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Finance Act 2000

Type Public General Act

Publication 2000-07-28

Last updated 2026-04-07

State In force

Department Statute Law Database

Source legislation.gov.uk

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and inform the person to whom it is given of the possible application of the provisions of Part 4 of the Taxation (International and Other Provisions) Act 2010 in relation to transactions between the company and that person.

Treatment of finance costs: single company

61

(1) This paragraph applies to a tonnage tax company which is a single company carrying on tonnage tax activities and other activities.

(2) An adjustment shall be made if it appears, in relation to an accounting period of the company, that the company’s deductible finance costs outside the ring fence exceed a fair proportion of the company’s total finance costs.

(3) The company’s “deductible finance costs outside the ring fence” means the total of the amounts that may be brought into account in respect of finance costs in calculating for the purposes of corporation tax the company’s profits other than relevant shipping profits.

(4) A company’s “total finance costs” means so much of the company’s finance costs as could, if there were no tonnage tax election, be brought into account in calculating the company’s profits for the purposes of corporation tax.

(5) What proportion of the company’s total finance costs should be deductible outside the ring fence shall be determined on a just and reasonable basis by reference to the extent to which the funding in relation to which the costs are incurred is applied in such a way that any profits arising, directly or indirectly, would be relevant shipping profits.

(6) Where an adjustment falls to be made under this paragraph, an amount equal to the excess referred to in sub-paragraph (2) shall be brought into account as if it were a non-trading credit falling for the purposes of Part 5 of the Corporation Tax Act 2009 (loan relationships) to be brought into account in respect of a loan relationship of the company in respect of non-tonnage tax activities.

Treatment of finance costs: group company

62

(1) This paragraph applies to a tonnage tax company which is a member of a tonnage tax group where the activities carried on by the members of the group include activities other than tonnage tax activities.

(2) An adjustment shall be made if it appears, in relation to an accounting period of the company, that the group’s deductible finance costs outside the ring fence exceed a fair proportion of the total finance costs of the group.

(3) A group’s “deductible finance costs outside the ring fence” means so much of the group’s finance costs as may be brought into account in calculating for the purposes of corporation tax—

(a) in the case of a group member that is a tonnage tax company, the company’s profits other than relevant shipping profits, and

(b) in the case of a group member that is not a tonnage tax company, the company’s profits.

(4) A group’s “total finance costs” means so much of the group’s finance costs as could, if there were no tonnage tax election, be brought into account in calculating for the purposes of corporation tax the profits of any member of the group.

(5) What proportion of the group’s total finance costs should be deductible outside the ring fence shall be determined on a just and reasonable basis by reference to the extent to which the funding in relation to which the costs are incurred is applied in such a way that any profits arising, directly or indirectly, would be relevant shipping profits.

(6) Where an adjustment falls to be made under this paragraph, an amount equal to the relevant proportion of the excess referred to in sub-paragraph (2) shall be brought into account as if it were a non-trading credit falling for the purposes of Part 5 of the Corporation Tax Act 2009 (loan relationships) to be brought into account in respect of a loan relationship of the company in respect of non-tonnage tax activities.

For this purpose “the relevant proportion" is the proportion that the company’s tonnage tax profits bear to the tonnage tax profits of all the members of the group.

Meaning of “finance costs"

63

(1) For the purposes of paragraphs 61 and 62 “finance costs” means the costs of debt finance.

(2) In calculating the costs of debt finance, the matters to be taken into account include—

(a) any costs giving rise to a trading or non-trading debit under Part 5 of the Corporation Tax Act 2009 (loan relationships);

(b) any credit or debit falling to be brought into account in accordance with Part 7 of the Corporation Tax Act 2009 (derivative contracts) in relation to debt finance;

(c) any exchange gain or loss within the meaning given by section 475 of the Corporation Tax Act 2009 in relation to debt finance;

(d) the finance cost—

(i) implicit in a payment under a finance lease, or

(ii) payable on debt factoring or any similar transaction;

(dd) where the tonnage tax company is the lessee under a long funding operating lease, the amount deductible (or the total amount that could, if there were no tonnage tax election, be deductible) in respect of payments under the lease in computing the profits of the lessee for the purposes of corporation tax (after first making against any such amount any reductions falling to be made by virtue of section 379 of the Corporation Tax Act 2010); and

(e) any other costs arising from what would be considered on normal accounting principles to be a financing transaction.

(3) No adjustment shall be made under paragraph 61 or 62 if, in calculating for a period the company’s, or as the case may be, the group’s deductible finance costs outside the ring fence, the amount taken into account in respect of costs and losses is exceeded by the amount taken into account in respect of profits and gains.

(4) In this paragraph “long funding operating lease” means a long funding operating lease for the purposes of Part 2 of the Capital Allowances Act (see section 70YI(1) of that Act).

Part VIII — Chargeable gains and allowable losses on tonnage tax assets

Chargeable gains: tonnage tax assets

64

(1) In this Part of this Schedule a “tonnage tax asset” means an asset that is used wholly and exclusively for the purposes of the tonnage tax activities of a tonnage tax company.

(2) Where for one or more continuous periods of at least a year part of an asset has been used wholly and exclusively for the purposes of the tonnage tax activities of a tonnage tax company and part has not, this Part of this Schedule shall apply as if the part so used were a separate asset.

(3) Where sub-paragraph (2) applies, any necessary apportionment of the gain or loss on the whole asset shall be made on a just and reasonable basis.

Chargeable gains: disposal of tonnage tax asset

65

(1) When an asset is disposed of that is or has been a tonnage tax asset—

(a) any gain or loss on the disposal is a chargeable gain or allowable loss only to the extent (if any) to which it is referable to periods during which the asset was not a tonnage tax asset, and

(b) any such chargeable gain or allowable loss on a disposal by a tonnage tax company is treated as arising otherwise than in the course of the company’s tonnage tax trade.

(2) For the purposes of sub-paragraph (1) the amount of the gain or loss on a disposal means what would be the amount of the chargeable gain or allowable loss apart from this paragraph.

(3) The proportion of that gain or loss referable to periods during which the asset was not a tonnage tax asset is given by:

$$P-PTTAP$where:P is the total length of the period since the asset was created or, if later, the last third-party disposal, andPTTA is the length of the period (or the aggregate length of the periods) since—(a) the asset was created, or(b) if later, the last third-party disposal,during which the asset was a tonnage tax asset.$

(4) In sub-paragraph (3) a “third-party disposal” means a disposal (or deemed disposal) that is not treated as one on which neither a gain nor a loss accrues to the person making the disposal.

Chargeable gains: losses brought forward

66

A tonnage tax election does not affect the deduction under section 8(1) of the Taxation of Chargeable Gains Act 1992 (corporation tax: computation of chargeable gains) of allowable losses that accrued to a company before it became a tonnage tax company.

Chargeable gains: roll-over relief for business assets

67

(1) Sections 152 and 153 of the Taxation of Chargeable Gains Act 1992 (roll-over relief for business assets) do not apply if or to the extent that the new assets are tonnage tax assets.

