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HMRC internal manual

Tonnage Tax Manual

Offshore activities: Outline of special rules for offshore activities

Oil and gas tax revenue to be protected

Tonnage tax was introduced as part of a package of measures designed to reverse the decline in the UK shipping industry (see TTM01001). A conscious decision was taken to preserve the tax revenues arising from the oil & gas fields around the UK Continental Shelf as this is in line with the policies of successive Governments.

To achieve this, special rules were included in the tonnage tax legislation to ensure that shipping profits arising from activities in connection with the exploration or exploitation of the UK’s oil and gas reserves continue to be chargeable to tax in the normal way.

The effect of the special rules is to charge profits from activities in connection with exploration or exploitation of hydrocarbon resources in UK waters to Corporation Tax under the normal rules, whilst leaving profits from activities elsewhere within the tonnage tax regime.  (There are certain exceptions, which are described below.)

A substantial alteration took place with Finance Act 2005.  The operation of the offshore rules changed to look at the nature of the operations being carried out rather than the type of vessel being used. See:

  • TTM11125 for different types of vessels engaged in offshore activities.
  • TTM11126 for special rules for vessels performing activities that are specifically excluded.

Expressions used in FA00/SCH22/PART11 on the offshore regime, where not separately defined, have the same meaning as in PART8 (chargeable gains) and PART9 (capital allowances).


FA00/SCH22/PARA103 (special rules for offshore activities) TTM17591
FA00/SCH22/PARA115 (interpretation) TTM17651