A major improvement to the way UK shipping is taxed will be introduced by draft Clauses available today.

The new tax regime was announced for introduction next year by the Government this summer.

Commenting on the draft Clauses the Paymaster General, Dawn Primarolo, said
“In his independent report into a UK tonnage tax, Lord Alexander put forward a design for a tonnage tax regime which would allow the UK shipping industry to exploit its internationally renowned maritime strengths, improve its training provision and compete fairly on the international stage – without putting the Exchequer at risk from escalating costs or a tax avoidance bonanza.
I am pleased to say that we now have available draft legislation which is very much in line with the Lord Alexander model which was warmly welcomed by the industry.”


Copies of the draft Clauses, together with a commentary, may be obtained from
The Tonnage Tax Team
Rm 211, Victory House
30-34 Kingsway
London WC2B 6ES

Key Features of Proposed Tonnage tax regime
(Subject to Parliamentary and EC approval)

Option to elect
Shipping companies will have the option to participate or to remain in the standard corporation tax regime, subject to all qualifying UK shipping activities within a group being taxed on the same basis.

Tax liability
A participating company’s taxable profits will be derived by reference to the net tonnage of each of the qualifying ships it operates. It will pay corporation tax at the normal rate on the derived profit. The rates of profit per ton will be roughly equivalent to the rates charged in comparable regimes already in operation elsewhere (eg in the Netherlands).

Capital gains accruing during the currency of the election will not be chargeable to tax if they arise from assets used for the qualifying shipping activity. Balancing charges (arising on the disposal of assets for which capital allowances had previously been given) will be phased out using a sliding scale.

Qualifying ships must be seagoing, and of at least 100 tons gross tonnage.

Qualifying ships must be engaged in:
The transportation of goods or passengers by sea
The provision of marine assistance
The provision of transport for services necessarily provided at sea (subject to qualification)
Companies must undertake the strategic and commercial management of ships within the tonnage tax regime from the UK (as required by the guidelines on Maritime State Aids).

The regime is not open to
fishing and factory support vessels
pleasure craft
harbour and river ferries
fixed and floating oil rigs and platforms
FPSOs/FSUs (floating production, storage and offtake vessels)
existing dedicated shuttle tankers subject to the PRT regime
any vessel whose main purpose is the provision of goods or services normally provided on land, such as floating supermarkets, restaurants etc.

Window of entry
Elections to join the regime must be made within 12 months of Royal Assent, and companies will normally be expected to remain in the regime for at least 10 years.

Exiting the regime
A company leaving the regime on expiry of the election will rejoin the normal corporation tax regime and be able to claim capital allowances on its assets on broadly the same basis as if it had remained in the normal corporation tax regime throughout.

Companies will be discouraged from leaving the regime before their elections expire.

Shipping profits will be ring fenced.
There will be specific anti-avoidance provisions to prevent a company transferring profits from outside the regime into it or transferring losses outside the regime. There will also be a sweep up anti-avoidance provision aimed at moves to exploit the regime by complying with the form rather than the substance of the ring-fence rules.

Capital allowances available to lessors leasing to companies within the tonnage tax regime will be restricted with 25 per cent allowances available on only the first 40 million pounds per vessel, 10 per cent allowances on the next 40 million pounds expenditure on that vessel and no allowances on any remaining expenditure. The values of these limits will be kept under review.

No capital allowances would be available to lessors in the case of sale and lease-back or defeased or collateralised leasing (ie where the lessor does not carry the greater part of the risk as part of the leasing arrangement).

Lord Alexander’s report suggested that these restrictions on leasing into tonnage tax companies should not apply to ship leases entered into before the date of announcement of the tonnage tax proposals (12 August 1999). In the attached draft Clauses, this relaxation has been extended so that the restrictions on leasing into the regime will not apply for ship leases entered into before today.

Foreign profits
Foreign dividends from qualifying shipping subsidiaries will be within the tonnage tax regime (subject to certain conditions).

There will be a non-mandatory system of clearances (ie prior agreement between the Inland Revenue and a group or company as to its eligibility and about the way in which the regime will apply to it).

The Inland Revenue will take steps to ensure a consistent approach.

Training link
A company participating in the tonnage regime must meet a minimum training obligation. This aspect will be administered by the Department of the Environment, Transport and the Regions who will require companies to agree and stick to training plans in respect of ships benefiting from the new tax regime.

Regulatory Impact Assessment

The Inland Revenue has also published today a draft Regulatory Impact Assessment (RIA) on the costs and benefits arising from the tonnage tax regime. We would welcome any comments on the compliance costs of the proposals. Copies of the draft RIA may be obtained from

The Tonnage Tax Team
Rm 211, Victory House
30-34 Kingsway
London WC2B 6ES

It is also available on the Inland Revenue’s website:


1. The plan to introduce a tonnage tax for UK shipping was announced by the Deputy Prime Minister on 12 August 1999 (see DETR News Release issued on 12 August 1999).

2. Lord Alexander’s Report `Independent Enquiry into a Tonnage Tax’ was published on 12 August 1999. It is available from The Public Enquiry Unit at HM Treasury or on the Internet at

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