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HMRC internal manual

Business Income Manual

From
HM Revenue & Customs
Updated
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Measuring the profits (particular trades): Private Finance Initiative (PFI): scope of trade: range of activities

PFI projects cover a wide range of activities and those that involve PFI property can be structured in a variety of ways that may result in different tax treatments for design and construction expenditure.

  • The PFI property may be a fixed capital asset of the private sector operator for tax purposes.

    • The operator builds a property on land it acquires for the purpose, e.g. a freehold or leasehold interest, and is the main occupier of the completed property. The property provides the setting in which it carries on its trade. In such circumstances the design and construction costs of the property are capital expenditure for tax purposes, relief only being available on those elements that qualify for capital allowances (see example 1 at BIM64040).
    • The operator builds a property on land it acquires for the purpose in order to let it out, e.g. by granting a lease, sublease or licence, as a property business (see BIM64020). In addition, the operator may also provide related support services that constitute a trade. The public sector purchaser is the main occupier of the property, which provides the setting for its activities. In such circumstances the design and construction costs of the property are capital expenditure for tax purposes, relief only being available on those elements that qualify for capital allowances (see example 2 at BIM64045).
  • The PFI property may be a fixed capital asset of the purchaser for tax purposes.

    • The scope of the operator’s trade includes the provision of design and construction services, as well as ancillary support services, on trading account. The purchaser is the main occupier of the property, which provides the setting in which it carries on its activities. In such circumstances the design and construction costs of the property are revenue expenditure for tax purposes and do not qualify for capital allowances (see examples 3 and 4 at BIM64050 and BIM64055).
    • The design and construction expenditure incurred by the operator on the PFI property is capital expenditure, in the form of money’s worth, on the acquisition of a fixed capital asset of the operator’s trade, e.g. the right to operate a toll road (see example 5 at BIM64060). Relief is only available on those elements that qualify for capital allowances (see BIM64375).

The nature of the interest or right in or over land acquired is only one of many factors that may be relevant when considering the scope of a trade. However, one would not normally expect an operator, who provides construction and support services on trading account to be the main occupier of the finished property, to have more than the minimum rights of access required to enable it to provide the services, or to exploit those rights as a source of rent or other receipts.