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HMRC internal manual

Business Income Manual

Private Finance Initiative (PFI): contribution of land: capital or revenue receipt

Whether a contribution of land or money in a PFI project is a capital or revenue receipt for tax purposes is determined by the scope of the trade and the character of the receipt in the hands of the private sector operator (see BIM64025 onwards).

The intention of the parties, provided this accords with the facts, will determine its character in the operator’s hands (see BIM40450 onwards). The terms of the documentation may provide evidence of their intentions. The scope of the trade will then be relevant in determining whether it is a capital or revenue receipt for tax purposes. Where a contribution has no specific purpose it is a revenue receipt for tax purposes.

For example if the PFI property is a fixed capital asset of the operator’s business for tax purposes, and the facts and intention of the parties show that the land (or money) is a contribution towards the construction costs, it is treated as a capital receipt in the operator’s hands (see examples 1, 2, 3 and 4 at BIM64205, BIM64210, BIM64215 and BIM64220).

However, if the trade includes the provision of design and construction services on revenue account, a contribution of land (or money) towards the construction costs of the property is an income receipt for tax purposes (see BIM40450 onwards). To the extent that the value of the contribution, and capitalised revenue expenditure against which it is matched, will never be reflected in the profit and loss account, they are netted off against each other in the trading profits computation (see BIM64125 and BIM64130).