4.4.1 The effect of Chapter 14 of the Capital Allowances Act, 2001 (the "CAA") is to draw a distinction between the treatment of licences and leases for the purposes of assessing whether or not a party with any such interest in land can claim capital allowances in respect of expenditure incurred on the provision of fixtures to the relevant land and/or buildings.
4.4.2 For the purposes of any PF2 contract, the Contractor can currently only claim capital allowances in respect of expenditure on fixtures if it has a qualifying interest in the land to which the fixtures are attached. Whether or not the Contractor has a qualifying interest turns on the meaning of "interest in land" in Section 175(1) of the CAA and, very often, whether it has a licence to occupy land. HMRC considers that a licence is a "licence to occupy land" for the purposes of Section 175(1) of the CAA if the licence itself gives the licensee an exclusive right to occupy the land.
4.4.3 By way of example, if under a PF2 Schools Contract the Authority grants the Contractor a right of access to enter the school for the purposes of providing maintenance services, such a right of access is unlikely to be sufficient for the Contractor to claim capital allowances under Chapter 14 of the CAA as the right will not be exclusive. The Authority will also be ensuring that the school's staff and pupils can access the site for the purposes of delivery of the education service Issues surrounding the Contractor's ability to claim relief under Chapter 14 of the CAA should be considered by both Parties and their respective legal and tax advisers.
4.4.4 Whether the Contractor claims capital allowances or pursues alternative taxation treatments, such as composite trader status, could have material impact on the Project's economics and the level of Unitary Charge bid by bidders. Distinctions between licences and leases may well therefore be significant commercial issues affecting the financial model for the Project, as well as being technical legal points. Accordingly, the Authority and its advisers should satisfy themselves that the taxation assumptions within the bidders' financial models are realistic, consistent with the proposed contractual structures and fully anticipated within the Unitary Charge bid (see further Section 28.4.5 (Taxation and Accounting Policies).