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HMRC internal manual

Oil Taxation Manual

Oil contractors ring fence: calculating the hire cap: total expenditure - enhancement costs

It is likely that assets will have been improved or upgraded since they were first constructed. The total cost for the purpose of computing the hire cap is therefore increased by any capital expenditure which was incurred subsequent to the asset first being acquired (or subsequent to the time when the asset was first leased if it has never been acquired by an associated person). If a change or enhancement has been made but that change or enhancement has later been removed or replaced then that cost is excluded from the enhancement cost (for example removed as part of a later enhancement programme).

Where an asset was the subject of capital enhancement after the commencement of an accounting period, the amount of expenditure recognised is reduced by reference to the number of days in the period before the asset was enhanced. This has the same effect as dividing the accounting period into two, with a new period of less than 12 months commencing when the asset was enhanced (CTA2010\S356N(16)).