TTM05310 - The 75% limit on charters-in: If limit exceeded
Consideration of exclusion by HMRC - Reason for exclusion provision
The intention behind the 75% limit is to prevent companies within tonnage tax trading with largely chartered-in tonnage, which they do not effectively operate. It follows that there is provision for an existing qualifying company or group that lapses into a high percentage of chartering-in to be excluded from the tonnage tax regime.
Flexible enforcement mirrors commercial reality
It is recognised that trading conditions may vary, and that companies or groups may, at times and for genuine commercial reasons, need to supplement their tonnage with time or voyage charters. Exclusion is not therefore either immediate or mandatory.
Engineering an exit by exceeding 75% limit
Furthermore, a company or group could in certain circumstances seek to engineer an exit from tonnage tax by deliberately exceeding the 75% limit (for instance, through a stratagem of back-to-back charters), so the power given to HMRC is permissive, and might not be used if it were thought the limit was being misused.
Timing
The power to exclude is only available if the company or group has failed the 75% test for two consecutive accounting periods. See TTM05210 for details of how this test is applied to a group. HMRC are unlikely to discover this until around the end of the third accounting period when the return for the second accounting period is normally received.
Explanation from company or group
Where a company or group indicates on its returns for two consecutive accounting periods that the 75% limit has been exceeded, officers should consider any explanation provided. If no explanation or comment has been provided the company or representative company should be invited to explain why the limit has been exceeded and what is expected to happen for subsequent accounting periods.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
References
FA00/SCH22/PARA39 (exclusion of company if limit exceeded) |
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FA00/SCH22/PARA40 (exclusion of group if limit exceeded) |
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Action by HMRC after consideration of exceeded limit |
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Exclusion procedure |
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Appeals against exclusion |