery by partners

Mitigation of risks

All of these were managed appropriately by the VMD through:

The Covid-19 pandemic and its implications have created uncertainty and additional pressures for a full response, including a successful and swift change in working practices by the VMD temporarily moving to full remote working. The most significant impact Covid-19 had was in the inspections side of our work, where it was not possible to do on-site inspections for large periods of the year, however, the risks of this was mitigated by remote reviews. For the remainder of VMD staff its impact was very limited, apart from the move away from office working.

The UK’s exit from the EU continued to be a high risk area for the Agency, in particular, the uncertainty over our new relationship with the EU, for medicines regulation, and the ability to make the most of the opportunities and the impacts of the Northern Ireland Protocol that have arisen following leaving the EU.

Some of the specific actions we implemented and progressed to help control risks included:

We also seek to identify risks that, while not significant enough to appear on the Strategic Risk Register, could still affect the successful outcome of our objectives. These risks are managed within individual business areas and are ‘owned’ by the respective Departmental Heads or Project Leaders who report progress to Directors at regular intervals. This includes a process for escalation to the Strategic Risk Register.

The Government Internal Audit Agency has been responsible for providing VMD’s internal audit service. Internal auditors carry out their work in line with the Annual Internal Audit Plan that is informed by our risk profile and approved by the ARAC on an annual basis. Internal auditors complete their Internal Audit responsibilities using a methodology that is aligned to Public Sector Internal Audit Standards. Reports are issued making recommendations for improvements where appropriate. These four reports were issued during 2020/21:

In their Annual Report, which offers their opinion on the adequacy and effectiveness of risk management, control and governance, the Head of Internal Audit Opinion is one of “Moderate Assurance”.

VMD staff who have been trained as auditors have carried out internal Quality Management System (QMS) audits against the ISO 9001:2015 standard of the following processes:

Whilst no significant internal control problems have been identified during the year, we continually strive to improve our procedures and processes and to manage risk.

17. Remuneration and Staff Report

The Constitutional Reform and Governance Act 2010 requires Civil Service appointments to be made on merit, on the basis of fair and open competition. The Recruitment Principles published by the Civil Service Commission specify the circumstances when appointments may be made or not.

Unless otherwise stated below, the officials covered by this report hold appointments which are open ended. Early termination, other than for misconduct, would result in the individual receiving compensation as set out in the Civil Service Compensation Scheme.

Further information about the work of the Civil Service Commission can be found on the Civil Service Commission website.

The remuneration of the Senior Civil Service (SCS) is set by the Prime Minister following independent advice from the Senior Salaries Review Body (SSRB). The Cabinet Office advises departments in March or April each year of the Government’s response to the SSRB recommendations and produces guidance for departments and network bodies to follow.

Defra develops the SCS Reward Strategy within the Cabinet Office Framework, ensuring that the overall pay awards for the SCS are within the cost ceiling allowed.

Members of the SCS, excluding the Permanent Secretary, are eligible to be considered for individual levels of bonus as non-pensionable, non-consolidated variable pay (NCVP), based on their performance. NCVP is paid in the financial year after that in which it was earned. NCVP values, informed by each individual’s appraisal grade, are paid within Cabinet Office guidelines.

The COO receives an annual salary paid in accordance with the standard Veterinary Medicines Directorate Staff Pay Agreement negotiated through collective bargaining with recognised trade unions. Their performance is monitored and reviewed through the Performance Management System of the Veterinary Medicines Directorate.

The following sections provide details of the remuneration and pension interests of the VMD’s Directors and COO.

Single total figure of remuneration to nearest £1000

(1)The value of pension benefits accrued during the year is calculated as (the real increase in pension multiplied by 20) plus (the real increase in any lump sum) less (the contributions made by the individual). The real increases exclude increases due to inflation or any increase or decreases due to a transfer of pension rights.

(2)P Green left the post of Director of Operations on 24 November 2020. Figures are quoted for the period 01 April 2020 to 24 November 2020. The full year equivalent banding is £75,000 to £80,000. After the restructure in November P Green continued to be paid by the VMD under the Restructuring, redeployment and redundancy policy until he had a new role in Defra.

