OT50044 - Oil contractors ring fence: calculating the hire cap: total expenditure - estimated amounts

If a company is unable to ascertain the original expenditure on the asset or any extant enhancement expenditure, it should make an estimate to the best of its ability and advise HMRC of:

• the detailed assumptions made in arriving at that estimate, and
• the reasons why it has been unable to obtain the necessary original information.

LB Oil & Gas can confirm the acceptability of any estimate in advance of making a return if required.

In such a circumstance the Company should indicate what information is and is not available (for example accounting information, health and safety information, press releases covering upgrades etc.). Companies should also provide available accounting information including depreciation policies.

In the case of a vessel which has not had a fundamental change of use one starting point; in the absence of more detailed information; might be the net book value of the relevant asset. This value could be increased by normal depreciation (but not impairments/write downs etc. which may relate to more significant structural changes). Capitalised financing costs should be excluded.

For older assets, the depreciation policy may also need to be taken into account, for example where the topside has an estimated life of 25 years and that has now been exceeded, it may be prudent to assume that wholesale replacement has occurred over successive major upgrades and that a proportion of the original spend should be deducted.