(2) Where relief under either of those sections is, or has been, claimed in respect of the disposal of an asset (“Asset No.1”) and the acquisition of another asset (“Asset No.2”) that subsequently becomes a tonnage tax asset, the claimant is not (or, as the case may be, shall cease to be) entitled under that section to—

(a) a reduction of the consideration for the disposal of Asset No.1, and

(b) a corresponding reduction of the expenditure for the acquisition of Asset No.2,

but so much of the chargeable gain arising on the disposal of Asset No.1 as is equal to the amount of the reduction that would have been made is treated as not accruing until Asset No.2 is disposed of.

(3) Any chargeable gain accruing as a result of the rules in sub-paragraph (1) or (2) is treated as arising otherwise than in the course of the company’s tonnage tax trade.

Part IX — The ring fence: capital allowances: general

Introduction

68

(1) This Part of this Schedule makes provision about capital allowances where a company enters, leaves or is subject to tonnage tax.

(2) The general scheme of this Part of this Schedule is that—

(a) entry of a company into tonnage tax does not of itself give rise to any balancing charges or balancing allowances,

(b) a company subject to tonnage tax is not entitled to capital allowances in respect of expenditure incurred for the purposes of its tonnage tax trade, whether before or after its entry into tonnage tax, and

(i) a company is treated as having incurred qualifying expenditure on its tonnage tax plant and machinery assets of an amount equal to the lower of cost and market value, where it leaves tonnage tax on expiry of an election or on the taking effect of a withdrawal notice, but

(ii) otherwise, a company is put broadly in the position it would have been in if it had never been subject to tonnage tax.

(3) A company’s tonnage tax trade is not a qualifying activity for the purposes of determining the company’s entitlement to capital allowances.

Entry: plant and machinery: assets to be used wholly for tonnage tax trade

69

(1) On a company’s entry into tonnage tax any unrelieved qualifying expenditure attributable to plant or machinery that is to be used wholly for the purposes of the company’s tonnage tax trade is taken to a single pool (the company’s “tonnage tax pool”).

(2) In this paragraph “unrelieved qualifying expenditure" has the same meaning as in Chapter 5 of Part 2 of the Capital Allowances Act 2001.

(3) The amount of unrelieved qualifying expenditure attributable to plant or machinery in a class pool, or the main pool, is the proportion of the whole given by:

$$AVPV$where:AV is the aggregate market value of the assets concerned immediately before entry into tonnage tax, andPV is the aggregate market value at that time of all the assets in the pool.$

(4) References in this paragraph to unrelieved qualifying expenditure include qualifying expenditure to the extent to which it is unrelieved by virtue of notice having been given under section 130 of the Capital Allowances Act 2001 (notice postponing first-year or writing-down allowance)

No allowance may be claimed in respect of any such expenditure taken to the company’s tonnage tax pool.

Entry: plant and machinery: assets to be used partly for tonnage tax trade

70

(1) This paragraph applies where, on a company’s entry into tonnage tax, plant and machinery is to be used partly for the purposes of the company’s tonnage tax trade and partly for the purposes of a qualifying activity carried on by the company.

(2) Sections 61(1)(e), 206(3) and 207 of the Capital Allowances Act 2001 (effect of use partly for qualifying activity and partly for other purposes) apply as follows—

(a) references to a qualifying activity shall be read as not including references to the tonnage tax trade, and

(b) references to purposes other than those of a qualifying activity shall be read as including references to the purposes of the tonnage tax trade.

Entry: ships acquired and disposed of within twelve months

71

(1) This paragraph applies if a company—

(a) acquires a qualifying ship within the period of six months before the company enters tonnage tax, and

(b) disposes of the ship before the end of the period of twelve months beginning with the day on which the ship was acquired.

(2) The aggregate amount of the capital allowances to which the company is entitled for the period or periods before entry into tonnage tax in respect of its expenditure on acquiring the ship is limited to the amount by which that expenditure exceeds the market value of the ship on the company’s entry into tonnage tax.

Entry: deferred balancing charge on disposal of ship

72

(1) This paragraph applies where deferment of a balancing charge has been claimed under sections 135 to 156 of the Capital Allowances Act 2001 (balancing charge on disposal of ship to be deferred and set against new expenditure incurred within six years) by a company that subsequently enters tonnage tax.

(2) Expenditure on new shipping incurred by a company subject to tonnage tax shall not be taken into account for the purposes of those sections unless the company that incurred the balancing charge—

(a) was a qualifying company for the purposes of this Schedule at the time the balancing charge arose, or

(b) would have been such a company had this Schedule been in force at that time.

(3) Subject to sub-paragraph (2)—

(a) the company’s entry into tonnage tax does not affect the operation of those sections, and

(b) the expenditure on new shipping that is to be taken into account for the purposes of those sections shall be determined as if the company was not subject to tonnage tax.

During: plant and machinery: new expenditure partly for tonnage tax purposes

73

(1) This paragraph applies where a company subject to tonnage tax incurs expenditure on the provision of plant or machinery partly for the purposes of its tonnage tax trade and partly for the purposes of a qualifying activity.

(2) Sections 206(1), (2) and (4) and 207 of the Capital Allowances Act 2001 (operation of single asset pool for mixed use assets) apply as follows—

(a) references to a qualifying activity shall be read as not including references to the tonnage tax trade, and

(b) references to purposes other than those of a qualifying activity shall be read as including references to the purposes of the tonnage tax trade.

During: plant and machinery: asset beginning to be used for tonnage tax trade

74

A company’s tonnage tax pool is not increased by reason of an asset beginning to be used for the purposes of the company’s tonnage tax trade after the company’s entry into tonnage tax.

During: plant and machinery: change of use of tonnage tax asset

75

(1) This paragraph applies where, at a time when a company is subject to tonnage tax, plant or machinery used for the purposes of the company’s tonnage tax trade begins to be used wholly or partly for purposes other than those of that trade.

(2) If the asset was acquired before entry into tonnage tax, section 61(1)(e) of the Capital Allowances Act 2001 applies (disposal event if plant or machinery begins to be used wholly or partly for purposes other than those of the qualifying activity), but reading the reference in that provision to the qualifying activity as a reference to the tonnage tax trade.

(3) If the asset was acquired after entry into tonnage tax and begins to be used wholly or partly for the purposes of a qualifying activity carried on by the company, section 13 of the Capital Allowances Act 2001 (use for qualifying activity of plant or machinery provided for other purposes) applies as follows—

(a) references to purposes which were not those of any qualifying activity shall be read as including references to the purposes of the tonnage tax trade, and

(b) references to the qualifying activity carried on by him shall be read as not including references to the tonnage tax trade.

During: plant and machinery: change of use of non-tonnage tax asset

76

(1) This paragraph applies where, at a time when a company is subject to tonnage tax, plant or machinery used for the purposes of a qualifying activity carried on by the company begins to be used wholly or partly for the purposes of the company’s tonnage tax trade.

