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.
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.
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.
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|