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HMRC internal manual

Oil Taxation Manual

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HM Revenue & Customs
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Non-Residents Working on the UK Continental Shelf: Capital Allowances - Plant & machinery brought into the UK - Open market value but limited to original cost if lower

CAA01\S13 (see OT42520) also sets out the rule for arriving at the amount of expenditure on which allowances can be claimed:

  1. Subject to subsection (4), the amount of the notional expenditure is the market value of the plant or machinery on the date when it is brought into use for the purposes of the qualifying activity.
  2. If the market value is greater than the actual expenditure, the amount of the notional expenditure is the amount of the actual expenditure, less any amount required to be deducted under subsection (5).
  3. The amount to be deducted under subsection (5) is any amount that under section 218 (connected persons restrictions) would have been left out of account in determining the person’s available qualifying expenditure if the actual expenditure had been incurred on the provision of the plant or machinery for the purposes of the qualifying activity.

Example 1

A non-resident offshore drilling contractor brings a semi submersible drilling rig into the UK Continental Shelf to fulfil a drilling service contract in the UK sector of the North Sea at a time when the open market value of the rig is $40m. It had been purchased by the rig contractor many years earlier at a cost of $100m.

The non-resident can claim capital allowances on $40m being the lower of the current open market value and the cost to the company.

Example 2

A non-resident offshore drilling contractor brings a semi submersible drilling rig into the UK Continental Shelf to fulfil a drilling service contract in the UK sector of the North Sea at a time when the open market value of the rig is $150m. It had been purchased by the rig contractor many years earlier at a cost of $50m.

The non-resident can claim capital allowances on $50m being the lower of the cost to the company and the current open market value.

Example 3

If, in example 2 above, the rig was purchased by a foreign subsidiary of the rig contractor for $120m and sold to the contractor for $140m one year before it was introduced into the UKCS, the contractor can claim capital allowances on $120m being the lower of:

  • the current open market value (CAA01\S13(3)), or
  • the cost to the contractor (CAA01\S13(4)), or
  • the cost to the connected person (CAA01\S218(3)).