Tonnage tax extension to ship management
Updated 22 November 2023
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Who is likely to be affected
Companies liable to Corporation Tax who provide third party ship management services to operators of ships within the tonnage tax regime.
General description of the measure
Tonnage tax is a form of Corporation Tax aimed at boosting the competitiveness of the United Kingdom within the international shipping industry. Entry to the regime is available on election to ‘operators’ of qualifying ships. Operation is defined in this context as owning or leasing the vessels. The measure extends the scope of tonnage tax to allow entry by third party ship managers.
Policy objective
The objective of this measure is to make the tonnage tax regime more internationally competitive and encourage the growth of the United Kingdom based third party ship management market.
Background to the measure
This measure was announced at Spring Budget 2023.
It follows a review on whether to include ship management within scope of the tonnage tax regime. The review was announced at Autumn Budget 2021 alongside other reforms to tonnage tax.
Detailed proposal
Operative date
The measure will have effect for elections into tonnage tax made by third party ship managers on or after 1 April 2024.
Current law
The tonnage tax regime is set out at Schedule 22 Finance Act 2000. It is available on election, and election is only open to ‘operators’ of qualifying ships, defined as meaning owners and lessors.
Proposed revisions
Tonnage tax elections will, if conditions are satisfied, be open to qualifying companies and groups who ‘manage’ qualifying ships, as well as to those who operate them.
The existing tonnage tax rules will in general apply to ship managers as they do to operators, but with certain exceptions. Operators must fulfil a training requirement for ships’ officers or ratings on a per vessel basis, but this will not apply to third party managers as this would duplicate requirements in respect of the same vessels. The rule which limits the amount of vessel tonnage that may be chartered in by an operator on terms that the operator undertakes limited activity, but leases the vessel with services provided, will not apply to third party ship managers. The tonnage tax profits substituted by the legislation, geared to the notional carrying capacity of the qualifying vessels in place of the usual tax-adjusted commercial profits, will be set at a lower rate per ton for ship managers.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
There is expected to be no impact on individuals as this measure only affects businesses.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
The measure will affect a limited class of third party ship managers who elect into the tonnage tax regime. One-off costs could include familiarisation with the changes, identifying which parts of the business fall within the regime, updating new software and training/upskilling staff. Continuing costs could include having to keep and maintain records and completing the required form CT600F. Customer experience is expected to remain broadly the same as it does not change how businesses interact with HMRC.
It is not expected to impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
It is anticipated that this change will require small IT alterations and further compliance staff which are estimated at £1 million. The staffing costs will continue to be monitored.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Victor Baker, telephone:03000 585490 or email: [email protected].