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HMRC internal manual

Oil Taxation Manual

From
HM Revenue & Customs
Updated
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Oil contractors ring fence: calculating the hire cap: periods of less than full use and short accounting periods

Where the accounting period is less than one year, the amount of the cap is apportioned by reference to the length of the AP (CTA2010\S356N(7)).

Where an asset has been partly used in the UKCS and partly in another area, the relevant percentage is reduced by the ratio of days the asset is used in the UK to total days used anywhere else. If the asset is not used anywhere in the world (both the numerator and denominator are zero), the relevant percentage is zero (CTA2010\S356N(6)).

A stacked rig or accommodation vessel looking for work anywhere in the world (UKCS or elsewhere) is not in use and is unlikely to be under a bareboat charter to an operator. The effect of periods of non-use depends on what else has occurred during the accounting period. This can be demonstrated by the following example:

An operator has a 3 year bareboat charter from an associated company. It has a 15 month contract with third party A in the UKCS followed by a 3 month gap and then an 18 month contract with third party B, also in the UKCS. The relevant percentage for each 12 month accounting period is as follows:

  Year 1 Year 2 Year 3
       
Use in the UK (days) 365 273 365
Total worldwide use (days) 365 273 365
Relevant percentage 7.5% 7.5% 7.5%

If instead the second contract is with a third party outside the UKCS, the relevant percentage for each accounting period is as follows:

  Year 1 Year 2 Year 3
       
Use in the UK (days) 365 92  
Total worldwide use (days) 365 273 365
Relevant percentage 7.5% 2.5% 0%

If, after the first contract, the asset is not in use but unexpectedly the bareboat charter remains in place, the relevant percentage is as follows:

  Year 1 Year 2 Year 3
       
Use in the UK (days) 365 92  
Total worldwide use (days) 365 92  
Relevant percentage 7.5% 7.5% 0%

If the bareboat charter remains in place without the asset being used other than for a temporary period between contracts, then it may be that the contractor has stopped providing any relevant offshore service. In general, HMRC would not expect a bareboat arrangement to be in place in these circumstances. Each case must be decided on its own facts and LB Oil and Gas sector will advise in cases of uncertainty.

The allocation of mobilisation, demobilisation time to UKCS follows the treatment for the costs where the operator is a non UK company OT42400.