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HMRC internal manual

Tonnage Tax Manual

Offshore activities: Capital allowances

Assets held before entry: Notional qualifying expenditure on existing assets

The rules for determining the notional qualifying expenditure in cases where the company was entitled to capital allowances before entry into tonnage tax are in FA00/SCH22/PARA112.

Assets brought immediately into use

If the asset was brought into use for the purposes of the company’s offshore activities immediately on entry into tonnage tax, the notional qualifying expenditure is equal to any unrelieved qualifying expenditure attributable to the asset.  For these ‘unrelieved qualifying expenditure’ means the balance that would otherwise have been carried forward under CAA01/PART2.

Outstanding amounts of unrelieved free depreciation (allowances postponed under CAA01/S130 and S131) will fall to be included as “unrelieved qualifying expenditure” for this purpose.

Apportionment of expenditure in a pool

The amount of ‘unrelieved qualifying expenditure’ attributable to plant or machinery in a class pool, or the main pool, is the proportion of the whole given by the formula:
 

AV
PV

where:
 

  • AV is the market value of the asset concerned immediately before entry into tonnage tax, and
  • PV is the aggregate market value at that time of all the assets in the pool.

Assets not immediately brought into use

If the asset was not brought into use for the purposes of the company’s offshore activities immediately on entry into tonnage tax, the notional qualifying expenditure is the same as it would have been if the asset had been brought into use immediately. But it is written down in respect of the period between the company’s entry into tonnage tax and the beginning of the accounting period in which the asset is brought into use for those purposes.

The basis on which the notional qualifying expenditure is to be written down is specified in regulation 7 of the Tonnage Tax Regulations.  The balance of qualifying expenditure at the start of the period that the asset is brought into use for offshore activities will be the ‘notional qualifying expenditure’ (as defined above) multiplied by the ‘appropriate percentage’ from the tables in regulations 4, 5, or 6 of the Tonnage Tax Regulations (SI00/2303).

The ‘appropriate percentage’ will be the percentage corresponding to the period from the date of entry into tonnage tax to the first day of the accounting period in which the asset is brought into use for overseas activities.

References

FA00/SCH22/PARA112 (notional qualifying expenditure: existing asset) TTM17636
   
SI00/2303/REG4 (plant and machinery: writing-down basis) TTM18004
SI00/2303/REG5 (expensive motor cars: writing-down basis) TTM18005
SI00/2303/REG6 (long-life assets: writing-down basis) TTM18006
SI00/2303/REG7 (writing down basis for offshore P&M) TTM18007
Outline of capital allowance code for offshore activities TTM11300
Notional qualifying expenditure on new assets TTM11320