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HMRC internal manual

Oil Taxation Manual

Oil contractors ring fence: relevant assets

To qualify as a relevant asset there are 3 conditions:

  • the asset must be a mobile asset which can be used for drilling or accommodation,
  • that asset must be leased by an associated person OT50020,
  • the value of the asset must be above a de-minimis threshold.

Mobile Assets

An asset is a mobile asset if it can move from place to place. It is not necessary that it does so under its own power but an asset will not be considered mobile if a major amount of dismantling work is required in order to move the asset.

There are two classes of mobile asset which can qualify as a relevant asset under CTA2010\S356LA(2)(b):

  • Assets which can be used to drill, and
  • Assets which can be used to provide accommodation.

Assets which can be used to drill

Any vessel which can be used for drilling (without significant modification) will fall within this definition. If a drilling rig is used to temporarily provide accommodation services, it will still fall under the definition of an asset which can be used to drill.

Assets which can be used to provide accommodation

Accommodation can be provided by a number of vessels in the UKCS. An accommodation asset is only a relevant asset if:

  1. The individuals being accommodated work on a different offshore installation to the one providing the accommodation, and
  2. That provision is not incidental to the service being provided

Incidental is not further defined in the legislation and takes its natural meaning.

Examples of incidental provision of accommodation

Situations where the provision of accommodation is likely to be considered incidental include:

  • Where an asset is being used to provide a composite service involving installation, decommissioning or maintenance, and as part of that provision a small number of berths are made available to individuals who normally work on the platform which is subject to the work.
  • Where a vessel has a small number of berths that are actually made available for use other than by its crew or people working on the vessel itself (whether directly employed or subcontracted) and the amount charged or included for such accommodation is less than 5 to 10 per cent of the amount charged as part of the overall service provided or project cost for the installation or decommissioning.
  • The unexpected provision of accommodation as a result of adverse weather conditions.

However, if a construction vessel was only used to provide accommodation services briefly during a year and at other times was involved, for example, in construction activity outside the definition of a relevant asset then the period of use for accommodation provision would be subject to the hire cap and would fall within the contractors ring fence. HMRC would not accept that such short term use solely or mainly for accommodation was incidental to any subsequent use by reference to the overall use of the vessel in a calendar year.

Similarly, if a vessel was used simultaneously for accommodation and non- accommodation use under separate contracts, the hire cap would apply to the total amount paid under both contracts.

The de minimis threshfold

The de minimis value provided in the legislation is a market value of £2 million or more. The market value of the asset should normally be ascertained at the start of the accounting period. This valuation applies to the whole of the relevant asset. Where a discrete part of a vessel (e.g. a hull) is leased from an associated person and that person owns the rest of the vessel, the whole of the asset will need to be taken into account in arriving at the valuation.

The anti avoidance rule at CTA2010\S356NA (5) and (6) operates to prevent any artificial fragmentation where the purpose or one of the main purposes is to ensure that the hire cap does not apply OT50060. In such a situation HMRC would apply the de minimus to the asset as a whole.