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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Measuring the profits (particular trades): Private Finance Initiative (PFI): scope of trade: example 5

A private sector operator enters into a contract with a public sector purchaser, the Secretary of State for Transport, to be granted a right to operate a toll road for 25 years. As a precondition of being granted the right, the operator is required to design and build the road on the purchaser’s land. The land, including the completed road, belongs to the Secretary of State throughout the period of the contract. The Secretary of State grants a right of access to enable the operator to do no more than go on to the land to provide the construction and maintenance services, and operate the toll road.

The operator’s trade is operating a toll road. The operator is not carrying on a property business, the profits are chargeable to tax as trade profits (see BIM15070).

For tax purposes, the cost of building the road is capital expenditure on the acquisition of a fixed capital asset of the operator’s trade, i.e. the right to charge tolls on road users. 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 road 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.