Companies that are liable to pay corporation tax and which operate 'qualifying ships' that are 'strategically and commercially managed in the UK' are qualifying companies and can elect to apply the Tonnage Tax regime. All qualifying companies in a group must elect to apply the regime together. As a general rule, a company is deemed to be operating a ship if it is, 'owned by, or chartered to, the company', subject to certain exceptions.
The guidance states that the qualifying ' test is … aimed at ensuring that there is, through the strategic and commercial management of ships in a territory, a substantial contribution to economic activity and employment within the EU' Tonnage Tax Manual, TTM The HMRC guidance indicates that they will 'adopt a common-sense interpretation' of this test, taking into account activities including:.
A ship is treated as 'operated' by a company if it is owned or chartered to the company. If a ship is laid up it continues to be operated by the company and tonnage tax will be due.
If a 'qualifying company' wishes to elect to apply the tonnage tax regime, they must do so within a specified time period. A company that is new to the regime, as it has just become a qualifying company, must make the election, '[…] before the end of the period of twelve months beginning with the day on which the company became a qualifying company'. Any company that wishes to join the tonnage tax regime that has been a qualifying company since 28 July may not elect to apply this alternative regime, unless the Treasury allow this by making an order which stipulates that, for further periods of time qualifying companies may elect to apply the tonnage tax regime, or a member of a group has just become a qualifying company, allowing a group to become a qualifying group.
Tonnage tax can be used instead of Corporation Tax for working out the tax you owe on your profits. You can choose to pay tonnage tax on a fixed notional profit, instead of your actual profits from your shipping activities.
This is based on the net tonnage of your ships. The tonnage tax unit of HMRC contains people who understand the rules, have an active interest in the industry and make themselves available to answer questions or discuss issues. The tonnage tax rules are often deliberately vague, but tonnage tax has been able to operate so successfully in the UK because HMRC have consistently applied sensible interpretations of the rules. Good taxpayer and HMRC behaviour has created a stable tax environment where issues can generally be resolved pragmatically and in ways mutually acceptable to HMRC and tonnage tax companies.
There is, in practice, little to distinguish the numerous tonnage tax regimes across Europe although occasionally points of detail can make significant differences, for example in relation to the nature of the income which falls in or outside the tonnage tax ring fence.
The basic qualification rules and how the systems operate replacing actual profits or losses with deemed profits are fundamentally the same across Europe. The UK is the only system which obliges tonnage tax companies to train or facilitate the training of cadets — this adds a cost to operating in UK tonnage tax.
This has also served as a barrier to many of the largest shipping fleets entering UK tonnage tax, partly because of the cost but also the practical limits of just how many people want to train as seafarers. So long as there is sufficient commercial management activity in the UK, technical management does not need to take place in the UK.
A move into UK tonnage tax usually involves moving management level employees into the UK. This has really been where UK tonnage tax has been able to win out over other regimes as international employees are more willing to move to the UK than to many other European countries. It is to be hoped that Brexit will not damage the attractiveness of the UK as a place to live, or the ease with which people can relocate here.
As ever with Brexit, uncertainty rules. This is based on the net tonnage of your ships. You can elect to use tonnage tax but you must sign up for a minimum of 10 years. You can make a renewal election on a rolling basis to extend the original election. If you start to operate a qualifying ship after electing into tonnage tax, you must carry out a flagging test to decide if your ship qualifies. You do not need to carry out the flagging test if the financial year is excepted.
The financial year is from 1 April to 31 March. Read the Tonnage Tax Manual for more information. You can contact the HMRC tonnage tax technical adviser by:. This guidance has been updated to include information about the registration of vessels in the UK and Gibraltar.
Contact details for the HMRC tonnage tax technical adviser have been updated.
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