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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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The 75% limit on charters-in: Outline

Chartered-in tonnage not to exceed 75% of total

It is a requirement of entering or remaining within tonnage tax that no more than 75% of the tonnage operated by a company or group is          chartered-in otherwise than on bareboat charter terms, see TTM05010.

In practice this test is applied by comparing:

  • the total tonnage of qualifying ships ‘chartered-in’ across the ring fence, and
  • the total tonnage of the qualifying ships operated by the group.

For this purpose bareboat charters, and charters between tonnage tax companies in the same group, are ignored.

Effect of exceeding the 75% limit

If the 75% limit is exceeded at the time of an initial election into tonnage tax, the election may be invalidated, or the date it comes into effect may be deferred.

If the 75% limit is exceeded in two consecutive accounting periods after entry, the company or group may be excluded from the tonnage tax regime.

Reasons for a 75% limit

Tonnage tax is a regime for ship-operating companies.  Where a ship is chartered-in under a time or voyage charterparty (see TTM15120 and TTM15130), the original owner continues to appoint the crew and run the vessel, albeit under instructions as to cargo and destination from the charterer.  This is only a limited type of ship operation, although very typical in the shipping trade.  It would be very difficult for a shipping company or group to train cadets under the training requirement on such vessels.

On the other hand, where a shipping company owns, finance leases or bareboat charters-in its ships it has full control over them, including the right to appoint the crew, and thus train its own cadets.

A limit on time and voyage charters of 75% of the net tonnage was fixed in order to allow into the tonnage tax regime only ship operators where there was a core activity of full ship-operation, yet allow the flexibility of such charters.

The UK tonnage tax scheme is State aid approved by the EU Commission, and the 75% limits is a condition of that approval.  See TTM01250.


FA00/SCH22/PARA37 (75% or less of fleet tonnage chartered-in) TTM17226
What is ‘chartered-in’ TTM05100
How to calculate limit TTM05200
What is effect of exceeding limit TTM05300