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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Measuring the profits (particular trades): Private Finance Initiative (PFI): scope of trade: example 2

A private sector operator enters into a PFI contract with a public sector purchaser, an NHS Trust, to provide a hospital, together with non-clinical support services, for 25 years. In return the operator receives an annual service payment, the unitary charge. The operator acquires a freehold or leasehold interest in land, builds a hospital on it, and leases it to the Trust.

The operator is carrying on a property business (see BIM64020). It is exploiting, as a source of rents or other receipts, its interest in the property.

The hospital is a fixed capital asset of the operator’s business and the costs of building the hospital are capital expenditure for tax purposes. Relief against property income for the construction costs is only available to the extent that elements of that capital expenditure qualify for capital allowances.

The non-clinical support services, depending upon their scale and nature, may constitute a separate trade (see BIM64020).

The accounting treatment is of limited assistance in determining the scope of the PFI business. If FRS5 Application note F is applicable, ownership of the hospital may not be reflected in its accounting treatment, i.e. it may be reported as either a financial asset or a fixed asset on the balance sheet (see BIM64070 onwards).

See also BIM64035.