Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
143

      (2)
In sub-paragraph (1) (qualifying ship beginning to be used as vessel of
excluded kind ceases to be such ship when it begins to be so used) for “as a
vessel of an excluded kind” substitute “for non-qualifying purposes”.
      (3)
In sub-paragraph (2)(b) (use as vessel of excluded kind for up to 30 days in
accounting period to be disregarded) for “as a vessel of an excluded kind”
5
substitute “for non-qualifying purposes”.
      (4)
In sub-paragraph (5) (meaning of references to use as vessel of excluded
kind) for “as a vessel of an excluded kind are to” substitute “for non-
qualifying purposes are to—
(a)
use for an activity other than any of the activities
10
mentioned in paragraph 19(1)(a) to (d), or
(b)”.
      (5)
After that sub-paragraph insert—
    “(6)
This paragraph does not apply for the purposes of sub-paragraphs
(2) to (5) of paragraph 20A (qualifying dredgers and tugs).”.
15
Flagging: rule for ships other than dredgers and tugs
8
After paragraph 22 insert—
“Flagging: rule for ships other than dredgers and tugs
22A   (1)
This paragraph applies if the following conditions are satisfied in
the case of a ship which—
20
(a)
is neither a qualifying dredger nor a tug, and
(b)
would, apart from this paragraph, be a qualifying ship.
      (2)
Condition 1 is that, at a time after the later of the reference date
(see paragraph 22B(1)) and 30th June 2005,—
(a)
in the case of a tonnage tax company which is a single
25
company, the company begins, in a financial year which is
not excepted (see paragraph 22B(2)), to operate the ship for
the first time, or
(b)
in the case of a tonnage tax company which is a member of
a tonnage tax group, the company begins, in a financial
30
year which is not excepted, to operate the ship for the first
time, the ship not having previously been operated by any
other member of the group.
      (3)
Condition 2 is that less than 60% of the company’s total tonnage is
Community-flagged (see paragraph 22B(3)) on average over the
35
period—
(a)
beginning with the first day of the financial year
mentioned in condition 1, and
(b)
ending with the day on which the company so begins to
operate the ship.
40
      (4)
Condition 3 is that—
(a)
the percentage of the company’s total tonnage which is
Community-flagged on average over the period
mentioned in condition 2,
is less than
45

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
144

(b)
the percentage of the company’s total tonnage which was
Community-flagged on the reference date.
      (5)
Condition 4 is that, on the date on which the company so begins to
operate the ship, the ship is not registered in one of the Member
States’ registers (see paragraph 22B(7)).
5
      (6)
Where this paragraph applies in relation to the ship, the ship shall
not, at any time on or after that date, be regarded as—
(a)
a qualifying ship operated by the company, or
(b)
if immediately before that date the company is a member
of a tonnage tax group, a qualifying ship operated by any
10
company that is or becomes a member of the group.
      (7)
But sub-paragraph (6) does not apply if—
(a)
the ship has become registered in one of the Member
States’ registers by the end of the period of three months
beginning with that date, or
15
(b)
the conditions in sub-paragraph (8) are satisfied.
      (8)
Those conditions are that—
(a)
a substitute ship which was not registered in one of the
Member States’ registers has, during the period mentioned
in sub-paragraph (7)(a), become so registered, and
20
(b)
no later than the end of that period—
(i)
if the company is a single company, the company
makes an election under this sub-paragraph in
relation to the substitute ship, or
(ii)
if the company is a member of a tonnage tax group,
25
all the qualifying companies in the group jointly
make such an election.
      (9)
In sub-paragraph (8) a “substitute ship” means a qualifying ship—
(a)
the tonnage of which is no less than that of the ship
mentioned in sub-paragraph (1), and
30
(b)
which was first operated by the company or, if the
company is a member of a tonnage tax group, by any other
member of the group more than three months before that
date;

and for this purpose the tonnage of a ship is to be determined on
35
the same basis as it is under paragraph 22B(3).
     (10)
An election under sub-paragraph (8) is made by notice to the
Inland Revenue.
Flagging: meaning of terms used in paragraph 22A
22B   (1)
In paragraph 22A “the reference date” means 17th January 2004 or,
40
if later,—
(a)
in the case of a single company, the date of the end of the
accounting period in which the company became (or
becomes) a tonnage tax company;
(b)
in the case of a member of a group, the date of the end of
45
the accounting period in which the group became (or
becomes) a tonnage tax group;

