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HMRC internal manual

Tonnage Tax Manual

Capital allowances: Balancing charges (P&M)

Deferment of balancing charges arising after entry

Under the normal capital allowances regime, a company incurring a balancing charge on the disposal of a ship can claim to defer that balancing charge and set it against expenditure on new shipping acquired within 6 years (seeCA25300+)

A balancing charge arising from the disposal of a ship by a tonnage tax company may also be deferred, but under rather different rules, which are set out in FA00/SCH22/PARA80.

When a claim to defer a balancing charge may be made

If a tonnage tax company incurs capital expenditure on a new qualifying ship (or ships) during the ‘relevant period’, the company may claim hold over relief in respect of a balancing charge arising from the disposal of a ship.

The ‘relevant period’ runs from 1 year before to 2 years after the date of the disposal event that gives rise to the balancing charge.

Effect of claim

The balancing charge, calculated as described in TTM09150, is held over to the extent that it is matched by expenditure on any new qualifying ship(s) during the relevant period. The held over charge is only re-imposed if the new qualifying ship (or any of them) is subsequently disposed of during the 7 year period during which balancing charges are phased out following a company’s entry into tonnage tax.

The amount of balancing charge re-imposed equals the amount that was held over due to the acquisition of that new ship.

The re-imposed balancing charge is then reduced by the appropriate percentage (see TTM09210) according to the length of time the company has been within the regime when the balancing charge is re-imposed (rather than when it originally arose).

TTM09240 contains examples of how to deal with the deferral of balancing charges arising both before and during tonnage tax.

References

FA00/SCH22/PARA80 (deferment of balancing charge) TTM17441
   
Procedure on deferred balancing charge TTM09250