Explanatory note (accessible version)
Updated 22 November 2023
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Clause 1: Tonnage tax on managing ships
Summary
1. This clause and Schedule make provision to enable companies, and groups of companies, that manage qualifying ships to make a tonnage tax election (so that their profits for the purposes of corporation tax are calculated in accordance with the tonnage tax regime). The provision has effect in relation to tonnage tax elections made on or after 1 April 2024.
Details of the clause and Schedule
2. Clause 1 provides for Schedule 1 to amend Schedule 22 to Finance Act (FA) 2000, the tonnage tax regime.
Schedule 1: Tonnage tax
3. Paragraph 1 is introductory.
4. Paragraph 2 provides that tonnage tax qualifying companies include companies that manage ships, in addition to those that operate them. Operate here means owning or leasing ships.
5. Sub-paragraph (2) of paragraph 2 inserts new paragraph 18A into Schedule 22 FA 2000 (Schedule 22). This provides a definition of managing a qualifying ship. The ship must be a qualifying ship (as defined at paragraphs 19 and 20 Schedule 22). The manager company must carry on activities in relation to the ship that would be tonnage tax activities (as defined at paragraph 45 Schedule 22) if they were carried on by the operator. Those activities must represent a significant contribution to the operation of the ship.
6. Paragraph 3 amends paragraph 4 Schedule 22, which sets out the method of calculating profits for companies elected into the tonnage tax regime. The table which determines the daily profit for each qualifying ship operated by a company is amended to include ships managed by a company as follows:
| Net tonnage | Daily Profit | Daily Profit |
|---|---|---|
| Managed ship | Operated ship | |
| For each 100 tons up to 1,000 tons | £0.60 | £0.12 |
| For each 100 tons between 1,000 and 10,000 tons | £0.45 | £0.09 |
| For each 100 tons between 10,000 and 25,000 tons | £0.30 | £0.06 |
| For each 100 tons above 25,000 tons | £0.15 | £0.03 |
7. Paragraph 4 amends paragraph 46 Schedule 22 (which defines core qualifying activities) to include managing qualifying ships. It defines a company’s activities in managing qualifying ships as participation in the core qualifying activities mentioned at paragraph 46 by virtue of which the ship is a qualifying ship.
8. Paragraph 5 amends paragraph 17 Schedule 22 (which deals with the effect of temporarily ceasing to operate qualifying ships), extending the scope to management of ships.
9. Paragraph 6 disapplies the training requirement provided by Part 4 Schedule 22 for a company that does not operate any qualifying ships, and for a group that has no members operating qualifying ships.
10. Paragraph 7 disapplies the 75% charter limit provided by paragraph 37 Schedule 22 in relation to a company that that does not operate any qualifying ships and a group none of whose members operate any qualifying ships. The 75% limit is on the proportion of net tonnage of qualifying ships that may be chartered in otherwise than on bareboat charter. If not on bareboat charter the shipowner rather than charterer may be undertaking significant activity.
11. Paragraph 8 deals with commencement.
Background note
12. The ability for ship managers who are not operators of ships to make a tonnage tax election will extend the scope of this beneficial tax regime in support of government policy aimed at increasing the international competitiveness of the United Kingdom shipping industry. It will increase certainty, smoothing and simplifying the tax base over the business cycle. The lower tonnage tax daily profit for ship managers reflects the different nature of ship management compared with ownership and charter operation.
13. This measure was announced at Spring Budget 2023. It follows a review on whether to include ship management within scope of the tonnage tax regime. The review was announced at Autumn Budget 2021 alongside other reforms to tonnage tax.
14. If you have any questions about this change, or comments on the legislation, please contact Victor Baker on 03000 585490 (email: victor.j.baker@hmrc.gov.uk).