188体育

A private sector operator, whose trade includes the provision of design, construction and maintenance services, enters into a PFI contract with a public sector purchaser, to build an information technology system and maintain it for 25 years. The construction costs are financed by a bank loan. The trade commences when the PFI contract is signed (see BIM64065). In return the operator receives an annual service payment, the unitary charge, which commences after the information technology system is completed.

Accounting period 1

Construction of the information technology system is completed at the end of the first accounting period.

For tax purposes the design and construction costs are revenue expenditure (see BIM64025 onwards). For accounting purposes the example assumes that the information technology system is reported as a finance debtor on the operator鈥檚 balance sheet, under FRS5 Application Note F (see BIM64070 onwards). The 拢5尘 interest on the loan is debited to the profit and loss account and subsequently capitalised (see BIM64245).

-	-	Amount	-	-	Amount
Dr	P&L account (interest)	拢5尘	Cr	Bank	拢5尘
Dr	Finance debtor (capitalised interest)	拢5尘	Cr	P&L account	拢5尘

No income is receivable in the first accounting period.

For tax purposes we follow the accounting recognition of income and expenditure in the profit and loss account, subject to any relevant over-riding statutory or case law principle.

The 拢5尘 interest is capitalised鈥漷o a current asset that does not fall within the definition of a fixed capital project and so that rule (see BIM64245) does not apply. The accounting periods in which relief is given are those in which the 拢5尘 interest debit is matched against income credited to the finance debtor (see BIM64245). No adjustment is required in the trading profits computation.

Accounting period 2

In the second accounting period a unitary payment of 拢15尘 is receivable.

For accounting purposes 拢12尘 is credited to the P&L account (being notional interest on the finance debtor and operating income) and 拢3尘 is credited to the finance debtor.

-	-	Amount	-	-	Amount
Dr	Bank	拢15尘	Cr	P&L account	拢12尘
-	-	-	Cr	Finance debtor	拢3尘

For tax purposes we follow the accounting recognition of income and expenditure in the profit and loss account, subject to any over-riding statutory or case law principle.

The 拢3尘 credited to the finance debtor is trading income and is therefore included as an addition in the trading profits computation (see BIM64125).

The proportion of the finance debtor against which the 拢3尘 credit is matched, represents revenue construction costs and trade interest, and is therefore included as an allowable deduction in the trading profits computation (see BIM64130).

-	Amount
Trading income computation	-
Income (net of interest debit and credit)	拢12尘
Plus part payment	拢3尘
-	拢15尘
Less matching costs and interest	拢3尘
Profit (before overheads)	拢12尘