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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Capital allowances: During tonnage tax (P&M)

Change of use of tonnage tax asset: Asset acquired before entry

If there is a change of use of an asset acquired before entry into tonnage tax, some of the expenditure on the asset will be reflected in the ‘tonnage tax (frozen) pool’.

CAA01/S61(1)(e) is applied to treat such a change in use as a ‘disposal event’ (seeCA23250). For this purpose only, the reference to a ‘qualifying activity’ (in section 61) is to be read as a reference to the tonnage tax trade.

Broadly speaking, the effect of treating the change of use as a disposal event will be that an amount equal to the market value of the asset as at the date of change will fall to be deducted from the frozen pool (see TTM09150 for detailed instructions on the treatment following a ‘disposal event’).

If the asset is used for a qualifying purpose after the change, the company will be treated as if it had acquired the asset for an amount equal to the market value at the date that the change took place. The effect of this will be that:
 

  • if the asset begins to be used wholly for the purposes of a non-tonnage tax trade, then capital allowances will be due in the normal way.
  • If the asset begins to be used partly for the purposes of the tonnage tax trade, and partly for a non-tonnage tax trade, then capital allowances will be due in respect of the use in the non-tonnage tax trade (see TTM09100)

References:

FA00/SCH22/PARA75(2) (change of use of tonnage tax asset) TTM17416