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HMRC internal manual

Oil Taxation Manual

Non-residents working on the UK continental shelf: computation of profits: treatment of idle time costs

Idle time costs are costs incurred while a vessel is idle and waiting for new contracts. Idle time costs include all expenses of the vessel, both direct and indirect, including general and administrative expenses.

Measurement of costs

Idle time costs may include both direct and indirect costs. Direct costs (for example, hire of the rig, wages, and so on) can usually be identified accurately, even in respect of an idle period. This means that there is normally no need to resort to a method of apportionment in order to arrive at the quantum of the costs that relate to the idle period. Indirect costs (for example, head office costs) that cannot be measured precisely for the idle period are attributed to the notional UK branch in accordance with the general approach to head office costs.

If the vessel operator is in receipt of ‘waiting in harbour’, ‘stand by’, ‘down time’, ‘mobilisation’ or ‘demobilisation’, and so on, payments for the idle period, the allowable expenses incurred are reduced by the amount receivable.

Single vessels

OT42280 describes the treatment of costs where the operator has more than one vessel (including rigs) working on the UK Continental Shelf. Where an operator operates a single vessel only, then claims for idle time costs are considered on a case by case basis according to the precise facts of the case. Where an operator has only one vessel operational on the UKCS and the vessel operates regularly, year in year out, on the UKCS, then HMRC will consider claims for idle time costs in accordance with the factors outlined at OT42280. Where, however, the vessel operates at irregular intervals on the UKCS, so that the periods of activity relate to isolated periods separated by no activity on the UKCS, no proportion of the idle time costs is allowed. This is because the UK taxing rights are restricted to the periods of the UKCS activities.