TTM10440 - Ship leasing: Quantitative restrictions on allowances
Cost of providing the ship - Example
This example illustrates the operation of the quantitative restriction on capital allowances for expenditure on qualifying ships used by a tonnage tax company.
Year 1
At the start of its accounting period, a bank buys Ship A (not a long life asset) for £70 million and leases it to a tonnage tax company.
As the ship costs less than £100 million the full cost qualifies for writing-down allowances at 18%. The bank claims capital allowances of £12.6 million on this vessel for Year 1.
Year 2
During Year 2, the tonnage tax company pays £32 million for installation of a helicopter deck on Ship A.
This brings the total cost of providing ship A up to £102 million. This has no effect on the amount of allowances available to the bank, which continues to claim writing-down allowance at 18% on the £57.4 million expenditure brought forward in its 18% pool.
Year 3
During Year 3, the bank pays a further £15 million to have decking of a newly developed material installed.
Taken together with the original £70 million, the bank has incurred £85 million in providing the vessel in its current state. However, this does not mean that the lessor can claim 18% allowances on the additional £15 million. When this additional £15 million was incurred, total expenditure on the ship (by both lessor and lessee) already stood at £102 million (over the £100 million limit for 18% allowances). So the bank’s second block of expenditure (£15 million) only qualifies for writing-down allowances at 6% and is allocated to the bank’s 6% pool.
References
Quantitative restrictions on allowances | TTM10400 |
Cost of providing ship | TTM10430 |