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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Offshore activities: Offshore profits

A qualifying ship that is engaged in offshore activities remains a qualifying ship.  The offshore profits remain relevant shipping profits.  The special rules therefore contain a number of provisions to ensure that offshore profits are brought into charge as intended.

  • Offshore profits are charged to tax as if they were not relevant shipping profits by FA00/SCH22/PARA107 (1).
  • The ring fence provisions apply as if the offshore activities were not tonnage tax activities, FA00/SCH22/PARA108 (1).
  • The tonnage tax provisions apply to offshore profits in the same way that they would apply to profits other than relevant shipping profits, FA00/SCH22/PARA108 (2).

Computation of ‘offshore’ profits’: for whole AP

If a ship (to which the special rules apply) spends the whole of an accounting period engaged in offshore activities, then its profits for that period will be computed using ordinary (i.e. non-tonnage tax) corporation tax principles.

Computation of ‘offshore’ profits: for part AP

If the ship spends part of an accounting period engaged in offshore activities, and part of the year working elsewhere, then at least two computations will be required:
 

  • The taxable profits arising from the period during which it was engaged in offshore activities (the offshore profits) will be computed using ordinary (i.e. non-tonnage tax) corporation tax principles;
  • The taxable profits arising from the remainder of the period will be calculated using the normal tonnage tax rules (i.e. by reference to the tonnage of the vessels).

Calculate by reference to specific income and expenditure

Normal corporation tax principles require the offshore profits to be calculated by reference to the income and expenditure that relates to the offshore activities. Although it may be appropriate to time apportion some of the expenses incurred during the accounting period that cannot be allocated to specific days in the period, it will not normally be appropriate to calculate the income by time apportioning the income for the year as a whole.

See TTM11220 for examples.

Computation of tonnage tax profits

For a ship with both ‘offshore’ and tonnage tax days, the tonnage tax profit should be computed for the number of days when the ship is not engaged on ‘offshore activities’.

References

FA00/SCH22/PARA107 (profits computed on ordinary rules) TTM17611
   
FA00/SCH22/PARA108 (application of ring fence provisions) TTM17616
Outline of offshore profits TTM11200
Meaning of ‘offshore activities’ TTM11010