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HMRC internal manual

Tonnage Tax Manual

Relevant shipping profits: Secondary activities qualifying up to set limits

Work carried out for third parties

A company may have surplus staff or other resources available after conducting all core and wholly qualifying activities in respect of ships that it (or another member of the same group) operates. If it uses these staff or resources to provide similar services for third parties, those third party services may qualify as secondary qualifying activities provided

  • the relevant staff and assets are needed by the company to carry out the company’s main function, and the services are undertaken to make full use of those staff and assets, and
  • the services are minimal compared to the main function.

In this context the company’s main function will consist of all qualifying activities (core or secondary) which it carries out in respect of qualifying ships that it (or another member of the same tonnage tax group) operates.

Activities carried out by staff who are not needed to carry out the company’s main function cannot be qualifying activities

Companies may seek confirmation concerning the extent to which an activity for third parties will qualify as part of the clearance procedure (see TTM02010).

Activity by activity basis

The conditions described above refer to the total of all third party activities, but in most cases, it will be simpler and more practical to apply them on an activity by activity basis.

For example, if a booking office for a cruise line also sold railway tickets, the level of railway ticket sales which could qualify as secondary activities would depend on the level of staff needed to sell the group’s cruise tickets and the comparative volume of railway tickets sold compared with cruise tickets.

Any reasonable method may be used to determine level of activity

In order to determine whether the conditions are met, the level of activity may be determined by any reasonable method including reference to turnover, costs, tonnage of ships or number of TEUs, as appropriate. TEUs are cargo capacity measures, twenty-foot equivalent units. Only if the conditions are not met will it be necessary to make a full and proper allocation of income and expenditure between secondary activities inside the ring fence and those outside it.

Whether the level of an activity is minimal will depend on the measure used and the facts of the case. HMRC will not normally accept that third party activity is minimal in any case where it exceeds 20% of that activity carried out in support of ships operated by the tonnage tax group.

Reciprocal arrangements

Where third party services are provided under a reciprocal arrangement between two operators, HMRC will accept that third party services may qualify as secondary activities to the extent that they are reciprocated by the other party (if they would have been qualifying secondary activities if carried on by the company on its own behalf).

Example of reciprocity

English Ferries Ltd may allow Foreign Ferries SA to use its terminal in the UK in return for being allowed to use Foreign Ferries’ terminal at the other end of a shared route.

Providing use of its terminal to Foreign Ferries would not normally be a secondary qualifying activity of English Ferries. But we will accept that it is qualifying if it is provided in return for the use of the foreign terminal (the costs of which would otherwise fall to be taken into account in computing its relevant shipping profits).

Services provided to associates

Shipping companies often enter into joint ventures in order to be able to carry on specific parts of their trade more effectively. You may accept that the provision of services to such a joint venture (or by the joint venture to one of the participants in it) is secondary qualifying activities if the following conditions are satisfied:

  • The provision of those services would have been a core qualifying activity of the provider if they had related to its own trade.
  • The services are provided in connection with a tonnage tax trade carried on by the recipient.
  • The provider and the recipient are both qualifying companies, and each is a member of a tonnage tax group.
  • The tonnage tax group to which the provider belongs owns a significant proportion of the shares in the parent company to which the recipient belongs (or vice versa).
  • The activities relating to the provision of the services represent a relatively small part of the activities of the provider’s tonnage tax trade.


SI00/2303/REG3(4)(a) (permitted levels) TTM18003
Qualifying secondary activities TTM06100
Secondary activities qualifying up to set limits TTM06120