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HMRC internal manual

Business Income Manual

Private Finance Initiative (PFI): capital allowances - highway undertakings - toll roads

S341 Capital Allowances Act 2001 (CAA 2001)

The industrial buildings allowance (IBA) code extended to capital expenditure on the construction of a road for the purpose of, or in connection with, the exploitation of a right to charge tolls in respect of the road. See BIM64380 for details of the abolition of IBAs with effect from April 2011.

The scope of a toll road operator’s trading operations does not include the building of roads. However, a private sector operator who is granted a right to charge tolls in respect of a road may be required, as a capital cost of acquiring that right, to build the road on land owned by a public sector purchaser. See RTZ Oil and Gas Ltd v Elliss [1987] 61TC132 and BIM62065.

In such circumstances, the rights acquired by the operator may not amount to a ‘relevant interest’ in the road for the purposes of industrial buildings allowance when the operator incurs the expenditure. Where that is the case, and the operator is entitled to a highway concession, i.e. the right to charge tolls, S342(2) CAA 2001 states that the highway concession is to be treated as the relevant interest in respect of the road for industrial buildings allowance purposes (see CA38200).