beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Tonnage Tax Manual

The ring fence: Finance costs

Singleton company

FA00/SCH22/PARA61 sets out the rules for allocating finance costs between the tonnage tax and non-tonnage tax activities of a single company.

See TTM07410 for the meaning of ‘finance costs’.

Principle of fungibility

The rules operate on the presumption that finance is fungible. In other words, that any borrowings of a company serve to finance the activities of the company as a whole, even if they are initially earmarked for a particular project.

Just and reasonable apportionment

A company is required to consider its activities as a whole, and if any more than a just and reasonable proportion of any finance costs would otherwise be outside the tonnage tax ring fence, an adjustment is required.

The just and reasonable calculation of finance costs attributable to non-tonnage tax activities should take into account the fact that finance requirements differ from activity to activity. Shipping is generally a capital intensive activity due to the high cost of the assets and would usually be expected to absorb a significant part of any finance raised.

Adjustments required

If the company claims a deduction outside the tonnage tax ring fence for more than a just and reasonable proportion of its total finance costs an addition is made to its taxable profits.

The addition is treated as if it is a non-trading loan-relationship credit.

Further guidance

Further guidance on the allocation of finance costs is given in the following instructions;

  • Broad approach of the legislation – TTM07440
  • Computational principles – TTM07450
  • Definition of finance costs – TTM16208 (and see TTM07410)
  • Determining the just and reasonable fraction – TTM07460
  • Examples – TTM07470


FA00/SCH22/PARA61 (finance costs – singleton company) TTM17346
Outline of finance costs adjustment TTM07400
Group companies TTM07430