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TTM11340 | Offshore activities: Capital allowances

From HM Revenue & Customs · Tonnage Tax Manual

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 pool160000(comprising safety standby ship A, MV 140,000, and office equipment MV 5,000)
WDV single ship pool02/12/2652(diving support vessel, ship B)
Free depreciation on B55000-

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

DateCostAmountAdditional informtion
04/01/2001Cost4000000(diving support vessel, ship C)
10/01/2001Cost500000(safety standby ship D)

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

ShipUK Sector of North SeaDaysOutside UK territorial watersDays
A1/1/2001 – 31/12/2001365--
B--1/1/2001 – 31/12/2001365
C--1/4/2001 – 31/12/2001275
D1/10/2001 – 31/12/200192--
Total days-457-640

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

ShipUK Sector of North SeaDaysOutside UK territorial watersDays
A1/1/2002 – 31/12/2002365--
B1/3/2002 – 30/9/20022141/1/2002 – 28/2/2002, 1/10/2002 – 31/12/200259, 92, 151
C1/4/2002 – 31/12/20022751/1/2002 – 31/3/200290
D1/1/2002 – 31/12/2002365--
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.

DescriptionAmountCalculationAmountEqualsAmount
Apportion pool160000x140000=154,483
---145000--

Office equipment

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

DescriptionAmountCalculationAmountEqualsAmount
Apportion pool160000x5000=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

DescriptionAmountEqualsTotal
Single ship pool WDV275000--
plus free depreciation55000=330000

It is then written down in accordance with SI00/2303/REG7 and REG4 table

DescriptionAmount
Notional qualifying expenditure on 1/1/2001330000
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 1/1/2002247500

Ship C

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

DescriptionAmount
Notional qualifying expenditure is cost4000000
It is then written down in accordance with REG7 and the REG4 table; that is, cost as at 1/4/20014000000
DescriptionAmount
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 1/1/20023,000,000

Ship D

DescriptionAmount
Brought into use in UK waters immediately so notional qualifying expenditure as at 1/10/2001 is cost500000

Capital Allowance Computation for AP YE 31/12/2001

DescriptionShip AShip BShip CShip D**Office EquipmentAmount
NQE154483--5000005517-
25% WDA38621--1250001379-
Offshore365--365457-
fraction365--3651097-
CA given38621--125000575164196
WDV c/fwd115862--3750004138-

Capital Allowance Computation for AP YE 31/12/2002

DescriptionShip AShip BShip CShip D**Office EquipmentAmount
NQE/WDV11586224750030000003750005517-
25% WDA2896661875750000937501379-
Offshore fraction365/365214, 365275, 365365, 3651,219, 1,460-
CA given2896636278565069937501152725,215
WDV c/fwd8689618562522500002812504810-

** 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

ReferencesLink
Outline of capital allowance code for offshore activitiesTTM11300
Notional qualifying expenditure on existing assetsTTM11310
Notional qualifying expenditure on new assetsTTM11320
Proportionate reduction of allowancesTTM11330