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HMRC internal manual

Business Income Manual

Measuring the profits (particular trades): Private Finance Initiative (PFI): scope of trade: example 3

A private sector operator enters into a PFI contract with a public sector purchaser, an NHS Trust, to build a hospital and provide non-clinical support services for 25 years. In return the operator receives an annual service payment, the unitary charge. The hospital belongs to the Trust throughout the period of the contract. The Trust grants a right of access, or licence, to enable the operator to do no more than go on to the land to provide the construction, support and ancillary support services.

For tax purposes, the operator’s trade is the provision of design, construction and support services. The operator is not carrying on a property business since it is not exploiting, as a source of rent or other receipts, the right/licence granted by the purchaser. The operator has not acquired the hospital as a fixed capital asset of a business, or as trading stock.

The cost of building the hospital is revenue expenditure for tax purposes and is an allowable trade deduction when it is written off to the profit and loss account, or relieved against income receivable (see BIM64130).

The accounting treatment is of limited assistance in determining the scope of the PFI trade. 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.