(2) Sections 61(1)(e), 206(3) and 207 of the Capital Allowances Act 2001 (effect of use partly for qualifying activity and partly for other purposes) apply as follows—

(a) references to a qualifying activity shall be read as not including references to the tonnage tax trade, and

(b) references to purposes other than those of a qualifying activity shall be read as including references to the purposes of the tonnage tax trade.

During: plant and machinery: disposals

77

(1) This paragraph applies if when a company is subject to tonnage tax a disposal event occurs in relation to plant or machinery—

(a) in respect of which qualifying expenditure was incurred by the company before its entry into tonnage tax,

(b) some or all of the expenditure on which was carried to the tonnage tax pool on the company’s entry into tonnage tax, and

(2) A “disposal event” means an event as a result of which the company is required under Part 2 of the Capital Allowances Act 2001 to bring a disposal value into account.

In determining whether such an event has occurred references in that Part of that Act to a qualifying activity shall be read as including the company’s tonnage tax trade.

(3) Where this paragraph applies—

(a) the disposal value to be brought into account in respect of any plant or machinery is limited to its market value when the company entered tonnage tax, and

(b) the disposal value is set against the unrelieved qualifying expenditure in the company’s tonnage tax pool.

(4) If the amount of the disposal value is less than or equal to the amount of unrelieved qualifying expenditure in the company’s tonnage tax pool, the amount of unrelieved qualifying expenditure is reduced or extinguished accordingly.

(5) If—

(a) the amount of the disposal value exceeds the amount of unrelieved qualifying expenditure, or

(b) there is no unrelieved qualifying expenditure in the pool,

the company is liable to a balancing charge.

(6) The amount of the balancing charge is—

(a) where sub-paragraph (5)(a) applies, the amount of the excess, or

(b) where sub-paragraph (5)(b) applies, the amount of the disposal value.

This is subject to any reduction under paragraph 78.

During: plant and machinery: reduction of balancing charges

78

(1) The amount of any balancing charge under this Part of this Schedule is reduced by reference to the number of whole years the company has been subject to tonnage tax at the time of the disposal event giving rise to the charge.

(2) The following table shows the percentage reduction:

Number of years	Percentage reduction
1	15%
2	30%
3	45%
4	60%
5	75%
6	90%
7 or more	100%

During: plant and machinery: giving effect to balancing charge

79

(1) A balancing charge under this Part of this Schedule—

(a) is treated as arising in connection with a trade (other than its tonnage tax trade) carried on by the company, and

(b) is made in taxing that trade.

(2) Subject to paragraph 80 (deferment of balancing charge in case of reinvestment), the charge must be given effect in the accounting period in which it arises.

During: plant and machinery: deferment of balancing charge

80

(1) If—

(a) a balancing charge under this Part of this Schedule arises in connection with the disposal of a qualifying ship, and

(b) within the requisite period the company incurs capital expenditure on acquiring one or more other qualifying ships, and

only the amount (if any) by which the balancing charge exceeds that expenditure must be given effect in the accounting period in which the charge arises and the rest may be held over.

(2) For the purposes of this paragraph—

(a) the disposal of a qualifying ship includes any event within section 61(1)(a) to (d) of the Capital Allowances Act 2001 occurring with respect to a qualifying ship, and

(b) the requisite period is the period beginning one year before, and ending two years after, the date of the disposal.

(3) If the new qualifying ship (or any of them) is disposed of before the end of the period of seven years after the company in question entered tonnage tax—

(a) there is a balancing charge under this paragraph when the disposal occurs, and

(b) the amount of that charge is equal to the amount held over under sub-paragraph (1) by reference to the acquisition of that ship.

This is subject to any reduction under paragraph 78 and to any further deferment under this paragraph.

(4) Sections 135 to 156 of the Capital Allowances Act 2001 (deferment of balancing charges) do not apply in relation to balancing charges arising when the company is subject to tonnage tax.

(5) The fact that there is a balancing charge under this paragraph does not affect the operation of paragraph 77 in a case where that paragraph also applies.

During: plant and machinery: surrender of unrelieved qualifying expenditure

81

(1) This paragraph applies where—

(a) a company subject to tonnage tax is liable to a balancing charge under this Part of this Schedule,

(b) another tonnage tax company which is a member of the same group has unrelieved qualifying expenditure in its tonnage tax pool, and

(c) the two companies have been members of the same group for not less than a year at the date of the disposal giving rise to the balancing charge.

(2) The latter company may surrender to the former all or part of its unrelieved qualifying expenditure, and the amount of the balancing charge shall be reduced or extinguished accordingly.

(3) The provisions of Part VIII of Schedule 18 to the Finance Act 1998 (corporation tax self-assessment: claims for group relief), except paragraph 77 (joint amended returns), apply in relation to relief under this paragraph as they apply in relation to group relief.

During: industrial buildings: mixed use

82

If any identifiable part of a building or structure is used for the purposes of a company’s tonnage tax trade, that part is treated for the purposes of Part 3 of the Capital Allowances Act 2001 as used otherwise than as an industrial building.

During: industrial buildings: balancing charges

83

(1) This paragraph applies where, in an accounting period during which a company is subject to tonnage tax, a balancing event occurs in relation to an industrial building in respect of which qualifying expenditure was incurred by the company before its entry into tonnage tax.

(2) A “balancing event” means an event by reason of which the company is required by Part 3 of the Capital Allowances Act 2001 to bring into account any proceeds. In determining whether such an event has occurred references in that Part of that Act to a trade or undertaking shall be read as including the company’s tonnage tax trade.

(3) Where this paragraph applies—

(a) the proceeds to be brought into account in respect of the industrial building are limited to the market value of the relevant interest when the company entered tonnage tax; and

(b) the amount of any balancing charge under that Part is reduced in accordance with paragraph 78.

During: industrial buildings: residue of qualifying expenditure

84

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exit: plant and machinery

85

(1) If a company leaves tonnage tax—

(a) the amount of qualifying expenditure under Part 2 of the Capital Allowances Act 2001 (plant and machinery allowances) (plant and machinery), and

(b) the pools to which such expenditure is to be allocated for the purposes of that Part,

shall be determined under this paragraph.

(1A) Sub-paragraph (1C) applies where the company leaves tonnage tax—

(a) on the expiry of a tonnage tax election, or

(b) on a tonnage tax election ceasing to be in force under paragraph 13(2A) (taking effect of withdrawal notice under paragraph 15A).

(1B) In any other case, sub-paragraph (2) applies.

(1C) Where this sub-paragraph applies, the amount of qualifying expenditure in respect of each asset used by the company for the purposes of its tonnage tax activities and held by the company when it leaves tonnage tax shall be taken to be—

(a) the market value of the asset at the time the company leaves tonnage tax, or

(b) if less, the amount of expenditure incurred on the provision of the asset that would have been qualifying expenditure if the company had not been subject to tonnage tax.

