Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Tonnage Tax Manual

From
HM Revenue & Customs
Updated
, see all updates

Offshore activities: Capital allowances

Example

A company enters the tonnage tax regime on 1 January 2001

Its capital allowance computation as at 1 January 2001/31 December 2000 shows:
 

WDV general pool 160000 (comprising safety standby ship A, MV 140,000, and office equipment MV 5,000)
     
WDV single ship pool 02/12/2652 (diving support vessel, ship B)
Free depreciation on B 55000  

During the accounting period year ended 31 December 2001 it purchases two further ships:

 

 

04/01/2001 Cost 4000000 (diving support vessel, ship C)
       
10/01/2001 Cost 500000 (safety standby ship D)

During the AP ended 31 December 2001 the vessels are operated:

 

 

 

 

Ship UK Sector of North Sea Days Outside UK territorial waters Days
         
A 1/1/2001 – 31/12/2001 365    
B     1/1/2001 – 31/12/2001 365
C     1/4/2001 – 31/12/2001 275
D 1/10/2001 – 31/12/2001 92    
Total days   457   640

During the AP ended 31 December 2002 the vessels are operated:

 

 

 

 

Ship UK Sector of North Sea Days Outside UK territorial waters Days
         
A 1/1/2002 – 31/12/2002 365    
B 1/3/2002 – 30/9/2002 214 1/1/2002 – 28/2/2002  
1/10/2002 – 31/12/2002 59

92

151          
  C 1/4/2002 – 31/12/2002 275 1/1/2002 – 31/3/2002 90
  D 1/1/2002 – 31/12/2002 365    
  Total days   1219   241

The office equipment is used generally to support all vessels.

 

 

To calculate unrelieved qualifying expenditure:

Ship A

Already in use for ‘offshore activities’ on entering tonnage tax.

 

 

Apportion pool 160000 x 140000

  = 154,483        
             
        145000    

 

 

Office equipment

Already partly in use for ‘offshore activities’ on entering tonnage tax.
 

Apportion pool 160000 x 5000

  = 5,517        
             
        145000    

Ship B

Already in use, but outside UK waters, on entry into tonnage tax.

Moves into UK Sector on 1/3/2002

Notional qualifying expenditure is as if brought into use immediately
 

i.e. single ship pool WDV 275000    
       
plus free depreciation 55000 = 330000

It is then written down in accordance with REG7 and the REG4 table
 

i.e. Notional qualifying expenditure on 1/1/2001 330000
   
Percentage to be used per REG4 table as at beginning of AP commencing 1/1/2002 (1 year or less) 0.75
Balance of qualifying expenditure as at 1/1/2002 247,500

Ship C

Purchased after entering tonnage tax, but used outside UK waters for first 10 months
 

Notional qualifying expenditure is cost 4000000
   
It is then written down in accordance with REG7  
and the REG4 table; i.e. cost as at 1/4/2001 4,000,000

 

Percentage to be used per REG4 table as at beginning of AP commencing 1/1/2002 (1 year or less) 0.75
   
Balance of qualifying expenditure as at 1/1/2002 3,000,000

 

Ship D

Brought into use in UK waters immediately so notional qualifying expenditure as at 1/10/2001 is cost 500,000
   

Capital Allowance Computation for AP YE 31/12/2001

  Ship A Ship B Ship C Ship D **Office Equipment  
             
NQE 154483     500000 5517  
25% WDA 38621     125000 1379  
Offshore            
fraction 365
365     365
365 457
1,097              
  CA given 38621     125000 575 164,196
  WDV c/fwd 115862     375000 4138  

Capital Allowance Computation for AP YE 31/12/2002

  Ship A Ship B Ship C Ship D **Office Equipment  
             
NQE/WDV 115862 247500 3000000 375000 5517  
25% WDA 28966 61875 750000 93750 1379  
Offshore fraction 365          
365 214
365 275
365 365
365 1,219
1,460              
  CA given 28966 36278 565069 93750 1152 725,215
  WDV c/fwd 86896 185625 2250000 281250 4810  

**NB The calculation for the office equipment, based on the number of ship-days offshore and in tonnage tax, is suggested for such mixed use, as providing a ‘just and reasonable’ result, see TTM09040.

References

Outline of capital allowance code for offshore activities TTM11300
   
Notional qualifying expenditure on existing assets TTM11310
Notional qualifying expenditure on new assets TTM11320
Proportionate reduction of allowances TTM11330