(3) M Griffiths took up post as Chief Operating Officer from 25 November 2020. Salary figures are quoted for the period from 25 November 2020 to 31 March 2021. The full year equivalent banding is £65,000 to £70,000.

(4) None of the Directors received any benefits-in-kind in 2019/20 or 2020/21.

‘Salary’ includes gross salary; overtime; reserved rights to London weighting or London allowances; recruitment and retention allowances; private office allowances, and any other allowance to the extent that it is subject to UK taxation. This report is based on accrued payments made by the Agency and thus recorded in these accounts.

The monetary value of benefits-in-kind covers any benefits provided by the employer and treated by HM Revenue and Customs as a taxable emolument.

Bonuses are based on performance levels attained and are made as part of the appraisal process. Bonuses paid in 2020/21 relate to performance in the prior financial year, comparative bonuses for 2019/20 relate to the 2018/19 performance.

Reporting bodies are required to disclose the relationship between the remuneration of the highest paid director in their organisation and the median remuneration of the organisation’s workforce.

The full-time equivalent annualised total banded remuneration of the highest paid Director and the median member of staff excluding the highest paid Director are as shown in the following table:

In 2020/21, no employees received remuneration in excess of the highest paid Director (2019/20, nil). Remuneration ranged from £20,366, to £131,000 (2019/20: £16,500 to £124,000).

Total remuneration includes salary, non-consolidated performance-related pay and benefits-in-kind. It does not include severance payments, employer pension contributions and the cash equivalent transfer value of pensions.

There have been no ex-gratia payments or amounts paid during the year in respect of compensation to former senior managers or to third parties for services of a senior manager.

None of the VMD Directors or senior official have held any company directorships or other significant interests during the year that, in the opinion of the Directors or senior official, may conflict with their management responsibilities.

No employer contributions were made to partnership pension accounts during 2020/21 or 2019/20 in respect of the VMD’s Directors.

Pension benefits are provided through the Civil Service pension arrangements. From 1 April 2015 a new pension scheme for civil servants was introduced – the Civil Servants and Others Pension Scheme or alpha, which provides benefits on a career average basis with a normal pension age equal to the member’s State Pension Age (or 65 if higher). From that date all newly appointed civil servants and the majority of those already in service joined alpha. Prior to this, civil servants participated in the Principal Civil Service Pension Scheme (PCSPS). Further details about the Civil Service pension features and benefits can be found in the resource accounts of the Cabinet Office: Civil Superannuation.

These statutory arrangements are unfunded with the cost of benefits met by monies voted by Parliament each year and increased annually in line with Pensions Increase legislation.

Other arrangements include money purchase pensions known as a ‘partnership’ are available as an alternative for employees joining on or after the 1 October 2002. The employer makes an age-related basic contribution of between 8% and 14.75% into a stakeholder pension product chosen by the employee from a panel of providers. The employee does not have to contribute but where they do make contributions, the employer will match these up to a limit of 3% of pensionable salary (in addition to the employer’s basic contribution). Employers also contribute a further 0.5% of pensionable salary to cover the cost of death in service and ill health retirement lump sum benefits.

The pension figures quoted for officials in this report show combined pension earned in all schemes as appropriate.

A Cash Equivalent Transfer Value (CETV) is the actuarially assessed capitalised value of the pension scheme benefits accrued by a member at a particular point in time. The benefits valued are the member’s accrued benefits and any contingent spouse’s pension payable from the scheme. A CETV is a payment made by a pension scheme or arrangement to secure pension benefits in another pension scheme or arrangement when the member leaves a scheme and chooses to transfer the benefits accrued in their former scheme.

The pension figures shown relate to the benefits that the individual has accrued as a consequence of their total membership of the pension scheme, not just their service in a senior capacity to which disclosure applies. These figures also include the value of any pension benefit in another scheme or arrangement which has been transferred to the Civil Service pension arrangements and any additional pension benefit accrued as a result of buying additional pension benefits at their own cost. CETVs are worked out in accordance with The Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008 and do not take account of any actual or potential reduction to benefits resulting from Lifetime Allowance Tax which may be due when pension benefits are taken.

This reflects the increase in CETV that is funded by the employer. It does not include the increase in accrued pension due to inflation, contributions paid by the employee (including the value of any benefits transferred from another pension scheme or arrangement) and uses common market valuation factors for the start and end of the period.