(2) Where this sub-paragraph applies, for each asset used by the company for the purposes of its tonnage tax activities and held by the company when it leaves tonnage tax there shall be determined—

(a) the amount of expenditure incurred on the provision of the asset that would have been qualifying expenditure if the company had not been subject to tonnage tax, and

(b) the written down value of that amount by reference to the period since the expenditure was incurred.

(3) The Inland Revenue shall make provision by regulations as to the basis on which the writing down is to be done.

The regulations may make different provision for different descriptions of asset.

Exit: industrial buildings

86

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “not entitled to capital allowances"

87

(1) Where any provision of this Part of this Schedule states that a person is not entitled to capital allowances in respect of expenditure on plant or machinery—

(a) no annual investment allowance or first-year allowance is to be be given in respect of that expenditure, and

(b) the expenditure shall be disregarded for the purposes of calculating the person’s entitlement to a writing-down allowance or balancing allowance or liability to a balancing charge.

(2) If there is no entitlement to capital allowances in respect of expenditure, there is no entitlement to capital allowances in respect of any additional VAT liability incurred in respect of it.

Interpretation

88

(1) In this Part of this Schedule—

“capital allowance” means any allowance under the Capital Allowances Act 2001;

“qualifying activity” means any activity in respect of which a person may be entitled to a capital allowance;

“qualifying expenditure” means expenditure in respect of which a person is or may be entitled to a capital allowance.

(2) In this Part of this Schedule any reference to pooling or to single asset pools, class pools or the main pool shall be construed in accordance with sections 53 and 54 of the Capital Allowances Act 2001.

(4) Other expressions relating to capital allowances have the same meaning in this Part of this Schedule as in the Capital Allowances Act 2001.

Part X — The ring fence: capital allowances: ship leasing

Introduction

89

(1) In the case of a ... lease of a qualifying ship provided, directly or indirectly, to a company within tonnage tax, the provisions of Part 2 of the Capital Allowances Act 2001 have effect subject to and in accordance with the provisions of—

paragraphs 90 and 91 (defeased leasing),

paragraphs 91A to 91F (long funding leases),

paragraph 92 (sale and lease back arrangements, and

paragraphs 94 to 102 (quantitative restrictions on allowances).

This is subject to paragraph 89A (exception for ordinary charters).

(2) In this Part of this Schedule “lease” means any arrangements that provide for a ship to be leased or otherwise made available by a person (“the lessor”) to another person (“the lessee”).

(3) Other expressions used in this Part of this Schedule have the same meaning as in Part IX of this Schedule (the ring fence: capital allowances: general).

Defeased leasing

90

(1) The lessor under the ... lease is not entitled to capital allowances in respect of expenditure on the provision of the ship if—

(a) the lease, or

(b) any transaction or series of transaction of which the lease forms a part,

makes provision the effect of which is to remove the whole, or the greater part of, any non-compliance risk which, apart from that provision, would fall directly or indirectly on the lessor.

(2) For this purpose a “non-compliance risk” means a risk that a loss will be sustained by any person if payments under the lease are not made in accordance with its terms.

(3) For the purposes of this paragraph the lessor and any persons connected with him shall be treated as the same person.

(4) In this paragraph “connected person” has the meaning given by section 839 of the Taxes Act 1988.

Defeased leasing: excepted forms of security

91

(1) Paragraph 90 (defeased leasing) is subject to the following exceptions.

(2) It does not apply to the provision of security of any of the following kinds by the lessee, or a person connected with the lessee—

(a) a mortgage of the ship;

(b) security attaching—

(i) to the ship’s earnings, or

(ii) to the proceeds of insurance policies on the ship;

(d) any other form of security relating to assets, sums or rights arising directly from the ordinary operation of the ship or from arm’s length transactions involving the ship.

In this sub-paragraph “the ship” means the ship that is the subject of the lease.

(3) It does not apply to the provision of security by the lessee, or a person connected with the lessee, if the following conditions are met—

(a) no deposit of money or other property by way of security is obtained by the lessor or any third party;

(b) any payments under the security are limited to the amount of any rental payments under the lease in respect of which the lessee is in default.

(4) It does not apply to the provision of security by a third party where no security other than security of a kind mentioned in sub-paragraph (2)(a) to (d) is held by the third party or any person connected with the third party.

(5) It does not apply to the provision of security by a third party if the following conditions are met—

(a) no deposit of money or other property by way of security is obtained by the lessor or any third party;

(b) the security does not involve the assumption of any obligations of the lessee under the lease in return for a payment made (directly or indirectly) by the lessee or a person connected with him;

(c) the security does not give rise to any payments to the lessor unless the lessee defaults on the rental payments under the lease;

(d) any payments under the security are limited to the amount of the rental payments in default.

(6) For the purposes of this paragraph the lessor and any persons connected with him shall be treated as the same person.

(7) In this paragraph—

“connected person” has the meaning given by section 839 of the Taxes Act 1988; and

“third party” means a person not connected with either the lessor or the lessee.

Sale and lease-back arrangements

92

(1) The lessor under the ... lease is not entitled to capital allowances if the lease is part of sale and lease-back arrangements.

(2) For this purpose “sale and lease-back arrangements” means, subject to sub-paragraphs (3) and (3A), any arrangements that take the following form:

Certificates required to support claim by ... lessor

93

(1) Any claim by the lessor under a ... lease for capital allowances in respect of expenditure on the provision of a qualifying ship must be accompanied by a certificate by the lessor and the lessee stating ...—

(a) that the ship is not leased, directly or indirectly, to a company subject to tonnage tax, or

(b) that neither paragraph 90 (defeased leasing) nor paragraph 92 (sale and lease-back arrangements) applies in relation to the lease and, if the lease is one that would (apart from paragraph 91A) fall to be regarded as a long funding lease for the purposes of Part 2 of the Capital Allowances Act 2001, that paragraph 91A(2) has effect in relation to the lease.

(2) If any matter so certified ceases to be the case, the lessor must give notice of that fact to the Inland Revenue.

(3) Any such notice must be given within three months after the end of the chargeable period in which the change takes place.

(4) In the second column of the Table in section 98 of the Taxes Management Act 1970 (penalty for failure to provide information etc.), after the final entry insert—

		Paragraph 93(2) of Schedule 22 to the Finance Act 2000..

Quantitative restrictions on allowances

94

(1) Where the lessor under the ... lease is entitled to capital allowances in respect of expenditure on the provision of the ship, the following provisions apply.

(2) There is no entitlement to any annual investment allowance or first-year allowance.

(3) The lessor is entitled—

(a) in respect of the first £100 million of the cost of providing the ship, to writing-down allowances at the rate determined under sub-paragraph (3A) on the reducing balance, and

(b) in respect of the next £100 million, to writing-down allowances at the rate specified in section 104D(1) of the Capital Allowances Act 2001 on the reducing balance.

(3A) The rate mentioned in sub-paragraph (3)(a) is—

(a) if the rate of the writing down allowance to which the lessor would be entitled in respect of the expenditure apart from this paragraph is that specified in section 56(1) of the Capital Allowances Act 2001, that rate, and

(b) otherwise, the rate specified in section 104D(1) of that Act.

