TTM11300 - Offshore activities: Capital allowances
Outline
A tonnage tax company may claim capital allowances for capital expenditure incurred in providing plant or machinery for the purposes of its offshore activities. The general provisions and the specific provisions on ships in CAA01/PART2 will apply, subject to a number of modifications.
Notional qualifying expenditure
Allowances are calculated by reference to ‘notional qualifying expenditure’, which is deemed to have been incurred at the date the asset was brought into use for the purposes of the offshore activities, rather than by reference to the actual expenditure and the actual date that it was incurred. See TTM11310, assets held before entry to tonnage tax, and TTM11320, new assets.
Asset not used ‘offshore’' for whole of AP
If the asset is not used for the purposes of the offshore trade for the whole of an accounting period, there is a proportionate reduction in the writing down allowance, see TTM11330.
Writing down allowance
Any writing-down allowance for a subsequent accounting period of the company in respect of such notional qualifying expenditure is calculated as if an allowance had been made of an amount equal to the full allowance, whether or not that amount, or any amount, was in fact claimed.
Asset permanently ceases to be used ‘offshore’
FA00/SCH22/PARA110 (4) refers to plant and machinery ceasing permanently to be used for the purposes of offshore activities. In this context the question of whether an item of plant and machinery has permanently ceased to be used for offshore activities purposes is primarily one of fact. In general, HMRC will regard a period of two years or less during which the item of plant and machinery is not used for offshore activities as being temporary. If the period extends beyond two years, HMRC will consider the item permanently ceased to be used for offshore activities at the start of the initial two year period. If the asset ceases permanently to be used for the purposes of the offshore activities, it is deemed to have been disposed of at market value, unless a disposal value is brought into account under the normal rules, and a balancing charge or allowance will arise, reduced pro rata for its use within tonnage tax, in contrast to its use ‘offshore'.
Company and asset leave tonnage tax
Where the company itself leaves tonnage tax then, having computed the balancing adjustment in the previous paragraph, a new figure of qualifying expenditure should be computed in accordance with the capital allowance exit provisions, see TTM09300 onwards.
References
FA00/SCH22/PARA110 (capital allowances: general) |
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FA00/SCH22/PARA111 (proportionate reduction of allowances) |
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FA00/SCH22/PARA112 (notional qualifying expenditure: existing asset) |
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FA00/SCH22/PARA113 (notional qualifying expenditure: new asset) |
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Example of offshore capital allowances |