Tonnage tax — increase of capital allowances leasing limits
Updated 22 November 2023
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This publication is available at https://www.gov.uk/government/publications/increasing-the-capital-allowance-limits-for-leasing-into-tonnage-tax/tonnage-tax-increase-of-capital-allowances-leasing-limits
Who is likely to be affected
Those who lease vessels to ship operators elected into the tonnage tax regime.
General description of the measure
Capital allowances (allowances in place of depreciation for capital expenditure) are available to those who acquire and lease assets to companies undertaking a trade or business. Where the leases are to operators of ships within the tonnage tax regime there are limits on the amount of expenditure that can qualify for these capital allowances. These limits, for what is known as ‘leasing into tonnage tax’, have not been raised since tonnage tax was introduced in 2000. This measure proposes to increase them.
Policy objective
Tonnage tax is a form of Corporation Tax aimed at boosting the competitiveness of the United Kingdom within the international shipping industry. Where assets are financed by leases, there is the possibility that the intended benefit might in part arise to the providers of finance. The limits on capital allowances for leasing into tonnage tax are designed to mitigate this risk. The measure proposes to raise them to recognise general price movements, and changes in vessel designs and costs, helping maintain competitiveness.
Background to the measure
This measure was announced at Spring Budget 2023.
It follows a review into whether the existing capital allowances limit claimed by organisations leasing ships to tonnage tax participants remained appropriate. The review was announced at Autumn Budget 2021 alongside other reforms to Tonnage tax.
Detailed proposal
Operative date
The increases in limits will apply to leases into tonnage tax entered into on or after 1 April 2024.
Current law
The quantitative restrictions on capital allowances for assets leased into tonnage tax are set out at paragraph 94 Schedule 22 FA 2000 (Schedule 22).
Proposed revisions
The ‘first £40 million’ limit at paragraph 94(3)(a) Schedule 22 is raised to £100 million and the ‘next £40 million’ limit at paragraph 94(3)(b) Schedule 22 is also raised to £100 million. The overall limit is therefore raised to £200 million.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
There is expected to be no impact on individuals as this measure only affects businesses.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
The measure will have a negligible impact on a limited class of financial concerns who provide finance by way of leasing ships to operators within the Tonnage tax regime. One-off costs will include familiarisation with these changes. There are not expected to be any continuing costs. The measure overall is expected to have no impact on business’ experience of dealing with HMRC as the change does not affect any processes or tax administration arrangements. It is not expected to impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
The HMRC Tonnage Tax Manual will be amended. There are not expected to be any other operational impacts.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Victor Baker, telephone: 03000 585490 or email: victor.j.baker@hmrc.gov.uk.