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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Qualifying companies and ships: Strategic and commercial management - chartering in

Chartering in

Where the operator charters in a ship it may be on ‘bareboat’ terms (see TTM15110), in which case it will be responsible for ship management in much the same way as an owner. Where, however, it time-charters in a ship, much of the ship management will fall to be undertaken by its charterparty counterpart. In these circumstances, allowance should be made for the reduced management requirement. The justification for this is that the Commission’s approval for UK tonnage tax separately provides for the issue of time-chartering in, in the following terms.

Qualifying ships may be owned by or time-chartered by the company electing into tonnage tax, but the proportion of ships held on time-charter may not exceed 75 per cent of the total tonnage operated by the company.

This limit is reflected in the legislation at FA00/SCH22/PARA37. It follows that the management of a ship by a company that time-charters it in may be quite limited, for example route planning, bookings, insurance and provisioning; the actual features will depend on the terms of the charterparty. HMRC consider that this will satisfy the strategic and commercial management test in its application to management of the ship chartered in provided the company’s strategic and commercial management activities as a whole observe the criteria set out in the Commission guidelines and the preceding TTM paragraphs.

When undertaking risk assessment, officers will be alert to the possibility that through arrangements involving time chartering

  • only very limited strategic and commercial management activities are undertaken in the UK by a company overall, or
  • arrangements are in operation that provide for a non-tonnage tax company able to claim capital allowances on a ship chartered to a company within tonnage tax in the same group.

A company chartering in under these arrangements would be unlikely to satisfy the strategic and commercial management test and arrangements designed to achieve a tax advantage would be reviewed against the anti-avoidance provision of FA00/SCH22/PARA41.