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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Qualifying companies and ships: Bareboat charters-out

Subject to the exceptions of TTM03160, a company is not regarded as the operator of a ship that has been chartered-out by it on bareboat charter terms.

‘Bare boat charter terms’ is defined in FA00/SCH22/PARA143 as:

hiring of a ship for a stipulated period on terms which give the charterer possession and control of the ship, including the right to appoint the master and crew.

See TTM15110 for further information on bareboat charters.

A finance lease is a form of bareboat charter. Banks which own ships which are finance leased to shipping companies are not ‘operating those ships, and so they will not normally be eligible to elect for tonnage tax.

The reason for the general restriction on bareboat charters-out is that tonnage tax is a regime for ship operating companies. A bareboat charter-out effectively hands over full control of the ship to the charterer-in and the ship therefore cannot generally be regarded as being operated by the tonnage tax company.

The profits from ships that are chartered-out will normally fall outside the ring-fence, and they will therefore be computed on normal accountancy and taxation principles.


A company will be regarded as operating a ship that has been chartered-out on bareboat charter terms if

  • the person to whom it is chartered is not a third party (see TTM03160), or


  • the ship is chartered-out because of short term over-capacity (see TTM03170), or


  • the ship is in the service of a government department (see TTM03180)

If any of these conditions is satisfied the profits from the charter will fall inside the ring fence, and the company will be charged to tax by reference to the tonnage of the ship.

Some examples as to how the ship operation rules work will be found in TTM03190.


FA00/SCH22/PARA18(3)-(6) (meaning of operating a ship) TTM17096
FA00/SCH22/PARA143 (bareboat charter terms) TTM17791