(4) The expenditure ... shall be allocated to separate pools in accordance with sub-paragraph (4A) and dealt with under Part 2 of the Capital Allowances Act 2001 in the same way as expenditure allocated to a class pool.

...

(4A) The expenditure is to be allocated to the following pools—

(a) to the extent that it is expenditure in respect of which the lessor is entitled to writing down allowance at the rate specified in section 56(1) of the Capital Allowances Act 2001, a pool to be known as “the tonnage tax (main rate) pool”, and

(b) to the extent that it is expenditure in respect of which the lessor is entitled to writing down allowance at the rate specified in section 104D(1) of that Act, a pool to be known as “the tonnage tax (special rate) pool”.

(5) If the cost of providing the ship exceeds £200 million, the lessor is not entitled to capital allowances in respect of the excess.

Quantitative restrictions: further provisions as to rate bands, limit and pooling

95

(1) The rate bands and limit in paragraph 94 (quantitative restrictions on allowances) apply separately in relation to each ship.

(2) The amounts specified in that paragraph apply in relation to the whole cost of providing the ship.

(3) If—

(a) the cost is shared by two or more persons, or

(b) a person acquires a part share in the ship,

that paragraph applies as if there were substituted in sub-paragraph (3)(a) and (b) and sub-paragraph (5) in relation to each person the proportion of the figure specified that his share of the cost bears to the whole cost.

(4) The pools referred to in sub-paragraph (4A) of that paragraph are class pools of all expenditure of a lessor that falls to be allocated to a tonnage tax (main rate) or tonnage tax (special rate) pool in respect of ships leased by him.

Quantitative restrictions: meaning of “cost of providing ship"

96

(1) For the purposes of paragraph 94 (quantitative restrictions on allowances) the cost of providing the ship means the total cost of providing it in a state ready to be brought into use for the purposes for which it is normally to be used.

This includes the cost of any accessories or additional equipment, or fitting out, necessary for the operation of the ship for those purposes.

(2) The cost of providing the ship shall be determined without regard to the provisions of the Capital Allowances Act 2001 as to—

(a) when expenditure is treated as incurred, or

(b) when expenditure may be brought into account as qualifying expenditure.

(3) Further capital expenditure by the lessor on the ship shall be added to the original cost of providing the ship to determine—

(a) whether the lessor is entitled to capital allowances in respect of the further expenditure, and

(b) if he is, the rate of writing-down allowances to which he is entitled.

References to the cost of providing the ship shall accordingly be read as including any such further expenditure.

(4) The amounts to be taken into account under this paragraph are limited to the amounts that would otherwise have been qualifying expenditure for the purposes of capital allowances.

Quantitative restrictions: treatment of disposal proceeds

97

(1) The following provisions apply where—

(a) there is a disposal of a ship in relation to which paragraph 94 applies to restrict the capital allowances available, and

(b) a disposal value falls fall to be brought into account.

The reference in paragraph (a) to a disposal of ship includes a disposal of a part of a ship, or of an interest in a ship or a part of a ship.

(2) The disposal value is first allocated between the tonnage tax (main rate) pool and the tonnage tax (special rate) pool in the same proportions as the cost of providing the ship was allocated to those pools.

(3) If the amount allocated to the tonnage tax (main rate) pool exceeds the amount of qualifying expenditure remaining in that pool, any excess shall be taken to the tonnage tax (special rate) pool.

(4) A balancing charge arises only if the amount taken to the tonnage tax (special rate) pool exceeds the amount of qualifying expenditure remaining in that pool.

Quantitative restrictions: change of circumstances bringing case within restrictions

98

(1) The provisions of this paragraph apply where—

(a) the lessor under a ... lease has been entitled to capital allowances in circumstances in which paragraph 94 (quantitative restrictions on allowances) did not apply, and

(b) a change of circumstances brings the case within paragraph 89(1) so that the restrictions in paragraph 94 do apply.

(2) In this paragraph—

“the relevant period” means the period beginning—with the beginning of the accounting period of the lessor in which there occurs the change of circumstances in relation to which this paragraph applies, orif since the beginning of that period there has been a change of circumstances in relation to which paragraph 99 applied (change taking case out of restrictions), with the time of that change (or if there has been more than one such change, the last of them),and ending with the time of the change of circumstances in relation to which this paragraph applies; and

“the lessor’s normal pool” means the lessor’s pool that contains the qualifying expenditure relating to the ship at the beginning of the relevant period.

(3) At the beginning of the relevant period an amount (“amount A”) equal to—

(a) the tax written down value of the ship as at that time, or

(b) if less, the amount of unrelieved qualifying expenditure in the lessor’s normal pool at that time,

shall be brought into account as a disposal value in the lessor’s normal pool.

(4) At the same time an amount of qualifying expenditure equal to amount A shall be taken to a separate single-asset pool (“the temporary pool”).

(5) Any qualifying expenditure or other items relating to the ship that would otherwise have been brought into account in the lessor’s normal pool in the relevant period shall instead be brought into account in the temporary pool.

(6) At the end of the relevant period, the temporary pool shall be closed as if the ship had been disposed of by the lessor for an amount equal to its tax written down value at that time (“amount B”), and any resulting balancing allowance or balancing charge shall be given effect.

(7) The lessor shall be treated as if he had incurred qualifying expenditure equal to amount B on the provision of the ship for the purposes of the lessee’s tonnage tax trade immediately after the end of the relevant period.

(8) There shall be allocated to the lessor’s tonnage tax (main rate) and tonnage tax (special rate) pools the same proportions of amount B as the proportions of the actual cost of providing the ship that would have been so allocated if the case had been within paragraph 89(1) at all material times.

Quantitative restrictions: change of circumstances taking case out of restrictions

99

(1) The provisions of this paragraph apply where—

(a) the lessor under a ... lease has been entitled to capital allowances in circumstances in which paragraph 94 (quantitative restrictions on allowances) applied, and

(b) a change of circumstances takes the case out of paragraph 89(1) so that the restrictions in paragraph 94 no longer apply.

(2) When the change of circumstances occurs a disposal value shall be brought into account by the lessor equal to the tax written down value of the ship as at that time.

The provisions of paragraph 97 (treatment of disposal proceeds) apply as regards the allocation of that amount to the lessor’s tonnage tax (main rate) and tonnage tax (special rate) pools.

(3) The lessor shall be treated as if he had incurred qualifying expenditure on the provision of the ship for the purposes of the lessee’s non-tonnage tax trade immediately after the change of circumstances occurs.

(4) The amount of that expenditure shall be taken to be the amount that the tax written down value of the ship would have been, at the time the change of circumstances occurs, had paragraph 94 never applied.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determination of tax written down value, etc.

100

(1) This paragraph supplements paragraphs 98 and 99.

