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HMRC internal manual

Tonnage Tax Manual

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HM Revenue & Customs
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Tonnage Tax Regulations 2000: Regulation 8

Adjustments to be made for capital allowance purposes to the amount of qualifying expenditure for assets where a corporate partner leaves tonnage tax

SI00/2303/REG8(1) This regulation applies where -

(a) corporate partner leaves tonnage tax,

(b) an asset has been used by the corporate partner for the purposes of tonnage tax activities which it carries on as a member of a partnership, and

(c) as at the beginning of the partnership chargeable period in which the corporate partner leaves tonnage tax (the beginning of which period is referred to in this regulation as “the relevant time”) the asset -

(ii) was partnership property of the partnership concerned, or  
  
(iii) would have been so treated by regulation 9(2), or by section 65 of the 1990 Act if the corporate partner had not been subject to tonnage tax,  
and applies to the corporate partner and all the other members of the partnership.

In this paragraph “the partnership chargeable period” means the accounting period or period of account used by the partnership in its partnership computation under section 114(1) of the Taxes Act or section 111(2) of that Act, as the case may be.

(2) In relation to any asset mentioned in paragraph (1)(b) and (c) –

(a) there shall be determined the amount for that asset which is referred to in paragraph 85(2)(a) of Schedule 22 (which amount is referred to in this regulation as “the paragraph 85(2)(a) amount” for the asset), on the assumptions -

(ii) that the corporate partner left tonnage tax at the relevant time, and  
  
(iii) (where it is not otherwise the case) that the asset was held by the corporate partner at that time; and  

(b) where the asset is counted in a calculation under paragraphs (3) to (7) of this regulation, it shall not be counted again in any determination under paragraph 85(1) of Schedule 22 on the same occasion of the corporate partner leaving tonnage tax.
(3) In the following paragraphs of this regulation –

“unrelieved qualifying expenditure”, in relation to an asset, means the balance of qualifying expenditure attributable to that asset that would otherwise have been carried forward under Part II of the 1990 Act, including postponed allowances attributable to that asset; and

“postponed allowances” means qualifying expenditure which is unrelieved by virtue of notice having been given under –

(a) section 30(1) of the 1990 Act (postponement or reduction of first allowances or  
  
(b) section 31(3) of that Act (postponement of writing-down allowance in respect of expenditure in single ship pool)  
(4) The unrelieved qualifying expenditure for any asset mentioned in paragraph (1)(b) and (c), so far as it is not represented by postponed allowances, that would otherwise have been carried forward as at the relevant time, shall be adjusted to the amount resulting from the calculation in paragraph (5) or (6), as the case may be.

(5) Except in the case described in paragraph (6), the calculation is -

(A% x B) + ((100% – A%) x C)  
where –

A equals the corporate partner’s share (expressed as a percentage) in the partnership property of the partnership concerned at the relevant time, subject to paragraph (8);

B equals the written down value of the paragraph 85(2)(a) amount for the asset calculated by applying regulation 4, 5 or 6, as the case may be -

(a) as if for regulation 4(4)(b), there were substituted a reference to the relevant time; and  
  
(b) on the assumptions contained in paragraph (2)(a) where applicable;  

C equals the unrelieved qualifying expenditure for the asset, so far as it is not represented by postponed allowances, as at the relevant time.
(6) In a case where all the members of the partnership other than the corporate partner are -

(a) persons who (within the meaning in section 161 of the 1990 Act) are not within the charge to tax in the United Kingdom on the profits of the trade carried on in the partnership in question, or

(b) companies which are subject to tonnage tax,
the calculation is of B, which has the same meaning as in paragraph (5).

(7) The unrelieved qualifying expenditure for any asset mentioned in paragraph (1)(b) and (c), so far as it is represented by postponed allowances, that would otherwise have been carried forward as at the relevant time (the amount of which is referred to as “D” in this paragraph), shall be reduced to the percentage of D which is represented by the following calculation –

(100% – A%) x D  
where A has the same meaning as in paragraph (5).

(8) Where the share of the corporate partner in the partnership property (expressed as a proportion of the whole) varied during the period –

(a) beginning on the last to occur of -

(i) the date on which the corporate partner became a member of the partnership concerned,  
  
(ii) the date on which the corporate partner entered tonnage tax, or  
  
(iii) the date six years before the relevant time, and  

(b) ending at the relevant time,
the calculation of A in paragraphs (5) and (7) shall be made according to the average of the corporate partner’s interest in the property of the relevant partnership during that period, and any necessary apportionment on a daily basis shall be made.

(9) A payment made by a corporate partner to another corporate partner in the same partnership which is compensation for any adjustment carried out under paragraphs (4) to (7) -

(a) shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and

(b) shall not for any of the purposes of the Corporation Tax Acts, (within the meaning in section 831(1)(a) of the Taxes Act) be regarded as a distribution or a charge on income.

References

Capital allowances on partner’s exit from Tonnage Tax TTM13410
   
Procedure TTM13420
Example TTM13430
Postponed allowances (free depreciation) TTM13440
Compensatory payments between partners TTM13450
Variations in share of partnership property TTM13460