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HMRC internal manual

Tonnage Tax Manual

Qualifying companies and ships: Sea - meaning of

To qualify for tonnage tax, the ship must be operating at sea – see FA00/SCH22/PARA19 (1), amended by FA05.  It must not fall into one of the excluded categories of vessel – see TTM03620.

Sea does not include:

  • a port or harbour
  • an estuary, a tidal or other river or an inland waterway.

Apart from these exclusions sea is not defined by tonnage tax legislation and neither are harbour, estuary etc.  HMRC considers the words should be given their ordinary common sense meaning in context.

In considering whether a particular stretch of water is ‘sea’ for the purposes of paragraph 19(1), HMRC will consider factors including

  • whether the waters are classed as ‘sea’ for the purposes of the relevant local legislation on merchant shipping
  • whether a ship needs to be certified as seagoing to operate in those waters.

Neither of these factors will necessarily be conclusive particularly if the local definitions of sea have been designed for a specific purpose and so produce an anomalous result if applied for the purposes of tonnage tax.  Generally, though, HMRC consider such local definitions to be helpful and reliable.

UK Waters

For UK territorial waters, the Maritime & Coastguard Agency (MCA) categorises waters that are not regarded as ‘sea’ for the purposes of Merchant Shipping legislation (excepting marine pollution).  The MCA is also the competent authority for certification of ships for navigation at sea.  The MCA regards waters in category A, B, C and D as not being ‘sea’.  HMRC adopts this view for the purposes of PARA19 (1)(a) to (d).

For sheltered foreign waters see TTM03530


HMRC consider that an estuary can normally be defined by reference to its ordinary dictionary definition:

  • the tidal mouth of a large river, or
  • the wide lower tidal part of a river, or
  • an arm of the sea that extends inland to meet at the mouth of a river.

The seaward limit of an estuary is not defined in statute but is generally taken to be where the mingling of sea and fresh water begins.  Mud banks, shoals and other topographical features may also be indicative.  The First Tier Tribunal in *Western Ferries v HMRC *[2011] UKFTT 243 took this approach but also took into account some other geographical features which were particular to the estuary area they were considering in order to determine its limits.

If such data are not readily available, it is helpful to refer (in relation to a UK estuary) to the Merchant Shipping Notice MSN 1719(M) of the MCA.  This Notice defines waters in Category C as:

Tidal rivers and estuaries and large, deep, lakes and lochs where the significant wave height could not be expected to exceed 1.2 metres at any time.


It defines Category D waters as:

Tidal rivers and estuaries where the significant wave height could not be expected to exceed 2.0 metres at any time.


HMRC takes the view that any waters in MCA Category C or D are either estuaries or tidal rivers or lakes.  Any ferry operating in these waters is considered to be excluded from tonnage tax under FA00/SCH22/PARA20 (1).


A harbour is a refuge or shelter for shipping.  It may be a natural harbour or man-made.  Used in its ordinary sense it has been recognised by the courts as meaning “a place to shelter ships from the violence of the sea, and where ships are brought for commercial purposes to load and unload goods”.  There is a similar, useful, definition of ‘harbour’ at section 313 of the Maritime Shipping Act 1995, which includes:

Estuaries, navigable rivers, piers, jetties and other works in or at which ships can obtain shelter or ship and unship goods or passengers.

HMRC consider that these definitions are appropriate in determining what is a harbour for tonnage tax purposes.

There are in the UK a number of statutory harbour authorities, which have been given “powers of duties of improving, maintaining or managing a harbour.”   HMRC will also take the geographical extent of these powers into account when considering the extent of a harbour but again this is not necessarily determinative of its limits.  Each case will have to be judged on its own facts.

These definitions and harbour authority boundaries will also be relevant to determining the limits of harbours overseas.

Where the extent of harbour authority is an issue, submit the case to the Tonnage Tax Technical Adviser.


FA00/SCH22/PARA19(5) Sheltered Waters TTM03530
Paragraph 20A Schedule 22 FA 2000 Qualifying tugs TTM03560