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

HMRC internal manual

Tonnage Tax Manual

Capital allowances: Outline

The rules for the interaction of tonnage tax with capital allowances are in ICTA88/SCH22/PART9 and SI2000/2303 regulations 4 to 6, with a further regulation 7 dealing with the ‘offshore’ regime (see TTM11310). There are also rules dealing with capital allowances available to ship lessors in FA00/SCH22/PART10 (see TTM10001onwards).

Definitions of the terms used are provided by paragraph 88.

Entry into tonnage tax

At the time a company enters tonnage tax, it may have already claimed considerable amounts of capital allowances in respect of machinery or plant, which is to be used for its tonnage tax business.  These capital allowances may far exceed the actual amount of depreciation suffered on the asset up to that date.

This excess of allowances is not recovered at the time of entry into tonnage tax, but a proportion of the excess may be recovered if the underlying asset is disposed of within seven years of entry.

Acquisitions and disposals within tonnage tax

Once within tonnage tax, a company is not entitled to capital allowances in respect of expenditure on any assets used for its tonnage tax activities.  There are special rules for mixed-use assets, which are used partly for the tonnage tax trade and partly for other purposes.

Any balance of unrelieved expenditure in respect of assets acquired before entry is taken to a tonnage tax pool (the ‘frozen pool’).  Proceeds from the disposal of assets held at the date of entry are deducted from the balance in the frozen pool, and the excess of proceeds over the balance in the pool may give rise to a balancing charge.  But:

  • a balancing charge on the disposal of a ship may be rolled over against the cost of a new ship;
  • unrelieved qualifying expenditure may be transferred from another company in the same group to reduce or eliminate the balancing charge; and
  • a balancing charge, which does fall to be brought into the tax computations, is to be reduced by a fraction that increases with the length of time since entry.


Disposals made seven or more years after entry will not have any capital allowance consequences.

Qualifying expenditure on exit

When a company leaves tonnage tax, it is put broadly in the same capital allowance position as if it had been within the normal tax regime throughout.


FA00/SCH22/PARA68 (general scheme) TTM17381
FA00/SCH22/PARA87 (meaning of ‘not entitled to capital allowances’) TTM17476
FA00/SCH22/PARA88 (interpretation) TTM17481
Entry into tonnage tax TTM09010
During tonnage tax TTM09100
Balancing charges TTM09200
Exit from tonnage tax TTM09300
Industrial buildings TTM09400