Membership details of the Management Board are detailed in the Governance Statement in this report. The Non-executive members also form the ARAC. The following salaries and benefits-in-kind were paid to the external members:

18. Staff Report

At 31 March 2021 we employed 167 permanent staff (163.1 FTE) and 14 temporary staff (13.6 FTE) supplied by employment agencies. The average number of full-time equivalent permanent and temporary staff during the year and an analysis of staff-in-post (headcount) as at 31 March 2021 by gender are shown below.

We comply with equal opportunities legislation and departmental policy in relation to disabled employees, and Defra’s policies on equal opportunities and health and safety at work.

Following a Civil Service Commission (CSC) annual ‘Recruitment Compliance’ visit in January, the CSC observed excellent compliance with the CSC’s Recruitment Code.

The average FTE number of persons employed during the year was as follows:

The number of staff-in-post (headcount) by gender as at 31 March 2021 was as follows:

Redundancy and other departure costs are paid in accordance with the provisions of the Civil Service Compensation Scheme, a statutory scheme made under the Superannuation Act 1972. Exit costs are accounted for in full in the year of departure or earlier where a demonstrable commitment exists.

For all staff, there were no early departures in 2020/21 (2019/20: nil).

For all staff, there were no compulsory exits in 2020/21 (2019/20: nil).

Pension benefits provided through the Civil Service pension arrangements are unfunded multi-employer defined benefit scheme and we are unable to identify our share of the underlying assets and liabilities. The Scheme Actuary valued the scheme as at 31 March 2016. You can find details in the resource accounts of the Cabinet Office: Civil Superannuation.

For 2020/21, employers’ contributions of £1,834,551 were payable to the PCSPS (2019/20: £1,731,072) at one of four rates in the range 26.6% to 30.3% (2019/20: 26.6% to 30.3%) of pensionable earnings, based on salary bands. The Scheme Actuary reviews employer contributions usually every four years following a full scheme valuation. The contribution rates are set to meet the cost of the benefits accruing during 2020/21 to be paid when the member retires and not the benefits paid during this period to existing pensioners.

Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. Employers’ contributions of £26,668 (2019/20: £26,969) were paid to one or more of the panel of three appointed stakeholder pension providers.

In addition, employer contributions of £811, 0.5% of pensionable pay (2019/20: £823) were payable to the PCSPS to cover the cost of the future provision of lump sum benefits on death in service or ill-health retirement of these employees.

Contributions due to the partnership pension providers at the balance sheet date were £2,135 (2019/20: £2,371). Contributions prepaid at that date were nil.

No individuals retired early on ill-health grounds during the year and therefore no additional pension liabilities have been accrued for this purpose.

The total full-time equivalent days lost through staff sickness absence in the year was 372 compared to 493 in 2019/20. The average working days lost per employee during the year was 2.3 compared to 3.1 in 2019/20.

Short term sickness absences of 10 days or less dropped from 1.4 days per FTE in 2019/20 to 0.6 days per FTE in 2020/21.

As part of HM Treasury’s review of tax arrangements of public sector appointees, departments and their arms-length bodies are required to publish information in relation to the number of off payroll engagements costing over £245 per day that were in place as at 31 March 2020.

The majority of our contractors are engaged in developing new UK veterinary authorisation platforms to replace the EU platforms we lost access to post transition. Once operational we expect system maintenance to be carried out in-house and demand on IT contractors should reduce accordingly.

For all off-payroll appointments engaged at any point during the year ended 31 March and earning at least £245 per day.

Off-payroll engagements of Board members and/or senior officials with significant financial responsibility between 1 April 2020 and 31 March 2021.

Consultancy and temporary staff expenditure £’000

Additional specialised skills have been required to support plans for EU Exit. Consultants are engaged when it is better value for money to do so on specific programme work and when specialised skills are required. Expenditure on temporary staff has provided additional resources to meet short term needs to support priority projects and cover for the backlog in filling vacancies.

We encourage staff involvement in our activities through a variety of channels including: a VMD intranet; topic meetings; day-to-day line management contacts; diverse membership of project teams, and regular meetings reviewing progress against the Business Plan and risk. Office Notices and the intranet are used to disseminate information. An annual staff meeting to review the work of the past year and expected key future issues is presented by the CEO. We work with Defra on wellbeing activities and staff have access to both occupational health and employee assistance services. Trade Union membership and representation is in accordance with Defra’s policies.

