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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): contract accounting: recharge of bid costs to another company - income of the bidding company

Where the private sector operator receives a reimbursement of pre-contract costs, which relate to the reimbursement of costs already incurred and written off (because they did not meet the definition of an asset - see BIM64115), then that reimbursement should be credited to the profit and loss account. The accounting follows normal revenue recognition principles.

That part of the reimbursement whose substance was a reimbursement of costs already incurred should be recognised immediately. As an alternative it would also be acceptable to net the receipt against the costs incurred. Either way, the profit and loss account effect would be the same.

A receipt that is reimbursement of costs capitalised should be credited to the profit and loss account with a consequent taking of the capitalised balance to the profit and loss account, or it may be netted against the capitalised item.

If the private sector operator receives a receipt greater than its costs whether capitalised or written off then the accounting should have regard to the substance or nature of that receipt. If the excess relates to past performance in obtaining the contract, and the bidder did not have to perform anything further, or carry any obligation, then deferral is probably not an acceptable accounting treatment. If, on the other hand, the excess fee is related to the bidder’s future performance or obligations then it would be appropriate to defer that relevant element of the fee that reflects the fair value of that future performance or obligations.

HMRC officers should refer any questions concerning what constitutes generally accepted accounting practice to their local compliance/advisory accountant.