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UK Brief Issued On Tonnage Tax Eligibility For New Ships

by Jason Gorringe, Tax-News.com, London

11 February 2015


The UK tax authority, HM Revenue and Customs, recently released a new Brief informing shipping companies that they must carry out a "flagging test" to determine the eligibility of their vessels to tonnage tax, as this fiscal year is not an "excepted year."

Under the UK tonnage tax regime, the registration (flagging) of a newly operated ship outside the European Union/European Economic Area (EU/EEA) may affect whether it is a qualifying ship for tonnage tax purposes, unless the year is an "excepted year." Tugs and dredgers must always be registered in an EU/EEA member state to qualify for tonnage tax.

This year is not an "excepted year," as the number and tonnage of ships in tonnage tax has decreased slightly in the last 12 months while companies have increased the number of ships in tonnage tax that are on the registers of countries that are not EU/EEA member states.

This means that if, during the financial year 2015 (the year starting April 1, 2015), a company in tonnage tax starts to operate a ship that is not registered in an EU or EEA member state, they must carry out a 'flagging test' to determine whether the ship qualifies for tonnage tax.

The test, set out in document TTM03910 - Qualifying companies and ships: flagging - overview, excludes ships from tonnage tax if all of the following four conditions are met:

  • Condition 1: Is the company or group operating the ship for the first time?
  • Condition 2: Is the average proportion of the company's total tonnage that is Community flagged less than 60 percent over a period beginning with the start of that financial year and ending on the day the company begins to operate the new ship?
  • Condition 3: Is the average percentage of the company's total tonnage which is registered in a member state in the period in Condition 2 above less than the percentage that was registered in a member state on the later of January 17, 2004, or the date at the end of the accounting period in which the company became a tonnage tax company?
  • Condition 4: Is the ship that is operated for the first time registered on a register other than that of a member state?

If the company begins to operate a ship that is not a qualifying ship because the conditions are satisfied then the company has the option to re-register the ship onto the register of a member state. If the ship is registered in a member state within three months of the date the company operated the ship for the first time then the ship will satisfy the flagging requirements and, provided the other conditions are met, will qualify for tonnage tax.

Alternatively, where the four conditions are met, the company can elect to register a substitute qualifying vessel onto the register of a member state, as described in document TTM03930, Qualifying companies and ships: flagging - substitute ships. In this situation, provided the other conditions are met, both the vessel that the company has started to operate and the substitute vessel will qualify for tonnage tax.

TAGS: tonnage tax | tax | marine | accounting | United Kingdom | tax authority | European Union (EU) | Europe | Tax

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