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HMRC internal manual

Tonnage Tax Manual

Schedule 22 Finance Act 2000: Part VII the ring fence - Para 63 meaning of ‘finance costs’


(1) For the purposes of paragraphs 61 and 62 “finance costs” means the costs of debt finance.

(2) In calculating the costs of debt finance, the matters to be taken into account include-

(a) any costs giving rise to a trading or non-trading debit under Part 5 of the Corporation Tax Act 2009 (loan relationships);

(b) any credit or debit falling to be brought into account in accordance with Part 7 of the Corporation Tax Act 2009 (derivative contracts),in relation to debt finance;

(c) any exchange gain or loss within the meaning given by section 475 of the Corporation Tax Act 2009 in relation to debt finance;

(i) implicit in a payment under a finance lease, or

(ii) payable on debt factoring or any similar transaction; and

(dd) where the tonnage tax company is the lessee under a long funding operating lease, the amount deductible (or the total amount that could, if there were no tonnage tax election, be deductible) in respect of payments under the lease in computing the profits of the lessee for the purposes of corporation tax (after first making against any such amount any reductions falling to be made by virtue of Section 379 of the Corporation Tax Act 2010); and

(e) any other costs arising from what would be considered on normal accounting principles to be a financing transaction.

(3) No adjustment shall be made under paragraph 61 or 62 if, in calculating for a period the company’s, or as the case may be, the group’s deductible finance costs outside the ring fence, the amount taken into account in respect of costs and losses is exceeded by the amount taken into account in respect of profits and gains.

(4) In this paragraph “long funding operation lease” means a long funding operating lease for the purposes of Part 2 of the Capital Allowances Act (see section 70YI(1) of that Act.


Meaning of ‘finance costs’ TTM07410