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HMRC internal manual

Tonnage Tax Manual

HM Revenue & Customs
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Ship leasing: Quantitative restrictions on allowances

Cost of providing the ship: Example

This example illustrates the operation of the quantitative restriction on capital allowances for expenditure on qualifying ships used by a tonnage tax company.

Year 1

At the start of its accounting period, a bank buys Ship A (not a long life asset) for £30 million and leases it to a tonnage tax company.

As the ship costs less than £40 million the full cost qualifies for writing-down allowances at 18 per cent. The bank claims capital allowances of £5.4 million on this vessel for Year 1.

Year 2

During Year 2, the tonnage tax company pays £12 million for installation of a helicopter deck on Ship A.

This brings the total cost of providing ship A up to £42 million.  This has no effect on the amount of allowances available to the bank, which continues to claim writing-down allowance at 18 per cent on the £24.6 million expenditure brought forward in its 18 per cent pool.

Year 3

During Year 3, the bank pays a further £8 million to have decking of a newly developed material installed.

Taken together with the original £30 million, the bank has incurred £38 million in providing the vessel in its current state.  However, this does not mean that the lessor can claim 18 per cent allowances on the additional £8 million.  When this additional £8 million was incurred, total expenditure on the ship (by both lessor and lessee) already stood at £42 million (over the £40 million limit for 18 per cent allowances).  So the bank’s second block of expenditure (£8 million) only qualifies for writing-down allowances at 8 per cent and is allocated to the bank’s 8 per cent pool.




Quantitative restrictions on allowances TTM10400
Cost of providing ship TTM10430