TTM11340 - 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:

Description - Additional information
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:

Date Cost Amount Additional informtion
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.

Description Amount Calculation Amount Equals Amount
Apportion pool 160000 x 140000 = 154,483
- - - 145000 - -

Office equipment

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

Description Amount Calculation Amount Equals Amount
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

Description Amount Equals Total
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

Description Amount
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

Description Amount
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
Description Amount
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

Description Amount
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

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

Capital Allowance Computation for AP YE 31/12/2002

Description Ship A Ship B Ship C Ship D **Office Equipment Amount
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

References Link
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