The VMD was re-accredited to the Investors in People Silver standard in July 2018.

Due to mainly low risk activities and the size of the organisation we continue to use the policies and advice services from Defra’s Safety, Health and Wellbeing team. No work-related incidents were reported by employees during 2020/21.

19. Parliamentary Accountability and Audit Report (Audited)

We have considered all our activities during the year and confirm that they are in accordance with the legislation authorising them.

Sources of funding and associated costs - reconciliation to the Statement of Comprehensive Net Expenditure

(1) Services for Government include: Policy; enforcement; AMR programmes.

(2) A grant from the Fleming Fund (£121,000); an EU grant (£15,000); and a contribution from the devolved administrations (£77,000) has been received in 2020/21, contributing to the cost of the AMR programme.

(3) The VMD is a Gross Controlled Agency which means the VMD receives an allocated expenditure budget for Defra work not funded by industry.

(4) The VMD is required to include a notional cost of capital charge in the calculation of fees and charges. In line with HM Treasury guidance, this figure is excluded from the results presented in the Financial Statements.

Our fees and charges are set in statute. Our objective for charging is to ensure that we recover our costs for delivering the service. In assessing performance against this target a notional cost of capital charge is recorded in addition to the costs included in the Statement of Comprehensive Net Expenditure. The table below sets out the amount of income we have received and associated costs for the different areas of service which we provide to industry.

Managing Public Money requires a statement showing losses and special payments by value and type to be shown where they exceed £300,000 in total, and those individually that exceed £300,000.

Losses may relate to: cash and stores losses; book-keeping losses; losses arising from failure to make adequate charge for the use of public property or services; fruitless payments, and claims abandoned as well as frauds. Special payments may relate to extra contractual, extra statutory, and ex gratia payments and compensation.There were no losses or special payments that need to be reported in accordance with Managing Public Money.

There were no contingent liabilities as at 31 March 2021 (31 March 2020: nil).

In addition to contingent liabilities reported within the meaning of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, the Agency discloses, for parliamentary reporting and accountability purposes, liabilities for which the likelihood of a transfer of economic benefit in settlement is too remote to meet the definition of a contingent liability. As at 31 March 2021 there are nil to report (31 March 2020: there was one remote contingent liability concerning a potential legal case against the VMD that was settled).

Professor SP Borriello CB Chief Executive 12 July 2021

20. The Certificate and Report of the Comptroller and Auditor General to the House of Commons

I have audited the financial statements of the Veterinary Medicines Directorate (VMD) for the year ended 31 March 2021 under the Government Resources and Accounts Act 2000. The financial statements comprise the Statement of Comprehensive Net Expenditure, Statement of Financial Position, Statement of Cash Flows, Statement of Changes in Taxpayers’ Equity; and the related notes, including the significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards as interpreted by HM Treasury’s Government Financial Reporting Manual.

I have also audited the information in the Accountability Report that is described in that report as having been audited.

In my opinion the financial statements:

In my opinion, in all material respects, the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

I conducted my audit in accordance with International Standards on Auditing (ISAs) (UK), applicable law and Practice Note 10 ‘Audit of Financial Statements of Public Sector Entities in the United Kingdom’. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate.

Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2019. I have also elected to apply the ethical standards relevant to listed entities. I am independent of the VMD in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

In auditing the financial statements, I have concluded that the VMD’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the VMD’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

My responsibilities and the responsibilities of the Accounting Officer with respect to going concern are described in the relevant sections of this certificate.

The going concern basis of accounting for the VMD is adopted in consideration of the requirements set out in HM Treasury’s Government Reporting Manual, which require entities to adopt the going concern basis of accounting in the preparation of the financial statements where it anticipated that the services which they provide will continue into the future.

The other information comprises information included in the Annual Report, but does not include the parts of the of the Accountability Report described in that report as having been audited, the financial statements and my auditor’s certificate thereon. The Accounting Officer is responsible for the other information. My opinion on the financial statements does not cover the other information and except to the extent otherwise explicitly stated in my certificate, I do not express any form of assurance conclusion thereon. In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated. If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact.

