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HMRC internal manual

Tonnage Tax Manual

Relevant shipping profits: Outline

Prior year adjustments

General rule

Following CTA09/CHAPTER14, where there is a change in the accounting basis on which profits are computed, prior year adjustments are now dealt with for tax purposes as made on the first day of the period of account for which the new basis is adopted.

Where the adjustment is positive it is assessed in calculating the profits of the trade.

Where the adjustment is negative it is allowed as an expense of the trade in calculating the profits.

Prior year adjustment as relevant shipping income


  • both HMRC and accountancy practice is to treat such adjustments, where this is as a result of a change from one valid basis to another (BIM34000 onwards), as relating to the year of change (and not to the prior year),
  • ‘relevant shipping income’ is defined by FA00/SCH22/PARA44 (2) as ‘income from tonnage tax activities’ (and not  by reference to trading income), and provided
  • the original activity to which the sum relates would be qualifying (core, secondary or incidental),

then the income or deduction should be treated as being used in arriving at the ‘relevant shipping income’ for tonnage tax purposes.


A ship-operating company elects into Tonnage Tax as from 1 January 2000. In accounts to 31 December 2000, as required by FRS 15, it makes a prior year adjustment in respect of dry-docking provisions written off in previous years, creating a potential Case VI profit of £50,000.

There will be no Case VI assessment as the £50,000 will be regarded as ‘relevant shipping income’ from core qualifying activities.


Relevant shipping income TTM06020
Tonnage tax activities TTM06030