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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Offshore activities: Capital allowances


A tonnage tax company may claim capital allowances for capital expenditure incurred in providing plant or machinery for the purposes of its offshore activities.  The general provisions and the specific provisions on ships, in CAA01/PART2 will apply, subject to a number of modifications.

Notional qualifying expenditure

Allowances are calculated by reference to ‘notional qualifying expenditure’, which is deemed to have been incurred at the date the asset was brought into use for the purposes of the offshore activities, rather than by reference to the actual expenditure and the actual date that it was incurred. See TTM11310 (assets held before entry to tonnage tax) and TTM11320 (new assets).

Asset not used ‘offshore’’ for whole of AP

If the asset is not used for the purposes of the offshore trade for the whole of an accounting period, there is a proportionate reduction in the writing down allowance, (see TTM11330).

Writing down allowance

Any writing-down allowance for a subsequent accounting period of the company in respect of such notional qualifying expenditure is calculated as if an allowance had been made of an amount equal to the full allowance, whether or not that amount (or any amount) was in fact claimed.

Asset permanently ceases to be used ‘offshore’’

FA00/SCH22/PARA110 (4) refers to where plant and machinery ceases permanently to be used for the purposes of offshore activities. In this context the question of whether an item of plant and machinery has permanently ceased to be used for offshore activities purposes is primarily a question of fact.  In general HMRC would be prepared to regard a period of two years or less during which the item of plant and machinery is not used for offshore activities as being merely temporary. If the period extends beyond two years, HMRC will consider the item permanently ceased to be used for offshore activities at the very start of the initial two year period.  If the asset ceases permanently to be used for the purposes of the offshore activities, it is deemed to have been disposed of at market value (unless a disposal value is brought into account under the normal rules), and a balancing charge or allowance will need to be computed, reduced pro rata for its use within tonnage tax (as opposed to its use ‘offshore’).

Company and asset leave tonnage tax

Where the company itself leaves tonnage tax then, having computed the balancing adjustment in the previous paragraph, a new figure of qualifying expenditure should be computed in accordance with the capital allowance exit provisions, (see TTM09300 onwards).


FA00/SCH22/PARA110 (capital allowances: general) TTM17626
FA00/SCH22/PARA111 (proportionate reduction of allowances) TTM17631
FA00/SCH22/PARA112 (notional qualifying expenditure: existing asset) TTM17636
FA00/SCH22/PARA113 (notional qualifying expenditure: new asset) TTM17641
Example of offshore capital allowances TTM11340