In Maersk Oil North Sea UK Limited and Maersk Oil UK Limited v HMRC [2018] TC06295, the First Tier Tax Tribunal (FTT) held that an allocation of profits within a period had simply to be made on a just and reasonable basis: the existence of a better method was not sufficient reason to displace it.

Where the tax rules change within an accounting period, the results will need to be apportioned between the pre- and post- change periods. The default position is that the allocation is on a purely time basis, but the allocation can instead be done on a “just and reasonable” basis where the time basis would give an unfair result.

The taxpayers' rule change occurred on 24 March 2011, part way through its accounting year ended 31 December 2011.

  • Maersk Oil North Sea UK Limited’s (MONS) assets suffered severe damage during a storm in February 2011 resulting in significant capital expenditure and insurance claims (after 24 March).
  • Maersk Oil UK Limited (MOUK) suffered a prolonged shut down in the later part of the year, causing a significant fall in production.

As a result both companies generated a disproportionate amount of their profits before the rule change and their allocation showed that no profit arose in the second part of the year after allowances.

The companies prepared their computations as if the pre- and post- change periods were separate accounting periods, using accruals accounting per their management accounts as a starting point. Capital allowances were allocated on the basis of when expenditure was incurred.

HMRC argued that this basis was less just and reasonable than time apportionment. Rather than “recomputing” the profits they should be “reallocated”.

The FTT found:

  • The requirement is not that the proposed method is “more just and reasonable than a simple time apportionment”
  • The requirement is that if time apportionment is not a reasonable approach, an alternative basis can be used. That basis must be just and reasonable.
  • The method used by the taxpayer was just and reasonable
    • It was aligned to the method used for management reporting (thus not contrived)
    • The concepts were applied consistently, even when not in favour of the taxpayer
    • While not perfect, it provides a reasonable reflection of the companies’ results
    • First year capital allowances are not time apportioned


Although the facts are specific to the case, the principles relating to the allocation are relevant in many other circumstances, such as a change in the rate of corporation tax.


The case was appealed to the Upper Tribunal (UT) who held in favour of HMRC. The found:

  • The time apportionment method was the default method to be used.
  • Electing for another method required specific reasons that appled to the company in question, not to companies in general.

The taxpayer appealed to the Court of Appeal (CA), who found in favour of the taxpayer and upheld the findings of the FTT. The CA found:

  • The need to elect for the alternative method to be used retained the time apportionment method as the default method.
  • The reason for uneven profits that would not be reflected using time apportionment was not in issue. The taxpayer simply needed to show that the time apportionment method worked "unjustly and unreasonably".

Useful Guides:

Company Tax Rates and Allowances

Companies: Trading, non-trading and accounting periods

Year-end tax planning

UT decision summary: HMRC v Total E&P North Sea UK Limited and another [2019] UKUT TC133


Maersk Oil North Sea UK Limited and Maersk Oil UK Limited v HMRC [2018] TC06295

HMRC v Total E&P North Sea UK Limited and another [2019] UKUT TC133

Total E&P Oil Limited and Total Oil UK Limited [2020] EWCA Civ 1419