I have nothing to report in this regard.

In my opinion, based on the work undertaken in the course of the audit:

In the light of the knowledge and understanding of the VMD and its environment obtained in the course of the audit, I have not identified material misstatements in the Performance and Accountability Report. I have nothing to report in respect of the following matters which I report to you if, in my opinion:

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the Chief Executive as Accounting Officer is responsible for:

My responsibility is to audit, certify and report on the financial statements in accordance with the Government Resources and Accounts Act 2000.

My 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 a certificate that includes my opinion. Reasonable assurance is a high level of assurance but is not a 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 the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

I design procedures in line with my responsibilities, outlined above, to detect material misstatements in respect of non-compliance with laws and regulation, including fraud.

My procedures included the following:

In addition to the above, my procedures to respond to identified risks included the following:

I also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists and significant component audit teams and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website. This description forms part of my certificate.

In addition, I am required to obtain evidence sufficient to give reasonable assurance that the income and expenditure reported in the financial statements have been applied to the purposes intended by Parliament and the financial transactions conform to the authorities which govern them.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

I have no observations to make on these financial statements.

Gareth DaviesComptroller and Auditor GeneralNational Audit Office157-197 Buckingham Palace RoadVictoriaLondonSW1W 9SP

Date:14 July 2021

21. Financial Statements

22. Statement of Comprehensive Net Expenditure for the year ending 31 March 2021

All income and expenditure is derived from continuing operations.

The Notes to the Accounts section form part of these accounts.

23. Statement of Financial Position

as at 31 March 2021

The Notes to the Accounts section form part of these accounts.

Professor SP Borriello CBChief Executive and Agency Accounting Officer

12 July 2021

24. Statement of Cash Flows

for the year ended 31 March 2021

The notes on pages 48-60 form part of these accounts.

25. Statement of Changes in Taxpayers’ Equity

for the year ended 31 March 2021

The Notes to the Accounts section form part of these accounts.

26. Notes to the Accounts

The financial statements have been prepared in accordance with the 2020/21 Government Financial Reporting Manual (FReM) and the Accounts Direction issued by HM Treasury. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS), as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy that is judged to be most appropriate to the particular circumstances of the VMD, for the purpose of giving a true and fair view has been selected. The particular policies adopted by the VMD are described below. They been applied consistently in dealing with items which are considered material in relation to the accounts.

These accounts have been prepared on an accruals basis under the historical cost convention, modified to account for the revaluation of property, plant and equipment. The accruals basis of accounting means reporting income and expenditure when it is incurred rather than when it is received or paid. The financial statements are based on the going concern principle.

In the preparation of financial statements VMD is required to make estimates and assumptions that affect the amounts reported of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amount of income and expenditure. All estimates are based on knowledge of current facts and circumstances, assumptions concerning past events, and forecast of future events.

In the process of applying the accounting policies VMD has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements.

Contract Liabilities: The Agency is responsible for managing the progress of, and income earned from, scientific assessments. Individual assessments may span across more than one financial year and the preparation of the financial statements requires the Agency to determine, based on an evaluation of the terms and conditions of the arrangements, that it fully and accurately reflects the completeness of any contract liabilities in this regard by reference to the stage of completion of any ongoing assessments. (The revenue measurement model is reported in Note 2).

Land and Buildings: Due to the VMD property being located on and interlinked with the Weybridge Estate laboratory complex, the land and building asset valuation is based on this being a ‘specialised building’ using the Depreciated Replacement Cost valuation method according to the RICS guidance, as there is no active market for VMD property or interlinking Weybridge Estate. See note 1.3 below.

Non-current Assets/Depreciation: The Agency carries its non-current assets at fair value as stated in note 1.3 below. The charge for depreciation for each non-current asset is based on an estimate of its useful life.

Land and Buildings are subject to professional valuation at no more than five yearly intervals. These are carried out by professionally qualified independent valuers, who adhere to the principles outlined in the Royal Institute of Chartered Surveyors (RICS) Red Book.The last professional valuation was completed in March 2020 with a valuation date of 31 March 2020. These assets are stated at fair value, which is valued at Depreciated Replacement Cost applying to specialist buildings. Depreciated Replacement Cost is defined as “the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation”. Between professional valuations, annual desk top revaluations are conducted, which have regard for prevailing local and national conditions.

