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:

WDV general pool	160,000	(comprising safety standby ship A, MV 140,000, and office equipment MV 5,000)
WDV single ship pool	275,000	(diving support vessel, ship B)
Free depreciation on B	55,000

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

1/4/2001	Cost	4,000,000	(diving support vessel, ship C)
1/10/2001	Cost	500,000	(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	1,219		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	160,000	x	140,000	=	154,483
			145,000

Office equipment

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

Apportion pool	160,000	x	5,000	=	5,517
			145,000

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	275,000
plus free depreciation	55,000	=	330,000

It is then written down in accordance with Reg 7 and the Reg 4 table

i.e. Notional qualifying expenditure on 1/1/2001	330,000
Percentage to be used per Reg 4 table as at beginning of AP commencing 1/1/2002 (1 year or less)	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

4,000,000

It is then written down in accordance with Reg 7

and the Reg 4 table; i.e. cost as at 1/4/2001

4,000,000

Percentage to be used per Reg 4 table as at beginning of AP commencing 1/1/2002 (1 year or less)	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	154,483			500,000	5,517
25% WDA	38,621			125,000	1,379
Offshore fraction	365 365			365 365	457 1,097
CA given	38,621			125,000	575	164,196
WDV c/fwd	115,862			375,000	4,138

Capital Allowance Computation for AP YE 31/12/2002

	Ship A	Ship B	Ship C	Ship D	**Office Equipment
NQE/WDV	115,862	247,500	3,000,000	375,000	5,517
25% WDA	28,966	61,875	750,000	93,750	1,379
Offshore fraction	365 365	214 365	275 365	365 365	1,219 1,460
CA given	28,966	36,278	565,069	93,750	1,152	725,215
WDV c/fwd	86,896	185,625	2,250,000	281,250	4,810

**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

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