TTM05001 - The 75% limit on charters-in: Outline
Chartered-in tonnage not to exceed 75% of total
It is a requirement of entering or remaining within tonnage tax that no more than 75% of the tonnage operated by a company or group is chartered-in otherwise than on bareboat charter terms, see TTM05010.
In practice this test is applied by comparing:
- the total tonnage of qualifying ships chartered-in across the ring fence, and
- the total tonnage of the qualifying ships operated by the group.
For this purpose bareboat charters, and charters between tonnage tax companies in the same group, are ignored.
FA24/SCH8/PARA7 disapplies the 75% rule for tonnage tax companies which only manage qualifying ships.
Effect of exceeding the 75% limit
If the 75% limit is exceeded at the time of an initial election into tonnage tax, the election may be invalidated, or the date it comes into effect may be deferred.
If the 75% limit is exceeded in two consecutive accounting periods after entry, the company or group may be excluded from the tonnage tax regime.
Reasons for a 75% limit
Tonnage tax is largely focused on ship operating companies, although ship managers were added by FA24, as noted above. Where a ship is chartered-in under a time or voyage charterparty (see TTM15100, charterparty is the contract, not a contracting party), the original owner continues to appoint the crew and run the vessel, albeit under instructions as to cargo and destination from the charterer. This is only a limited type of ship operation, although common in the shipping business. It would be hard for a shipping company or group to train cadets under the training requirement on such vessels. On the other hand, where a shipping company owns, finance leases or bareboat charters-in its ships it has full control over them, including the right to appoint the crew, and thus train its own cadets.
The limit on time and voyage charters of 75% of the net tonnage is aimed at allowing into the tonnage tax regime ship operators where there is a core activity of full ship-operation while accommodating the flexibility of such charters. The company's strategic and commercial management activites as a whole must reflect the policy of ensuring there is a reasonable degree of active business undertaking.
References
| FA00/SCH22/PARA37 (75% or less of fleet tonnage chartered-in) | TTM17226 |
| What is ‘chartered-in’ | TTM05100 |
| How to calculate limit | TTM05200 |
| What is effect of exceeding limit | TTM05300 |