Non-property assets costing £10,000 or more on a grouped or individual basis, where there is an expected useful economic life of more than one year, are carried in the Statement of Financial Position at fair value, using appropriate indices provided by the Office for National Statistics.

Losses on revaluation are charged to the Revaluation Reserve to the extent that gains have been recorded previously and otherwise to the Statement of Comprehensive Net Expenditure.

Intangible assets are defined as identifiable non-monetary assets without physical substance. These comprise software licences and internally developed software, including assets under construction.

The Agency holds various software licences, which were capitalised at purchase cost where this exceeded capitalisation thresholds. Such assets are only revalued where it is possible to obtain a reliable estimate of their market value.

Internally developed computer software includes capitalisation of internal IT employee costs on projects. The Agency does not hold any intangible assets with an indefinite useful life. The capitalisation threshold is generally £10,000. When fully operational in the business, internally developed computer software is stated at the depreciated purchase cost.

Depreciation and amortisation are provided at rates estimated to write-off the valuation of property, plant and equipment, software development and licences on a straight-line basis over the estimated useful life of the asset. Componentisation has been adopted for the VMD’s freehold building asset, with each component capitalised and depreciated separately. Estimated useful lives, component values and residual values are revised annually.

Asset lives are normally within the following ranges:

Impairments are recognised when the recoverable amount of non-current assets falls below their carrying amount. An impairment review is carried out on an annual basis.

Any permanent diminution in the value of an asset due to clear consumption of economic benefit or service potential is recognised in full as an impairment loss in the SoCNE. An amount up to the value of the impairment is transferred from the revaluation reserve (to the extent that a balance exists) to the General Fund for the individual asset concerned.

Downward revaluations, resulting from changes in market value, only result in impairment where the asset is revalued below its historical cost carrying amount. In these cases, the accounting treatment is as for any other impairment, with amounts being firstly set against any accumulated balance in the revaluation reserve, and any amount in addition to this being recognised as impairment and recorded in the SoCNE.

Assets under construction are shown at the accumulated cost with the depreciation commencing when the asset is completed and brought into service.

Expenditure on R&D is treated as an operating cost in the year in which it is incurred and taken to the SoCNE.

As a Gross Accounting Agency, activity for Defra is not invoiced or reported as income, but an authority to spend is delegated to the VMD along with deliverable objectives. The Net Parliamentary Funding is recorded as a movement in Taxpayers’ Equity.

IFRS 15 Revenue from Contracts with Customers was applied by HM Treasury in the Government Financial Reporting Manual (FReM) from 2018-19. IFRS 15 introduces a new five stage model for the recognition of revenue from contracts with customers replacing the previous IAS 18 Revenue. The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of services to customers in a way that reflects the consideration to which the entity expects to be entitled to in exchange for services.

A contract asset – is an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance). A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

Revenue from contracts with customers comprises fees and charges for services provided to industry or contractually entitled income for services provided to market customers. This revenue is measured based on the consideration specified in a contract with a customer. The Agency recognises revenue from contracts with customers in accordance with the five-stage model set out in IFRS 15.

Details of Agency’s main performance obligations, how and when they are satisfied, and the determination of transaction prices, is detailed in Note 2.

Pension benefits are provided through the civil service pension arrangements, full details of which can be found in the Remuneration Report.

Although the PCSPS and the CSOPS, known as alpha, are unfunded defined benefit schemes, in accordance with explicit requirements in the FReM, the VMD account for the schemes as if they were defined contribution plans. Costs of the elements are recognised on a systematic and rational basis over the period during which it benefits from employees’ services by payment to the schemes of amounts calculated on an accruing basis. Liability for payment of future benefits is a charge on the schemes. The PCSPS and alpha pension schemes undergo a reassessment of the contribution rates by the Government Actuary at four-yearly intervals. In respect of defined contribution schemes, the VMD recognises the contributions payable for the year.

Notional costs are amounts charged against the SoCNE by virtue of an interdepartmental non-cash adjustment via the General Fund, with Core Defra recording the associated credit. Defra corporate services recharges comprises Defra legal, human resources, estates, investigation and enforcement services.

