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HMRC internal manual

Tonnage Tax Manual

Capital allowances: Balancing charges (P&M)

Deferred balancing charges: Examples


  1. Date of entry into tonnage tax: 1 October 2000
  2. The vessels are:
| Acquired       | Ship    | Cost  
£m | MV at 1./10./2000  
£m |
| 1 January1989  | *Alpha* | 18.9                 | 12.5                              |
| 1 January 1990 | *Beta*  | 12.5                 | 8.5                               |
| 1 January 2001 | *Gamma* | 21.0                 |                                   |
  1. Capital allowance written down values are assumed to be NIL as at date of entry.

Example 1

Sale of Alpha on 1 March 2001 in First Year for £10 million


At entry the frozen pool is nil. The purchase of the Gamma during the first year of tonnage tax has no immediate effect. However, when the Alpha is sold on 1 March 2001, the £10 million sale proceeds will create a £10 million balancing charge (sale proceeds being less than the market value of £12.5m as at date of entry).

This balancing charge may be held over against the acquisition cost of the Gamma.

If the Gamma is disposed of before 1 October 2007 (i.e. 7 years from entry into tonnage tax) the balancing charge will be re-imposed as at the date of that disposal. It will then be subject to the appropriate percentage reduction (see TTM09210), or alternatively it may again be held over against one or more new qualifying ships.

Example 2

Sale of the *Alpha *on 1 January 2004 for £10 million


If the sale of one or both of the vessels is delayed more than one year after the acquisition of the Gamma, then the balancing charge may only be held over against ships purchased within the following two years, rather than against the acquisition of the Gamma.

Example 3

Sale of the *Alpha *on 30 September 2000 for £10 million (before entry into tonnage tax)


The balancing charge on the Alpha will be calculated by reference to normal capital allowance rules and a claim may be made to roll-over that balancing charge against the purchase of future new shipping to be bought within the following 6 years (i.e.. the Gamma).

Provided the Gamma meets the conditions in CAA01/S151 to S154, the acquisition of the Gamma will count as expenditure on new shipping for the purposes of CAA01/S134 onwards.

Example 4

Gamma *acquired instead on 1 September 2000, and *Alpha and* Beta* sold as a job lot on 1 March 2001 for a total of £22 million


As the Gamma was acquired pre-entry into tonnage tax, the frozen pool will not be nil, but will represent the result of applying FA00/SCH22/PARA69 to the pool containing expenditure on the Gamma.

If the company has no other assets, a balancing charge is likely to arise on the sale of the Alpha and the Beta, as follows:


  Gamma cost £21.00m  
  WDA y/e 30/9/2000 £5.25m  
  Frozen pool at entry to tonnage tax   £15.75m
  Alpha *and *Beta sale price (restricted to their market value as at entry)   (£21.00m)
  Balancing charge   £5.25m


Deferment of balancing charge arising after entry TTM09230