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HMRC internal manual

Tonnage Tax Manual

The Tonnage Tax Regulations 2000

Explanatory note

SI00/2303(This note is not part of the Regulations)

The Tonnage Tax Regulations 2000 supplement Schedule 22 to the Finance Act 2000 (“Schedule 22”) which introduced an alternative new regime (“tonnage tax”) for calculating the profits of a shipping company for the purposes of corporation tax. The principal effects of these Regulations are (1) to define the activities which are to be regarded as “qualifying secondary activities” (2) to provide for the calculation of the written-down levels of qualifying expenditure for assets which will become subject to the usual capital allowances rules when a company leaves tonnage tax (3) to provide for the calculation of the written-down levels of qualifying expenditure for plant or machinery provided for a company’s offshore activities, when the asset was not brought into use for those purposes immediately on the company’s entry into tonnage tax and (4) to make provision applying Schedule 22 to activities which a company carries on in partnership.

Regulation 1 provides for citation and commencement, and regulation 2 for definitions.

Regulation 3 determines the descriptions and permitted levels of activities to be regarded as “qualifying secondary activities” (forming part of a tonnage tax company’s “tonnage tax activities”).

Regulation 4 provides for the calculation of the written-down levels of qualifying expenditure for plant and machinery held when a company leaves tonnage tax, other than expensive motor cars and long-life assets (dealt with respectively by regulations 5 and 6).

Regulation 7 provides for the calculation of the written-down levels of qualifying expenditure for plant and machinery used in a company’s offshore activities.

Regulations 8 to 13 deal with the activities of corporate partners, within tonnage tax. Regulation 8 provides for adjustments to the qualifying expenditure of plant and machinery held when a corporate partner leaves tonnage tax (the broad equivalent of the written-down amounts calculated in accordance with regulations 4, 5 or 6).

Regulation 9 provides modifications for corporate partners (with supplementary provisions relating to finance leases) to the rules determining whether a company operates qualifying ships, and whether those ships are strategically and commercially managed in the United Kingdom.

Regulation 10 provides that section 114 of the Income and Corporation Taxes Act 1988 (computation of partnership profits for corporation tax) applies to a partnership which includes a corporate partner, as if the partnership were a tonnage tax company, in calculating the tonnage tax profits or relevant shipping profits of the corporate partner.

Regulation 11 provides for corporate partners a modified form of the test in paragraph 37 of Schedule 22 (the requirement that not more than 75% of fleet tonnage is chartered in).

Regulation 12 modifies paragraph 65 of Schedule 22 (Capital Gains Tax disposals of assets which are or have been tonnage tax assets) in its application to disposals by corporate partners of partnerships.

Regulation 13 modifies the application of the transfer-pricing rules, as provided for in paragraph 58 of Schedule 22 (transactions not at arm’s length: between tonnage tax company and another person), to a partnership which includes a corporate partner.

© Crown copyright 2000