BIM64385 - Measuring the profits (particular trades): Private finance initiative (PFI): Capital allowances - highway undertakings - toll roads

CAA01/S341 expanded the industrial buildings allowance code to include 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.

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, CAA01/S342 (2) 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).

• FA2008 phased out IBA WDA (from 2008/09) by giving part only of a WDA each year. The WDA is calculated in the normal way but only a percentage of it is allowed. Please see CA34600 for full details.