UK Government To Close Tonnage Tax Loophole

by Robert Lee, Tax-News.com, London

24 December 2002

UK Paymaster General, Dawn Primarolo on Thursday announced that Chancellor Gordon Brown's next Finance Bill will contain provisions closing a loophole in the country's tonnage tax regime.

Tonnage tax was introduced in 2000 as an optional regime available to ship owners, whereby they can have their corporate tax liability calculated by reference to the tonnage of the ships which they operate, rather than by the profits generated by their enterprise. The measure was intended to boost the country's shipping industry.

However, in a statement released last week, Ms Primarolo explained that:

'In order to place a check on the cost of the tonnage tax, there are rules that restrict the amount of capital allowances that can be claimed by a lessor for expenditure on a ship that is used for activities within the tonnage tax. These rules apply only to finance leases.'

'Some lessors are, however, now offering long-term leases for ships that have many of the characteristics of finance leases without being finance leases in form. Such leases can be used to allow lessors to claim significantly more in capital allowances than had been intended when the tonnage tax was introduced.'

According to the statement, draft legislation containing provisions to extend the types of leases to which the restrictions apply will be issued shortly, and will undergo a consultation process.

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