Most of the VMD’s activities are outside the scope of VAT and, in general, output tax does not apply. Input VAT can be recovered on certain contracted-out services. Irrecoverable VAT is charged to the relevant expenditure category or, if appropriate, capitalised with additions to non-current assets. Where output tax is charged or input tax is recoverable, the amounts are stated net of VAT.

The Apprenticeship Levy was introduced in April 2017, requiring employers with a pay bill of over £3 million each year to pay the levy. The expense element of the apprenticeship levy is recorded against social security costs, within the staff costs note. If bodies utilise the levy for training expense, a notional charge is recognised. The corresponding credit element is recorded against grant income. Amounts are recognised on an accruals basis.

VMD holds few financial instruments. Financial assets comprise of receivables that are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are initially recognised at fair value and subsequently held at amortised cost after an appropriate provision for expected credit loss. Financial liabilities comprise trade and other payables, and other financial liabilities. They are initially recognised at the fair value of consideration received, less directly attributable transaction costs. They are subsequently measured at amortised cost.

Cash and cash equivalents comprise cash in hand and current balances with banks.

The net operating result for each year is transferred from the SoCNE to the General Fund. The General Fund represents the value of the VMD’s net assets less liabilities as at 1 April 1991, which is the date from which the first Accounts Direction became effective, plus subsequent external funding movements, plus the accumulated net operating result transferred from the SoCNE.

The Revaluation Reserve represents the unrealised cumulative balance of indexation and revaluation adjustments to non-current assets.

All payments under operating leases are charged to the SoCNE. An operating lease is a lease other than a finance lease. A finance lease is one which transfers substantially all the risks and rewards of ownership to the lessee. The Agency does not have any finance leases.

IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, requires disclosures in respect of new IFRSs, amendments and interpretations that are, or will be applicable after the reporting period. There are a number of IFRSs, amendments and interpretations that have been issued by the International Accounting Standards Board that are effective for future reporting periods. Those with relevance to the Agency are outlined below. The Agency has not adopted any new IFRS standards early.

HM Treasury have agreed implementation of IFRS 16 ‘Leases’ will be deferred for central government and will be generally effective from 1 April 2022. IFRS 16 results in lessees accounting for most leases within the scope of the standard in a manner similar to the way in which finance leases are currently accounted for under IAS 17 ‘Leases’. Lessees will recognise a right of use (‘ROU’) asset and a corresponding financial liability on the balance sheet. The asset will be amortised over the length of the lease, and the financial liability measured at amortised cost. Lessor accounting remains substantially the same as under IAS 17. The Agency expects to adopt the standard using a modified retrospective approach where the cumulative effect of initially applying it is recognised as an adjustment to the opening balance of retained earnings and comparatives are not restated.

The Agency will apply this standard upon formal adoption in the FReM. It is not anticipated that material adjustments to the financial statements will be required following the introduction of the standard.

(1)Income for work undertaken for Government comprise of contributions from the devolved administrations, receipt of EU grant to support the AMR surveillance programme and income from the Fleming Fund to support the development of the AMR reference centre.

(2)Other recovery of costs relates to income for advisory services, dossier copying and training delivered by VMD

The following table includes revenue expected to be recognised in the future related to performance obligations that are (partially) unsatisfied at the reporting date:

As at 31 March 2021, the aggregate amount of the transaction price allocated to the remaining performance obligation is £1.337 million (31 March 2020: £1.353 million) and the entity will recognise this revenue as contracts are progressed to completion, which is expected to occur over the next 12 to18 months.

Revenue recognised in the period from amounts recognised in the contract liability at the beginning of the period.

The VMD’s major type of income streams are detailed in the table below:

Included in the permanently employed staff costs is an accrual for untaken annual leave of £393,000, (2019/20: £252,000). The increase in leave accrued at the end of year is due to Covid-19 restrictions on travel in the UK and overseas.

The net income for Travel and Subsistence (£38k) includes reimbursements for cancelled overseas travel. Customer relations and publicity (£5k) includes refunds or prepayments held on account for rescheduled events, both due to the COVID-19 scenario.

No remuneration was paid to the external auditors (National Audit Office) in respect of non-audit work.

