The Chancellor in his autumn Budget announced that, post-Brexit, he would reform the UK’s 20 year old tonnage tax regime to encourage more businesses to base their headquarters in the UK, using the UK’s world leading maritime services industry.
Tonnage tax is an alternative form of corporation tax for companies that operate ships and was introduced in 2000. The regime is elective and taxes shipping businesses based on the net tonnage of the vessels operated during the accounting period, rather than based on the commercial profits of the organisation. An election must be made within 12 months of a company first qualifying. Once elected into the tonnage tax regime it applies for 10 years, at which point it will lapse or a new election can be made for additional periods.
The tonnage tax regime is a lower tax regime than the normal corporate tax regime. This will provide even more benefit to profitable shipping businesses, as the UK’s corporation tax increases to 25% in 2023. Not only that, it also provides those in the regime some certainty as to how much taxation they will pay year on year.
Those businesses that are in the regime are considered to be ‘ring-fenced’ from any wider activities a group may undertake. Companies within the ring fence are taxed on their ‘relevant shipping profits’ based on a daily charge for the ships operated during their accounting period. This daily charge is on a reducing tiered scale between £0.60 and £0.15 per 100 tons, depending on the size of each vessel.
One downside to electing into the tonnage tax regime is that the tonnage tax charge is paid, even in periods when the business is loss making.
To be able to apply for the tonnage tax regime there are a number of conditions that must be met. Broadly, a qualifying company must:
The Chancellor is proposing the following changes to the regime from April 2022.
Overall, these changes are seen as positive changes to the regime and have been campaigned for by the shipping industry since the UK left the EU at the beginning of the year. In particular, if businesses can enter into the regime outside of the existing initial 12-month application window, and if more shipping organisations can be encouraged to relocate their headquarters to the UK, this will be a positive move for the UK economy, international trade and the transport sector.
Autumn Budget 2021