Calculation of written down values under the UK tonnage tax tonnage tax are not realistic in terms of their interaction with the capital allowances regime according to international accountant and shipping adviser Moore Stephens.
The international accountant and shipping adviser Moore Stephens has made representations to Her Majesty’s Revenue & Customs (HMRC) about changing the way in which the written-down values of vessels are calculated under the UK tonnage tax rules.
According to Sue Bill Moore Stephens tax partner, where a company exits tonnage tax other than on the expiry of an election, and still owns ships, unless a ship falls within the definition of a ‘long-life asset’, its cost for capital allowances purposes is written down broadly as if the company had claimed capital allowances at 25 per cent on a reducing balance basis for each year that it owned the ship.
The company’s ships are therefore likely to have relatively low tax written-down values which will bear no relation to the capital allowances that would have been claimed if the company had not been in tonnage tax for the relevant period. As a result, the company is likely to exit tonnage tax with large deferred tax liabilities. This will apply to companies that cease to satisfy such requirements for the tonnage tax regime as the strategic and commercial management tests.
Moore Stephens considers that the tax written-down value should be calculated in a different way. Possible methods of calculation may be:
- To write down the cost of the vessel to market value.
- The cost of the vessel to be depreciated on a time-apportionment basis, bearing in mind its expected economic life when she was new.
- Adjust the existing rules so that the cost is written down in line with the normal rates for plant and machinery capital allowances, which have reduced from 25 per cent to 18 per cent.
Source: Moore Stephens
Officer of the Watch 
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