Tonnage tax
The UK tonnage tax (TT) regime is an alternative tax regime which, if elected into, enables the taxable profits of qualifying companies to be calculated in a different way to the normal UK corporation tax regime.
There is no actual ‘Tonnage Tax’ it is just sets out a specific way of calculating taxable profits that are then subject to the normal UK corporate tax rates.
The regime is open to qualifying companies that elect into the regime. Relevant shipping profits are replaced by TT profits which are calculated by reference to net tonnage of the vessels operated by the company.
The regime was first introduced in 2000 with the intention of encouraging owners and operators to remain in or relocate to the UK to reinforce and increase the UK’s maritime sector and to enable UK based shipping companies to be able compete internationally against offshore shipping companies operating in other EU jurisdictions with tonnage tax regimes or jurisdictions with specific shipping tax incentives such as Singapore. Due to the specific set method of calculating the taxable profits based on net tonnage rather than actual profits it provides both a low effective tax rate but also ensures that shipping companies can have a stable and predictable tax liability.
The regime has had a number of small changes over the years particularly following Brexit but remains largely the same.
The regime is very attractive from a tax perspective, but detailed advice should be sought if considering entering to confirm eligibility and the tax implications in the short and longer term are actually likely to be beneficial and once in the regime to ensure a company continues to meet the requirements and there are no unexpected tax implications.
Our detailed tonnage tax fact sheet is coming soon!
Summary on tonnage tax fact sheet
Our tonnage tax fact sheet soon will provide more detail, but the key points are:
Qualifying companies and groups:
- To qualify a company must operate qualifying ships.
- The ships must be strategically and commercially managed in the UK
- A Group qualifies if it includes more than one qualifying company
Relevant shipping profits:
- Only relevant shipping profits are covered by the TT regime
- Profits not falling within the regime will be subject to normal corporation tax rules
Tonnage tax profits – calculation:
Taxable profits are calculated by reference to net tonnage of the vessels the company operates on a daily profit rate. The rates are based on 4 ranges as shown in the table below:
| Net tonnage of ship (rounded down to nearest 100) | Daily profit rate per 100 tons |
| 0 – 1,000 | £0.60 |
| 1,000 – 10,000 | £0.45 |
| 10,000 – 25,000 | £0.30 |
| Above 25,000 | £0.15 |
Election:
- The regime is not automatic. A qualifying company or group must elect into the regime.
- All qualifying companies in a group must be party to the election you cannot pick and choose.
- There are time limits to make the election – these must be considered
- It is necessary to re-elect into the regime at least every 8 years (previously was 10 years)
Some other points:
- Companies must commit to a minimum training obligation
- The previous flagging requirement in respect of the qualifying vessels was removed from 1 April 2022 although a UK flag will still be taken into consideration and may be important when considering the strategic and commercial requirements
Contact Our Experts
