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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 non-tonnage tax asset

Asset begins to be used wholly for tonnage tax trade

Where plant and machinery used by a tonnage tax company for non-tonnage tax activities begins to be used wholly for the purposes of its tonnage tax trade:

  • the provisions of CAA01/S61 (1)(e) apply, so that
  • a disposal value is brought into account in the general pool (or other pool as appropriate) of the non-tonnage tax trade,
  • the company is treated as having acquired the asset at its disposal value,
  • the disposal value will be market value, per table in CAA01/S61 (2) , and
  • there is no effect on the tonnage tax (frozen) pool.

A balancing adjustment arising as a result of this disposal event is calculated under the normal capital allowance rules.  Reduction under the rule at FA00/SCH22/PARA78 (see TTM09210) is not available as the balancing charge does not arise ‘under this Part of the Schedule’, that is, under ICTA88/SCH22/PARA68 to PARA88.  It arises under the normal rules before the vessel enters the tonnage tax regime, although as a result of entering it.

Asset begins to be used partly for tonnage tax trade

Where plant and machinery used by a tonnage tax company for non-tonnage tax activities begins to be used partly for the purposes of its tonnage tax trade:

  • the provisions of CAA01/S61 (1)(e) and CAA01/S206 to S207 apply, so that
  • a disposal value is brought into account in the capital allowance computation,
  • a pool for a notional trade is created using that disposal value,
  • the disposal value will be market value , per table in CAA01/S61 (2),
  • any subsequent writing down allowance given, or balancing charge, on the notional trade pool is reduced in proportion to its tonnage tax use, and
  • there is no effect on the frozen pool.

A balancing adjustment arising as a result of this disposal event is calculated under the normal capital allowance rules.  Reduction under the rule at FA00/SCH22/PARA78 (see TTM09210) is not available as the balancing charge does not arise “under this Part of the Schedule”, that is, under FA00/SCH22/PARA68 to PARA88.

References

Change of use of non-tonnage tax asset TTM17421
   
Change of use of tonnage tax asset TTM09110