Revenue Note for Guidance
697C Calculation of profits of tonnage tax company
Summary
This section gives the rules for the calculation of tonnage tax.
Details
Replacement of accounting profit by tonnage profits
(1) The tonnage tax profits of a tonnage tax company (i.e. a company which is a qualifying company and which has elected for tonnage tax) as calculated under this section are brought into charge to corporation tax in place of the company’s relevant shipping profits (i.e. its relevant shipping income and its chargeable gains referable to disposal of tonnage tax assets).
Treatment of losses
(2) Where a tonnage tax company incurs a loss on any of its tonnage tax activities or a foreign exchange loss which would otherwise be taken into account in calculating the company’s trading income, the loss cannot be used to obtain relief for the purposes of corporation tax.
Tonnage tax profit calculation
(3) to (6) The actual tonnage tax profit calculation is best described by way of an example.
Example
The tonnage tax computation is straight forward. This example concerns a shipping company which operates two qualifying ships of 25,000 tons each.
STEP 1 – calculate profit per day per ship:
This calculation is made by reference to an amount of profit for each 100 tons as follows:
Each 100 tons up to 1,000 tons @ €1 |
= |
€10 |
Each 100 tons between 1,000 and 10,000 tons |
||
@ €0.75 = 90 × 0.75 = |
= |
€67.50 |
Each 100 tons between 10,000 and 25,000 tons |
||
@ €0.50 = 150 × 0.50 |
= |
€75 |
THIS GIVES A PROFIT PER DAY PER SHIP OF |
= |
€152.50 |
STEP 2 – calculate profit per ship for the accounting period:
If it is assumed that it is a normal accounting period of a year, one gets a profit per ship for the accounting period of €152.50 x 365 = €55,663.
STEP 3 – calculate company’s tonnage tax profits:
The profit for each ship is aggregated. In this case, the profit for each ship is the same as they are both 25,000 tons. This means that the total profit for the accounting period is (€55,663 x 2 = €111,326).
STEP 4 – calculate corporation tax
Applying the 12.5% rate of corporation tax to the company’s profits, we get tax of €13,916 for the company (€111,326 x 12.5%).
Ships operated by more than one person
(7) & (8) Where a ship is operated jointly, the tonnage tax calculation is to be made by reference to each company’s proportionate share of the interest in the ship. If, in the case of a ship operated jointly, it is not possible to determine each company’s proportionate share, the tonnage tax profits of each company with an interest in the ship is to be calculated as if each were the only operator of that ship.
Relevant Date: Finance Act 2019