TTM03050 - Qualifying companies and ships: Election to remain in tonnage tax

Election to remain in tonnage tax

A company may elect to remain within the tonnage tax regime if, perhaps for instance through loss at sea, it temporarily ceases to operate or manage any qualifying ships. The meaning of temporary is not defined but it does connote an intention to resume, and the longer the period grows the more likely is an HMRC enquiry seeking evidence of that intention.

Note that this provision does not apply to a company which continues to operate or manage a ship that temporarily ceases to be a qualifying ship - that situation is covered by a separate provision, see TTM03710.

See TTM03060 for the circumstances in which such an election terminates.

Form of election

The company must give notice to HMRC stating:

  • its intention to resume operating qualifying ships, and
  • its wish to remain within tonnage tax

The notice must be given not later than the date that is the ‘filing date’ for the company's ‘company tax return’ for the accounting period in which the temporary cessation begins.  For this purpose:

  • ‘filing date’ has the same meaning as in FA98/SCH18/PARA14, and
  • ‘company tax return’ has the same meaning as in FA98/SCH18/PARA3.

Effect of election

An election under FA00/SCH22/PARA17 has the following effects:

  • the company will be treated as if it had continued to operate or manage the qualifying ship or ships it operated immediately before the temporary cessation;
  • the company will continue to calculate its tonnage tax profits as though it operated or managed the same ships as it did immediately before cessation and the same training obligation will continue to apply;
  • the cessation provisions (see TTM14001) will not apply, and the company will remain within tonnage tax when it resumes operating or managing qualifying ships.

Purpose of election

This provision will be in point if the company is a singleton company, or if it is the only qualifying company in the group.  If such a company did not give notice of its wish to remain within tonnage tax, it would cease to be a tonnage tax company when it first ceased to operate or manage any qualifying ships, and it would be disqualified from coming back into tonnage tax for a period of at least ten years (see TTM14110).

A company which is a member of a group which includes at least one other qualifying company does not need to give notice of its wish to remain in tonnage tax.  The group election will remain in force (because it still includes at least one qualifying company) and it will automatically become a qualifying company when it resumes operating or managing qualifying ships.

Group Election

A group election covers all qualifying activities carried on by any company within the group.  If one company within the group ceases to operate or manage any qualifying ships, but at least one other company in the group continues to do so, the group election will continue to have effect.  If it is still in force, that election will cover the first company if it later starts to operate or manage qualifying ships again.

Subject to the rules on mergers in FA00/SCH22/PART12, the group election also extends to newly acquired companies.  If a single company has ceased to have any qualifying activities and is then acquired by a larger group and the company resumes qualifying activities after the merger, it will be within the tonnage tax regime if there is a group election in force.  The fact that the group contains what was formerly a single ex-tonnage tax company does not prevent the group making a tonnage tax election or a renewal election (see FA00/SCH22/PARA140 (3)).

References

FA00/SCH22/PARA17 (temporarily ceasing to operate ships)

TTM17091

FA00/SCH22/PARA137 (exit from tonnage tax)

TTM17761

Termination of election to remain in tonnage tax

TTM03060

FA00/SCH22/PARA140 (3)

TTM03050