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HMRC internal manual

Tonnage Tax Manual

Capital allowances: Exit from tonnage tax (P&M)

Qualifying expenditure: Expensive cars

For expenditure incurred before 1 April 2009 under the normal capital allowance regime, the writing-down allowance available in respect of expenditure on cars with an original cost of over £12,000 is restricted to a maximum of £3,000 per year (seeCA23250).

The pre 2009 treatment is replicated in the tonnage tax rules to determine the amount of qualifying expenditure on expensive cars following a company exit from tonnage tax. Expenditure on each expensive car is dealt with in a separate pool (as under normal capital allowance rules). The relevant Regulations have not been amended so the pre 2009 treatment remains for tonnage tax purposes.

The amount of post-tonnage tax qualifying expenditure for capital allowances in respect of an expensive car is worked out by three rules:


Rule 1

The original cost of the car is reduced by £3,000 for each complete year that the company owned the car before leaving tonnage tax (subject to Rule 2).


Rule 2

Rule 1 only applies until the end of the year when the cost of the car is first reduced below £12,000. At the end of that year, Rule 3 starts to operate.


Rule 3

The cost as reduced by Rules 1 and 2 is further reduced by a percentage that varies according to the period from the end of the year in which the value first fell below £12,000 to the date of exit, as follows:

Length of period from end of year in which the balance falls below £12,000m to date of exit Percentage of reduced cost to go into capital allowance pool
Less than or equal to 1 year 75
1 year and one day to 2 years 55
2 years and one day to 3 years 40
3 years and one day to 4 years 30
4 years and one day to 5 years 25
5 years and one day to 6 years 15
6 years and one day to 7 years 12
7 years and one day to 8 years 10
8 years and one day to 9 years 5
More than 9 years Nil

This table is the same as that for assets other than expensive cars and long life assets (see TTM09310), but the period used is the period starting at the beginning of the first period in which the £3,000 restriction had no effect, rather than the full period from the date of acquisition.


FA00/SCH22/PARA85 (exit: plant & machinery) TTM17466
SI00/2303/REG5 (writing-down basis of expensive motor cars) TTM18005
Qualifying expenditure on exit from tonnage tax TTM09300