TTM11220 - Offshore activities: Offshore profits
Examples
The following examples illustrate the effect of the provisions on ‘offshore activities’:
Example 1
A diving support vessel works half of the year on offshore activities relating to the UK sector, and the other half on Dutch sector activities. The company reports annual turnover as £1,250,000 less expenditure of £800,000 giving an operating profit of £450,000 (before depreciation, interest and taxes).
The use of a time apportionment formula to arrive at the special Corporation Tax profits may overstate/understate the actual position because the day rate for each contract may be different – there could even be a loss on one of the contracts.
The company upon request is able to separate out the results of the company as shown in the table below:
| £ | North Sea contract | Dutch contract | Total |
|---|---|---|---|
| Turnover | 750000 | 500000 | 1250000 |
| Expenditure | 400000 | 400000 | 800000 |
| Profit | 350000 | 100000 | 450000 |
If this summary is accurate the special Corporation Tax profits chargeable under the normal rules would be £350,000 (before capital allowances), instead of £225,000 under a time apportionment basis.
Example 2
A company with one diving support vessel, working half of the year on offshore activities in the UK Sector of the North Sea, files accounts showing annual turnover of £1,000,000 less expenditure of £800,000 giving an operating profit of £200,000.
The conditions of FA00/SCH22/PARA106, see TTM11150, are not satisfied, and so the idle period is not taken to be a period when the ship was engaged in offshore activities.
As with Example 1, the use of a time apportionment formula to arrive at the special CT profits may overstate/understate the actual position because the day rate for each contract may be different.
The company, upon request, is able to separate out the results of the company as shown in the table below. This reveals that the vessel had a three month idle period between two assignments. The first 3 months was spent on Dutch sector activities, then a 3 months idle period, with the final 6 months working in the UK sector.
| £ | Dutch contract | Idle period | North Sea contract | Total |
|---|---|---|---|---|
| Turnover | 250000 | 0 | 750000 | 1000000 |
| Expenditure | 200000 | 200000 | 400000 | 800000 |
| Profit | 50000 | -200000 | 350000 | 200000 |
In this example the special CT profits (before capital allowances) would be £350,000 instead of £100,000 under a time apportionment basis (that is, greater than the overall profit of the company) and the company would be subject to tonnage tax for 6 months in addition.
References
Special computational rules for offshore profits TTM11210