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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Introduction to tonnage tax: Background

Origin and brief chronology

A new tax regime for shipping

The tonnage tax regime represents one part of a package of measures which has helped reverse the decline in the UK shipping industry.


The Government examined the state of the shipping industry in a Transport White Paper published in 1998. This was followed in December 1998 by another paper “British Shipping: Charting a New Course”, which set out the Government’s strategy for reviving the shipping industry.

Much of this paper was concerned with increasing the number of British seafarers and improving their training but, in discussing the attractiveness of a low cost tonnage-based system of corporate taxation, the Government stated:

‘The Government will discuss fiscal options with the shipping industry in the context of the pre-Budget consultation…’

Other tonnage tax regimes had already been introduced (for similar reasons) elsewhere in Europe, most notably in The Netherlands.

An independent enquiry

In his Budget statement on 9 March 1999 the Chancellor announced that he had asked Lord Alexander of Weedon QC to study the case for a ring-fenced tonnage tax regime. The Chancellor was particularly concerned that such a regime might become a vehicle for avoidance.

On 12 August 1999 Lord Alexander published his report, “Independent Enquiry into a Tonnage Tax”. He recommended introducing such a system of taxation for shipping companies, and included a detailed design. This design was closely modelled on the existing Dutch tonnage tax regime, but it added a new feature in the form of a direct link with the training of seafarers.

Lord Alexander’s recommendation was accepted and the necessary legislation was included in Finance Act 2000.

Brief Chronology

16 December 1998: Department of the Environment, Transport and the Regions publishes ‘British Shipping - Charting a New Course’.
9 March 1999: The Chancellor announces that he has appointed Lord Alexander of Weedon QC to study the case for a ring-fenced tonnage-based corporation tax, to be linked with incentives for enhanced training provision.
26 May 1999: The Transport Select Committee recommends that a tonnage tax regime be introduced “without further delay”.
12 August 1999: The Chancellor accepts Lord Alexander’s recommendation that a tonnage tax be introduced.
23 December 1999: Draft Clauses and draft Statement of Practice issued for consultation.
7 April 2000: Draft tonnage tax legislation included in Finance Bill.
17 May 2000: Draft regulations and revised draft Statement of Practice issued for consultation.
12 July 2000: EU Commission announced State aid approval of UK tonnage tax
28 July 2000: Tonnage tax legislation enacted as FA00/SCH22
9 August 2000: The Tonnage Tax (Training Requirement) Regulations 2000 laid before Parliament.
25 August 2000: The Tonnage Tax Regulations 2000 laid before Parliament, and Statement of Practice SP4/00 was published. (The contents of this Statement of Practice are now where relevant reflected in this guidance manual).
14 April 2003 FA03/SCH32:Restrictions on capital allowances for lessors of ships
1 April 2005 The Tonnage Tax (Exception of Financial Year 2005) Order 2005 came into force.
1 July 2005: Amendments to tonnage tax legislation enacted as FA05/SCH7 following amendments to EU Commission maritime transport State aid guidelines.
1 July 2005: The Tonnage Tax (Further Opportunity for Election) Order 2005 came into force.
1 April 2006 The Tonnage Tax (Exception of Financial Year 2006) Order 2006 came into force.
1 April 2007 The Tonnage Tax (Exception of Financial Year 2007) Order 2007 came into force.
7 November 2013 EU Commission VP Kallas announced no change to maritime transport State aid guidelines following review.