(2) The “tax written down value” of the ship at any time means what would be the amount of unrelieved qualifying expenditure at that time determined on the following assumptions—

(a) that the qualifying expenditure relating to the ship had been held in a single asset pool, and

(b) that there had been made to the lessor—

(i) the first-year allowance (if any) that was actually made to him,

(ii) any first-year allowance falling to be made to him that was postponed under section 130 of the Capital Allowances Act 2001, and

(iii) the maximum amount of any writing-down allowances that, on the preceding assumptions, could have been made.

(3) The references in paragraph 98(3)(b) and sub-paragraph (2) above to the amount of “unrelieved qualifying expenditure" are to the unrelieved qualifying expenditure that would otherwise have been carried forward under Chapter 5 of Part 2 of the Capital Allowances Act 2001.

(4) For the purpose of determining that amount at a time other than the beginning or end of an accounting period of the lessor, it shall be assumed that an accounting period of the lessor began or ended at that time.

Quantitative restrictions: power to alter amounts by regulations

101

(1) The Inland Revenue may by regulations alter the amounts for the time being specified in sub-paragraph (3)(a) and (b) and sub-paragraph (5) of paragraph 94 (quantitative restrictions on allowances).

(2) The regulations may contain such incidental, supplementary and transitional provisions as appear to the Inland Revenue to be appropriate.

Exclusion of leases entered into on or before 23rd December 1999

102

The provisions of this Part do not apply in relation to a finance lease entered into on or before 23rd December 1999.

Part XI — Special rules for offshore activities

Introduction

103

(1) This Part of this Schedule sets out special rules that apply where a qualifying ship operated by a tonnage tax company is engaged in offshore activities.

(2) The rules in this Part of this Schedule do not apply in an accounting period unless the total number of days in that period on which qualifying ships operated by that company are engaged in offshore activities exceeds 30.

Meaning of “offshore activities"

104

(1) In this Part of this Schedule “offshore activities” means activities in connection with the exploration or exploitation of so much of the seabed or subsoil or their natural resources as is situated in the UK sector of the continental shelf.

(1A) But none of the following activities is to be regarded as an offshore activity—

(a) offshore supply services;

(b) towage, salvage or other marine assistance;

(d) carriage of liquids or gases;

(e) safety or rescue services;

(f) the carriage of cargo in connection with dredging.

(1B) The Treasury may make provision by order amending sub-paragraph (1A) by—

(a) adding, or

(b) varying,

any description of activity.

(2) The “UK sector of the continental shelf” means—

(a) any area designated by Order in Council under section 1(7) of the Continental Shelf Act 1964, and

(b) any waters within the seaward limits of the territorial sea of the United Kingdom.

Vessels to which special provisions do not apply

105

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Treatment of periods of inactivity

106

A period between contracts when a qualifying ship is not working shall not be taken to be a period during which the ship is engaged in offshore activities unless—

(a) the period of inactivity is specifically related to a forthcoming offshore activity, and

(b) it is impractical for the vessel to undertake other work in the meantime.

Profits from offshore activities to be computed according to ordinary rules

107

(1) The profits of a tonnage tax company from a qualifying ship in respect of periods during which the ship is engaged in offshore activities (its “offshore profits”) are computed and charged to tax in accordance with ordinary corporation tax principles as if they were not part of the company’s relevant shipping profits.

(2) Accordingly, the number of days in an accounting period during which a qualifying ship is so engaged shall be left out of account for the purposes of paragraph 4 (calculation of tonnage tax profits by reference to daily profit).

Application of ring fence provisions

108

(1) The provisions of Part VII (the ring fence: general provisions) apply in relation to a company’s offshore activities as if they were not tonnage tax activities.

(2) The provisions of this Schedule apply in relation to a company’s offshore profits as they apply to profits other than relevant shipping profits.

Chargeable gains from assets used for offshore activities

109

A period during which an asset is used for the purposes of offshore activities is treated for the purposes of paragraph 65 (chargeable gains on disposal of tonnage tax asset) as if it were a period during which the asset was not a tonnage tax asset.

Capital allowances: general

110

(1) A tonnage tax company may claim capital allowances for capital expenditure incurred in providing plant or machinery for the purposes of its offshore activities.

(2) In such a case Part 2 of the Capital Allowances Act 2001 applies as if—

(a) an asset used for the purposes of the company’s offshore activities were provided by the company for those purposes on the first occasion after entry into tonnage tax on which it is brought into use for those purposes, and

(b) an amount of capital expenditure (the “notional qualifying expenditure”) had been incurred at that time on its provision.

(3) The amount of the notional qualifying expenditure is given by paragraph 112 (existing assets) or paragraph 113 (new assets).

(4) Where an asset to which this paragraph applies ceases permanently to be used for the purposes of the company’s offshore activities, it is treated for the purposes of Part 2 of the Capital Allowances Act 2001 as it applies by virtue of this paragraph as if it had been disposed of at market value.

This does not apply if a disposal value is required to be brought into account under section 61(1) of that Act apart from this sub-paragraph.

Capital allowances: proportionate reduction of allowances

111

(1) This paragraph applies where in an accounting period of the company an asset to which paragraph 110 applies is used for the purposes of the company’s offshore activities on some only of the days in the period.

(2) The amount of any writing-down allowance for that period in respect of expenditure incurred on the provision of the asset is restricted to the relevant proportion of the full allowance.

(3) Any writing-down allowance for a subsequent accounting period of the company in respect of such expenditure shall be calculated as if an allowance had been made of an amount equal to the full allowance, whether or not that amount (or any amount) was in fact claimed.

(4) For the purposes of this paragraph the full allowance means the allowance (if any) that would have been available apart from this paragraph.

(5) For the purposes of this paragraph the relevant proportion of the full allowance is given by:

$$OSDAPD$where:OSD is the number of days in the accounting period on which the asset was used for the purposes of the company’s offshore activities; andAPD is the number of days in that period.$

Capital allowances: notional qualifying expenditure: existing assets

112

(1) This paragraph applies to determine the amount of notional qualifying expenditure for the purposes of paragraph 110 where the company was entitled before entry into tonnage tax to capital allowances in respect of expenditure on providing the asset.

(2) If the asset was brought into use for the purposes of the company’s offshore activities immediately on entry into tonnage tax, the notional qualifying expenditure is equal to any unrelieved qualifying expenditure attributable to the asset.

(3) In this paragraph “unrelieved qualifying expenditure” means the unrelieved qualifying expenditure that would otherwise have been carried forward under Chapter 5 of Part 2 of the Capital Allowances Act 2001.

(4) The amount of unrelieved qualifying expenditure attributable to plant or machinery in a class pool, or the main pool, is the proportion of the whole given by:

$$AVPV$where:AV is the market value of the asset concerned immediately before entry into tonnage tax, andPV is the aggregate market value at that time of all the assets in the pool.$

(5) References in this paragraph to unrelieved qualifying expenditure include qualifying expenditure to the extent to which it is unrelieved by virtue of notice having been given under section 130 of the Capital Allowances Act 2001 (notice postponing first-year or writing-down allowance)—

(6) If the asset was not brought into use for the purposes of the company’s offshore activities immediately on entry into tonnage tax, the notional qualifying expenditure is the amount given by sub-paragraph (2) but written down in respect of the period between the company’s entry into tonnage tax and the asset being brought into use for those purposes.