The Land and Buildings were valued at 31 March 2021 by an independent valuer (Montague Evans) in accordance with the guidance issued by the Royal Institution of Chartered Surveyors. This resulted in Land and Buildings being revalued at £5.678m, a net decrease of £0.251m from the valuation at 31 March 2020.

This revaluation was carried out using the depreciated replacement cost method, taking into account the expected construction costs to rebuild equivalent assets. This review also considers the remaining economic life of the buildings. All of VMD’s assets are owned and none are held under finance leases.

The net book value for internally generated software includes IT solutions developed to replace EU systems that have ceased to be available upon leaving the EU. These include: Registration and Login £0.602m; Licencing £1.230m; Adverse Event Reporting £2.201m; Service Hub £0.641m; Secure Messaging £0.388m; Cloud Infrastructure £0.579m.

The Adverse Event Reporting system was brought into use in April 2019 and has a remaining amortisation period of eight years. The other systems were brought into use in September 2020, £2.357m being reclassified from IGS assets under construction to IGS in-use, these systems have a remaining amortisation period of nine years. The IGS Special Imports system £0.575m and purchased software and development costs for expenses@work system £0.098m are under construction as at the year-end date.

Cash additions (adjusted for capital accruals) shown in the SoCF amount to £1,927,000 (2019/20 £2,699,000).

Trade receivables are shown net of a provision of £39,000 (2019/20: £128,500) for expected credit loss. The provision is calculated according to the age and status of the debt and recent sector-specific debt-recovery information, including the estimated impacts arising from Covid-19 and industry’s ability to pay fees and charges due.

All balances were held in accounts administered by Government Banking Services.

At the year end the VMD had contract liabilities (£135,000) falling due after more than one year (2019/20: £133,000).

There were no contracted capital commitments at 31 March 2021 (31 March 2020: nil).

Total future minimum lease payments under operating leases are given in the table below for each of the following periods:

Defra has entered into a contract (which is not a lease or Public Finance Initiative contract) for Estate Maintenance and Facilities Management services associated with buildings that are either leased by Defra or held on the Agency’s Statement of Financial Position. The Agency incurs a charge proportionate to the benefit it receives from this contract. Based on Defra’s estimate, the payments to which the Agency is committed at the year end, analysed by the period during which the commitment expires are as follows:

As the VMD is an Executive Agency of Defra, Defra is regarded as a related party. During the year, the VMD has had significant transactions with Defra and several of its agencies, including the Animal and Plant Health Agency and Centre for Environment, Fisheries & Aquaculture Science.

The VMD has transacted with various other central government bodies. Most of these transactions have been with the Department for Transport, Medicines and Healthcare products Regulatory Agency, Food Standards Agency and The Scottish Government.

The CEO and one of the non-Executive Directors are also Trustees of the SMArt (Safe Medicines for Animals through regulatory training) Charity Board which for the 2020/21 financial year had no trading activity.None of the Board members or key managerial staff have undertaken any material transactions with the VMD during the year other than salaries and reimbursement for travel and subsistence in the normal course of business.

As the cash requirements of the VMD are met from income from industry and funding through the Estimates process, financial instruments play a more limited role in creating and managing risk than would apply to a non-public sector body of a similar size. The majority of financial instruments relate to contracts to buy non-financial items in line with the Agency’s expected purchase and usage requirements and the Agency is therefore exposed to little credit, liquidity or market risk.

The VMD’s financial statements are laid before the House of Parliament by the Secretary of State for Defra. In accordance with the requirements of IAS 10, events after the reporting period are considered up to the date on which the Accounts are authorised for issue. This is interpreted as the date of the Certificate and Report of the Comptroller and Auditor General.

Up to the date of issue, there have been no other events since 31 March 2021 that would have a significant impact on the Annual Report and Accounts or would be likely to have a significant impact on the future performance of the VMD. However, the continued implications of the Covid-19 pandemic will have an impact on the VMD and the way we work. This is having greatest impact on the inspections regime, where for most of 2020/21 the on-site visits remained postponed, these re-started in the later part of the year and continue into 2021/22. The VMD conducted a limited number of desktop assessments. The VMD has transitioned successfully to full remote working and continues to find ways to make this change as effective and efficient as possible.

Veterinary Medicines DirectorateWoodham LaneNew HawAddlestoneSurreyKT15 3LS