In HMRC v Total E&P North Sea UK Limited and another [2019] UKUT TC133 the Upper Tribunal overruled the FTT; the method used by the taxpayers to apportion their company profits went beyond what was just and reasonable.

Where the tax rules change within an accounting period, the results must be apportioned between the pre- and post- change periods.

  • The default position is an allocation on a simple time basis
  • 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 part way through its accounting year ended 31 December 2011.

  • Severe damage during a storm resulted in significant capital expenditure, insurance claims and a prolonged shut down in the later part of the year, causing a significant fall in production.
  • The companies prepared their computations as if the pre- and post- change periods were separate accounting periods with capital allowances allocated based on when expenditure was incurred, which was almost entirely in the post change period.
  • As a result they generated a disproportionate amount of their profits before the rule change and their allocation showed no profits in the second part of the year after capital allowances.

The FTT found that the requirement is that if time apportionment is not a reasonable approach, an alternative basis can be used, but that basis must be just and reasonable, and there is no requirement that the proposed method is “more just and reasonable than a simple time apportionment. They agreed that the method used by the taxpayer, though not perfect, was just and reasonable.

The UT found that the FTT erred in law when it considered the result of the companies’ basis of apportionment, and set aside the decision.

  • It should have considered whether the result went beyond what was necessary to compensate for the factors which made time apportionment unjust or unreasonable.
  • The basis of apportionment used by the companies reallocated more profit into the months before the rule change than could be justified by impact of the events which took place during the accounting period.

However, the UT refrained from commenting on whether HMRC's alternative basis was better; it has been left for the parties to reach an agreement on what would be a just and reasonable basis of apportionment.


With a reduction in corporation tax rates coming in April 2020 and the temporary increase in the Annual investment allowance  from January 2019, it may be that more companies find themselves looking at how they should allocate their profits and whether they can justify a method other than time apportionment.

Links to our guides:

Companies: Trading, non-trading and accounting periods

Year-end tax planning

Company Tax Rates and Allowances

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

External link:

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

Comments (1)

Rated 0 out of 5 based on 0 voters
This comment was minimized by the moderator on the site

thank you very much

Comment was last edited about 9 months ago by Nichola Ross Martin Nichola Ross Martin
There are no comments posted here yet

Leave your comments

  1. Posting comment as a guest.
Rate this post:
Attachments (0 / 3)
Share Your Location