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HMRC internal manual

Business Leasing Manual

HM Revenue & Customs
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Defining long funding leases: basic definition: service concession arrangements

UK GAAP (FRS 5, Application Note F)

Application Note F of FRS 5 applies to Private Finance Initiative (PFI) and similar contracts. Features of a PFI contract include:

  • A contract to provide services is awarded by the purchaser (a public sector entity) to the operator (a private sector entity). The contract will specify the level of service required over the period of the contract. Usually, the contract also provides for a single (‘unitary’) payment to be made in each period, linked to factors such as availability, performance and levels of usage.
  • A property, which is legally owned by or leased to the operator, will usually have to be provided to perform the contracted services. Such properties include buildings (e.g. a prison or hospital), roads, railways, bridges, vehicles, and computer systems. Under the PFI contract, the operator will typically design, build, finance and operate the property. The contract may specify features or standards required of the property, for example, in order to satisfy statutory obligations of the purchaser. The property may or may not have potential for third-party use during the term of the PFI contract.

Application Note F also applies to contracts of a similar nature to PFI contracts but which are between entities in the private sector, for example some contracts for warehousing and distribution services, where a property is necessary in order to perform the contracted service.


IFRIC 12 is the IFRS equivalent of Application Note F and, like Application Note F, typically applies to service concession arrangements whereby a government or other body grants contracts for the supply of public services - such as roads, energy distribution, prisons or hospitals - to private operators. However, it only applies to the operator, not the grantor.

IFRIC 12 applies where

  1. the grantor (government or other public sector body) controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and
  2. the grantor controls - through ownership, beneficial entitlement or otherwise - any significant residual interest in the infrastructure at the end of the concession.

Unlike Application Note F, IFRIC 12 only applies to public-to-private infrastructure service concessions.