(7) The Inland Revenue shall make provision by regulations as to the basis on which the writing down mentioned in sub-paragraph (6) is to be done.

The regulations may make different provision for different descriptions of asset.

Capital allowances: notional qualifying expenditure: new assets

113

(1) This paragraph applies to determine the amount of notional qualifying expenditure for the purposes of paragraph 110 where the company was not entitled before entry into tonnage tax to capital allowances in respect of expenditure on providing the asset.

(2) If the asset was brought into use for the purposes of the company’s offshore activities immediately on being acquired by the company, the notional qualifying expenditure is equal to the amount that would fall to be brought into account as qualifying expenditure under Part 2 of the Capital Allowances Act 2001 apart from this Schedule.

(3) If the asset was not brought into use for the purposes of the company’s offshore activities immediately on being acquired by the company, the notional qualifying expenditure is the amount referred to in sub-paragraph (2) written down in respect of the period between its acquisition by the company and its being brought into use for those purposes.

(4) The Inland Revenue shall make provision by regulations as to the basis on which the writing down mentioned in sub-paragraph (3) is to be done.

The regulations may make different provision for different descriptions of asset.

The training requirement

114

(1) The fact that a qualifying ship is used for the purposes of offshore activities does not affect the training requirement but an allowance is made under this paragraph.

(2) The amount of the allowance in an accounting period is equal to the aggregate of—

(a) the cash equivalent of the training provided that would not have had to be provided, and

(b) any payments in lieu of training made that would not have had to be made,

if the days on which the ship was engaged in offshore activities had been days on which it was not engaged in tonnage tax activities.

For the purposes of paragraph (a) the cash equivalent of training shall be calculated by reference to the current rate of payments in lieu of training.

(3) The amount of the allowance may be deducted by the company in computing the amount of corporation tax payable for that accounting period, so far as that is attributable to offshore activities.

(4) If in any accounting period the company is unable to deduct the full amount of—

(a) any allowance to which it is entitled under this paragraph for that period, and

(b) any amount brought forward under this sub-paragraph,

the balance may be carried forward and set against the amount of corporation tax payable in the next accounting period, so far as that is attributable to offshore activities.

(5) No deduction may be made by a company in computing its profits from offshore activities in respect of expenditure incurred in meeting the training requirement.

Interpretation

115

Expressions used in this Part of this Schedule that are defined for the purposes of Part VIII or IX of this Schedule have the same meaning in this Part.

Meaning of “group" and “member of group"

116

In this Schedule a “group” means—

(a) all the companies controlled by an individual, or

(b) where a company that is not controlled by another person controls one or more other companies, that company and all the companies controlled by it.

References to membership of a group shall be construed accordingly.

Companies treated as controlled by an individual

117

(1) For the purposes of this Schedule an individual is treated as controlling any company that is controlled—

(a) by him alone, or

(b) by him together with one or more associates of his, or

(2) An individual shall not be treated as controlling a company by virtue of sub-paragraph (1)(c) if he does not have any significant influence over the affairs of the company in question.

Meaning of “control"

118

(1) In this Schedule “control”, in relation to a company, means the power of a person to secure—

(a) by means of the holding of shares or the possession of voting power in or in relation to that or any other company, or

(b) by virtue of any powers conferred by the articles of association or other document regulating that or any other company,

that the affairs of the company are conducted in accordance with his wishes.

(2) For the purposes of this paragraph there shall be attributed to a person—

(a) any rights or powers which another person holds on his behalf or may be required to exercise at his direction or on his behalf,

(b) any rights or powers—

(i) of a company of which he has, or he and his associates have, control, or

(ii) of any two or more such companies, and

(3) The references in paragraphs (b) and (c) of sub-paragraph (2) to rights or powers of a company or associate include rights or powers attributed to the company or associate under paragraph (a) of that sub-paragraph.

(4) The references in paragraphs (b) and (c) of sub-paragraph (2) to rights or powers of an associate do not include rights or powers attributed to the associate under those paragraphs.

Company not to be treated as member of more than one group

119

(1) For the purposes of this Schedule a company may not, at the same time, be a member—

(a) of a tonnage tax group and a qualifying non-tonnage tax group, or

(b) of more than one tonnage tax group.

(2) If the rules in paragraphs 116 to 118 would produce that result in relation to a company, the following rules apply.

(3) As between a tonnage tax group and a qualifying non-tonnage tax group, the company shall be treated as a member of the tonnage tax group and not of the non-tonnage tax group.

(4) As between two tonnage tax groups, the company shall be treated as a member of the group whose tonnage tax election was made first and not of the other tonnage tax group.

(5) In the case of group elections made at the same time, the company may choose which election it joins in.

It is treated for the purposes of this Schedule as a member of the group in respect of which that election is made and not of any other tonnage tax group.

Arrangements for dealing with group matters

120

(1) The Inland Revenue may enter into arrangements with the qualifying companies in a group for one of those companies to deal on behalf of the group in relation to matters arising under this Schedule that may conveniently be dealt with on a group basis.

(2) Any such arrangements—

(a) may make provision in relation to cases where companies become or cease to be members of a group;

(b) may make provision for or in connection with the termination of the arrangements; and

(c) may make such supplementary, incidental, consequential or transitional provision as is necessary or expedient for the purposes of the arrangements.

(3) Any such arrangements do not affect—

(a) any requirement under this Schedule that an election be made jointly by all the qualifying companies in the group; or

(b) any liability under this Schedule or any other provision of the Tax Acts of a company to which the arrangements relate.

(4) The Secretary of State may also make such arrangements in relation to matters arising under this Schedule in relation to which he has functions.

Meaning of “merger" and “demerger"

121

(1) In this Schedule—

“merger” means a transaction by which one or more companies become members of a group, and

“demerger” means a transaction by which one or more companies cease to be members of a group.

(2) References to a merger to which a group is a party include any merger affecting a member of the group.

Merger: between tonnage tax groups or companies

122

(1) This paragraph applies where there is a merger—

(a) between two or more tonnage tax groups,

(b) between one or more tonnage tax groups and one or more tonnage tax companies, or

(2) In all those cases the group resulting from the merger is a tonnage tax group as if a group election had been made.

(3) That deemed election continues in force, subject to the provisions of this Schedule—

(a) if there is a dominant party to the merger, until that party’s tonnage tax election would have expired;

(b) if there is no dominant party, until whichever of the existing tonnage tax elections had the longest period left to run would have expired.

Merger: tonnage tax group or company and qualifying non-tonnage tax group or company

123

(1) This paragraph applies where there is a merger between a tonnage tax group or company (“T”) and a qualifying non-tonnage tax group or company (“QNT”).

(2) If T is the dominant party, the group resulting from the merger is a tonnage tax group as if a group election had been made.

That deemed election continues in force, subject to the provisions of this Schedule, until T’s election would have expired.

