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HMRC internal manual

Tonnage Tax Manual

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

Disposals of machinery or plant

In practice there will be no capital allowances consequences when a tonnage tax company disposes of an item of plant or machinery used in its tonnage tax trade, unless all the following conditions are satisfied:
 

  • the disposal event giving rise to the charge occurs within seven years of the date of entry into tonnage tax.
  • expenditure was incurred on the provision of the asset before the company’s entry into tonnage tax;
  • some or all of that expenditure was carried to the company’s tonnage tax (frozen) pool;

If there is a disposal event (see CA23250) in respect of an asset fulfilling all of these conditions, then the disposal value (see below) is deducted from the balance remaining in the frozen pool.

That disposal value is determined in accordance with the normal capital allowance rules (see CA23250 onwards). But it is then limited to the market value of the asset as at the date of the company’s entry into tonnage tax.

If the disposal value exceeds the amount remaining in the tonnage tax pool, then a balancing charge (see below) arises. The unrelieved expenditure in the company’s pool may be augmented by unrelieved expenditure surrendered by another company in the same tonnage tax group (see TTM09260).

The balancing charge is equal to the amount by which the disposal value exceeds the balance remaining in the tonnage tax pool. But the amount brought into the tax computation is to be reduced by reference to the length of time that the company has been within the tonnage tax regime, (see TTM09210).

See also:
 

  • TTM09220 regarding the method of giving effect to the balancing charge
  • TTM09230 regarding the possibility of an election to defer the balancing charge

References:

FA00/SCH22/PARA77 (disposals during tonnage tax) TTM17426