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HMRC internal manual

Capital Allowances Manual

From
HM Revenue & Customs
Updated
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PMA: Ships: Expenditure on new shipping

CAA01/S146 - S150

The basic rule is that expenditure on the provision of a ship is expenditure on new shipping if:

  • the expenditure is qualifying expenditure incurred wholly and exclusively for the purposes of a qualifying activity carried on by the person who incurs the expenditure;
  • when the expenditure is incurred it appears that the ship:

    • will be brought into use for the purposes of the qualifying activity as a qualifying ship CA25350, and
    • will continue to be a qualifying ship throughout a period of at least three years after that;

      • the expenditure is expenditure that qualifies for single ship treatment.

     

    Expenditure on the provision of a ship is not expenditure on new shipping if any of the following apply.

    1. Notice has been given that single ship treatment for it is not to apply (wholly or in part) CA25150.
    2. The ship is used for overseas leasing CA24010.
    3. The ship has belonged to the person who incurred the expenditure or any person connected with them at any time in the six years ending with the current acquisition of the ship.

     

    There are anti avoidance rules. They stop expenditure on the provision of a ship being expenditure on new shipping if it fails a main object test. Expenditure is not expenditure on new shipping if the main object, or one of the main objects, of the provision of the ship for the person who incurred the expenditure’s qualifying activity, or of a series of transactions of which the provision of the ship was one, was the deferment of a balancing charge.

    You should report any case where you think that the legislation is being exploited and you cannot use the main object provisions to CTIAA (Technical). In your report you should set out the full facts and the company’s reasons for entering into the transactions.

    Expenditure on the provision of a ship is not, and is treated as never having been, expenditure on new shipping if:

    • the ship is not a qualifying ship at some time after the ship is first brought into use for the purposes of a qualifying activity carried on by the person who incurred the expenditure or a connected person, and
    • that time is before the earlier of:

      • the end of the period of three years which begins when the ship is brought into use, and
      • the first occasion after the beginning of that three-year period when the ship does not belong to the person who incurred the expenditure or any person connected with them.

      Expenditure on a ship incurred by a company other than the shipowner, that is by a fellow group member, is not expenditure on new shipping if:

      • the company ceases to own the ship without ever bringing it into use for the purposes of their qualifying activity, or
      • the ship is brought into use for the purposes of their qualifying activity and there is a disposal event less than three years after the ship is first brought into use; or
      • the ship is brought into use for the purposes of the other company’s qualifying activity and at a time before the end of the three-year period beginning with the time when the ship was brought into use the shipowner and the other company are not members of the same group.

       

      This means that expenditure on a ship incurred by a fellow group member qualifies as expenditure on new shipping if and only if they:

      • bring it into use for the purposes of their qualifying activity,
      • continue to own it for three years after it is brought into use, and
      • stay a member of the same group as the shipowner for three years after the ship is brought into use.

       

      The three year period is reduced if, less than three years after the ship has been brought into use, the ship is totally lost or it is damaged so badly that it is impossible or not commercially worthwhile to repair it. In such a case you look at the period beginning with the ship’s being brought into use and ending with the loss or irreparable damage.