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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Introduction to tonnage tax: Legislative changes in 2005

Summary of changes made in 2005

The combination of the joint Inland Revenue/Department for Transport Post Implementation Review of Tonnage Tax and the European Commission’s revised guidelines on State aid to maritime transport led to changes to the tonnage tax regime in 2005.  These changes were implemented by FA 2005 and two subsequent Statutory Instruments.

The changes were:

* A new window of opportunity for elections in to tonnage tax running from 1 July 2005 to 31 December 2006 (see [TTM02190](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm02190)).
* The exclusion of tugs from tonnage tax unless they are registered in an EU/EEA Member State and spend more than 50% of their operational time engaged in activities at sea.  This effectively excludes port and harbour tugs which in the Commission’s view had been admitted to tonnage tax in error and would have to leave the regime.  Companies, not just those required to leave tonnage tax, were given a window in which to make an election to withdraw without incurring the usual penalties related to a premature withdrawal from tonnage tax. See [TTM03560](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03560).
  
* Clarification that a ship is only a qualifying ship if it performs its activities “at sea”.  This followed the Commission Decision (‘Dutch Tugs’, C(2002) 2158) which also led to the previous change. See [TTM03500](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03500).
  
* Allowing dredgers into tonnage tax if they are registered in an EEA Member State but only then in respect of their transport activity at sea, i.e. travelling to the dredge site and taking the dredged material to its place of unloading, and only then if the transport activity exceeds 50% of their operational time. See [TTM03670](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03670).
  
* The rules on change of use (FA00/SCH22/PARA22) have been changed from referring to particular type of vessel to the activity the vessel is engaged in. A qualifying ship ceases to qualify if it begins to be used for activities other than those listed in FA00/SCH22/PARA19 (1)(a) to (d) or as a type of vessel excluded by FA00/SCH22/PARA20. See [TTM03710](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm03710).
  
* The special provisions for offshore activities now refer to types of activities rather than types of vessels. This will permit multi-function vessels in to the regime. In addition safety/standby vessels (sometimes called Emergency Response and Rescue Vessels, ERRV's) are now allowed in to tonnage tax. See [TTM11126](https://www.gov.uk/hmrc-internal-manuals/tonnage-tax-manual/ttm11126)

FA 2005 also contains two provisions:

  1. In years that are not ”excepted” (TTM03905), where a ship is registered or flagged can affect whether or not it is a qualifying ship for tonnage tax purposes (TTM03910). This rule does not apply to qualifying tugs and dredgers because these must be registered in an EEA Member State at all times.

     2.There is a power for regulations to be made requiring companies to provide evidence of their compliance with prescribed health and safety            standards for vessels not registered in an EEA Member State. It also provides for a range of possible penalties for non-compliance.                     Any regulations under this provision will be the responsibility of the Department for Transport. This is currently not in force.