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HMRC internal manual

Tonnage Tax Manual

Ship Leasing: Quantitative restrictions on allowances

Restrictions cease to apply: Example

A ferry is acquired on 1 January 2004 by Selpats Ferries Ltd (a tonnage tax company), under a finance lease from their bank. The cost of the ship is £90 million.

On 30 June 2006 Selpats Ferries Ltd is taken over by the larger Regian Group of companies (which is not within tonnage tax). Under the rules on mergers (see TTM12300), Selpats Ferries Ltd ceases to be a tonnage tax company and the leasing restrictions cease to apply from 30 June 2006.

The capital allowances available to the bank are as follows (amounts in £000s):

Accounting period ended 31 December 2004

(£’000s) 25% pool 10% pool Non-qualifying Total allowances
Cost (90,000) 40000 40000 10000  
WDA 10000 13/12/1910   £14,000
Balance c/fwd 18/02/1982 36000 10000  

Accounting period ended 31 December 2005

(£’000s) 25% pool 10% pool Non-qualifying Total allowances
Balance b/fwd 30000 36000 10000  
WDA 7500 3600   £11,100
Balance c/fwd 22500 32400 10000  

Accounting period ended 31 December 2006

As at 30/06/2006 the leasing restrictions stop applying. The ship is treated as disposed of as at 30/06/2006 for its tax-written down value at that point. In this case the tax written down value (TWDV) is worked out by recomputing notional capital allowances for the period on the full ‘qualifying expenditure’ (FA00/PARA89 (3) and PARA88 (1)) of £90 million, as if in a single asset pool FA00/SCH22/PARA100):

(£’000s) notional single asset pool
Cost 90000
Notional WDA for ye 31/12/2004 22500
Balance c/fwd & b/fwd 67500
Notional WDA for ye 31/12/2005 16875
Balance c/fwd & b/fwd 50625
Notional WDA for 6m 30/6/2006 6328
TWDV £44,297

This ‘tax written down value’ of £44,297,000 is treated as if it were a normal disposal and apportioned between the 25 per cent and 10 per cent pools in same proportion as the original cost of the ship (FA00/SCH22/PARA97):

Pool Proportion of TWDV Allocated to pool
25% pool 44,297 x 40,000/90,000 19688
10% pool 44,297 x 40,000/90,000 19688
Non-qualifying 44,297 x 10,000/90,000 4921



Assuming that the bank has no other ships leased within tonnage tax, the 25 per cent and 10 per cent pools will be closed, with balancing adjustments as follows:


(£’000) 25% pool 10% pool  
Balance b/fwd 22500 32400  
Disposal proceeds -19688 -19688  
Balancing allowance 2812 12712 £15,524

The bank can then bring a new amount of qualifying expenditure into its normal machinery and plant pool in respect of the ferry.  That amount is the original £90 million cost of the ferry reduced at a rate of 25 per cent per year from acquisition on 1 January 2004 to 30 June 2006 (FA00/SCH22/PARA99 (3) and (4)), i.e. £44,297,000, as computed above.

The writing down allowance for the bank’s accounting period ended 31 December 2003 (after the CAA01/S220 (1)) restriction) will be:

£44,297,000 x 6/12 x 25% = £5,537,125


FA00/SCH22/PARA99 (change of circumstances taking out case) TTM17571
FA00/SCH22/PARA100 (determination of tax written down value) TTM17576
FA00/SCH22/PARA97 (treatment of disposal proceeds) TTM17561
FA00/SCH22/PARA89 (expressions same meaning as in PART9) TTM17486
FA00/SCH22/PARA88(1) (definition of ‘qualifying expenditure’) TTM17481
Restrictions cease to apply: Introduction TTM10500
Restrictions cease to apply: Procedure TTM10510
Tax written down value TTM10530