(3) If QNT is the dominant party, T’s tonnage tax election ceases to be in force as from the date of the merger.

(4) If there is no dominant party—

(a) the group resulting from the merger may elect that T shall be treated as the dominant party (with the result that sub-paragraph (2) applies), and

(b) if it does not do so, T’s tonnage tax election ceases to be in force as from the date of the merger.

(5) Any election under sub-paragraph (4)(a) must be made—

(a) jointly by all the qualifying companies in the group resulting from the merger,

(b) by notice to the Inland Revenue,

Merger: tonnage tax group or company and non-qualifying group or company

124

(1) This paragraph applies where there is a merger between a tonnage tax group or company (“T”) and a non-qualifying group or company.

(2) In that case the group resulting from the merger is a tonnage tax group by virtue of T’s election.

Merger: non-qualifying group or company and qualifying non-tonnage tax group or company

125

(1) This paragraph applies where there is a merger between a non-qualifying group or company (“NQ”) and a qualifying non-tonnage tax group or company.

(2) In that case, if NQ is the dominant party the group resulting from the merger may make a tonnage tax election having effect as from the date of the merger.

(3) Any such election must be made—

(a) jointly by all the qualifying companies in the group resulting from the merger,

(b) by notice to the Inland Revenue,

Meaning of “dominant party" in relation to merger

126

(1) This paragraph explains what is meant by the references in this Schedule to the “dominant party” in relation to a merger.

(2) The “dominant party" is determined as follows—

(a) if the turnover generated by the relevant activities of one of the parties to the merger is more than twice that of the other, that one is the dominant party;

(b) if not, there is no dominant party.

(3) The relevant activities of a party to a merger are—

(a) for the purposes of—

(i) paragraph 122 (merger between tonnage tax groups or companies), or

(ii) paragraph 123 (merger between tonnage tax group or company and qualifying non-tonnage tax group or company),

the tonnage tax activities of that party;

(b) for the purposes of paragraph 125 (merger between non-qualifying group or company and qualifying non-tonnage tax group or company), all the activities of that party.

(4) The basis on which (and the periods by reference to which) the turnover from relevant activities is to be determined for the purposes of those paragraphs shall be such as may be agreed between the parties and the Inland Revenue.

(5) In default of such agreement—

(a) the Inland Revenue shall decide, and

(b) an appeal may be made against their decision.

(6) Notice of appeal must be given to the Inland Revenue within 30 days of their decision being notified to the parties.

Demerger: single company

127

(1) This paragraph applies where a tonnage tax company ceases to be a member of a tonnage tax group and does not become a member of another group.

(2) In that case—

(a) the company in question remains a tonnage tax company as if a single company election had been made, and

(b) that deemed election continues in force, subject to the provisions of this Schedule, until the group election would have expired.

(3) If two or more members of the previous group remain, and any of them is a qualifying company, the group consisting of those companies is a tonnage tax group by virtue of the previous group election.

Demerger: group

128

(1) This paragraph applies where a tonnage tax group splits into two or more groups.

(2) In that case each new group that contains a qualifying company that was a tonnage tax company before the demerger is a tonnage tax group as if a group election had been made.

(3) That deemed election continues in force, subject to the provisions of this Schedule, until the group election would have expired.

Duty to notify Inland Revenue of group changes

129

(1) A tonnage tax company that becomes or ceases to be a member of a group, or of a particular group, must give notice to the Inland Revenue of that fact.

(2) The notice must be given within the period of twelve months beginning with the date on which the company became or ceased to be a member of the group.

(3) In the second column of the Table in section 98 of the Taxes Management Act 1970 (penalties for failure to provide information etc.), after the final entry insert—

		Paragraph 129 of Schedule 22 to the Finance Act 2000..

Part XIII — Application of provisions to partnerships

Introduction

130

(1) The Inland Revenue may make provision by regulations as to the application of this Schedule in relation to activities carried on by a company in partnership.

(2) Nothing in the following provisions of this Part of this Schedule shall be read as restricting the generality of this power.

Calculation of partnership profits

131

The regulations may provide that—

(a) for the purpose of calculating the profits of a partner which is a tonnage tax company, the profits of the partnership shall be calculated as if the partnership were a tonnage tax company, and

(b) for the purpose of calculating the profits of a partner which is not a tonnage tax company, the profits of the partnership shall be calculated as if the partnership were not a tonnage tax company.

Qualifying partnerships

132

(1) The regulations may provide that activities carried on by a company in partnership are not to be regarded as qualifying activities of that company unless the partnership is a qualifying partnership.

(2) Subject to any provision made by the regulations, a “qualifying partnership” means a partnership that if it were a company would meet the requirements in paragraph 16(1) (qualifying companies).

Ships owned by or chartered to partners

133

The regulations may provide that a ship which is not partnership property but which—

(a) is owned by or chartered to a member (or two or more members) of a partnership, and

(b) is a ship in relation to which activities of the partnership business are carried on,

shall be treated as if it were owned by or chartered to every member of the partnership and as if everything done by or to any of the partners in relation to it had been done by or to all the partners.

Transactions not at arm’s length

134

The regulations may provide that for the purposes of paragraphs 58 and 59 (transactions not at arm’s length) the partnership shall be treated—

(a) as an entity separate and distinct from the persons that are its members, and

(b) as if it were a tonnage tax company.

Adjustments for capital allowance purposes

135

The regulations may provide that where a partner leaves tonnage tax, such adjustments shall be made for capital allowance purposes, in relation to that partner and all or any of the other partners, with respect to—

(a) the amount of qualifying expenditure under Part 2 of the Capital Allowances Act 2001 (plant and machinery allowances), and

(b) the amount of the residue of qualifying expenditure under Part 3 of that Act(industrial buildings allowances),

as may be specified in the regulations.

General

136

Regulations under this Part of this Schedule—

(a) may make different provision for different cases, and

(b) may contain such supplementary, incidental and transitional provision as appears to the Inland Revenue to be appropriate.

Part XIV — Withdrawal of relief etc. on company leaving tonnage tax

Introduction

137

(1) This Part of this Schedule applies where a company ceases to be a tonnage tax company.

(2) The provisions of paragraphs 138 and 139 (exit charges: chargeable gains and balancing charges) apply where a company ceases to be a tonnage tax company—

(a) on ceasing to be a qualifying company for reasons relating wholly or mainly to tax, or

(b) under paragraph 42 (exclusion from tonnage tax where tax avoidance arrangements entered into).

(3) Paragraph 140 (ten year disqualification from re-entry into tonnage tax) applies in every case where a company ceases to be a tonnage tax company otherwise than on the expiry of a tonnage tax election.

Exit charge: chargeable gains

138

(1) Paragraph 65(1)(a) (chargeable gain: disposal of tonnage tax assets) has effect in relation to gains (but not losses) on all relevant disposals as if the company had never been a tonnage tax company.

(2) For this purpose a “relevant disposal” means a disposal—

(a) on or after the day on which the company ceases to be a tonnage tax company, or

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