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
145


but where the members of a group had (or have) different
accounting periods at the time the group became (or becomes) a
tonnage tax group, paragraph (b) has effect by reference to the first
of those accounting periods.
      (2)
For the purposes of sub-paragraph (2) of paragraph 22A a
5
financial year is excepted if it is designated by an order made by
the Treasury as a financial year in relation to which that paragraph
is not to have effect (see further paragraph 22C(1) to (3)).
      (3)
For the purposes of paragraph 22A the percentage of a company’s
total tonnage which is Community-flagged is—
10

where—
CFT is the aggregate tonnage of such of the relevant ships as
are registered in one of the Member States’ registers, and
TT is the aggregate tonnage of all the relevant ships.
      (4)
For the purposes of sub-paragraph (3) the ships which are the
15
relevant ships are—
(a)
if the company is a single company, the ships operated by
the company, or
(b)
if the company is a member of a tonnage tax group, the
ships operated by each member of the group which is a
20
qualifying company.
      (5)
Sub-paragraphs (3) and (4) are subject to any regulations made
under paragraph 22C(4).
      (6)
A ship shall not be counted more than once in determining for the
purposes of sub-paragraph (3) the aggregate tonnage of relevant
25
ships.
      (7)
In this Schedule “Member States’ registers” has the meaning given
by the Annex to Commission communication C(2004) 43 —
Community guidelines on State aid to maritime transport (as from
time to time amended or replaced).
30
Flagging: provisions supplementing paragraphs 22A and 22B
22C   (1)
An order under paragraph 22B(2) designating a financial year
shall be made if—
(a)
the Treasury are satisfied, on the basis of the information
available to them, that the percentage of the tonnage tax
35
fleet which is Community-flagged has not decreased on
average over a prescribed three year period, and
(b)
the order is made before the beginning of that financial
year.
      (2)
The Treasury may make provision by regulations for or in
40
connection with—
(a)
specifying the meaning, for the purposes of sub-paragraph
(1)(a), of the percentage of the tonnage tax fleet which is
Community-flagged;

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
146

(b)
specifying the way in which an average is to be calculated
for those purposes;
(c)
requiring any tonnage tax company or tonnage tax group
to provide prescribed information for the purposes of
enabling the Treasury to determine whether the condition
5
in sub-paragraph (1)(a) is met;
(d)
imposing penalties in respect of a failure to comply with a
provision of the regulations made by virtue of
paragraph (c) (including, in prescribed cases or
circumstances, the exclusion of a company or group from
10
tonnage tax).
      (3)
Section 828(3) of the Taxes Act 1988 shall not apply in relation to
an order under paragraph 22B(2).
      (4)
The Treasury may make provision by regulations as to the way in
which the percentage of a company’s total tonnage which is
15
Community-flagged is to be calculated for the purposes of
paragraph 22A.
      (5)
The provision that may be made by regulations under sub-
paragraph (4) includes provision for or in connection with—
(a)
determining the percentage of a company’s total tonnage
20
which is Community-flagged on average over a period;
(b)
specifying the basis on which the tonnage of a ship is to be
determined;
(c)
treating ships which would, but for the regulations, be
relevant ships for the purposes of paragraph 22B(3) as not
25
being relevant ships for those purposes;
(d)
including in the calculation set out in paragraph 22B(3)
only such proportion of the tonnage of a relevant ship as
may be prescribed.
      (6)
Regulations under this paragraph—
30
(a)
may make different provision for different cases or
circumstances, and
(b)
may contain such supplementary, incidental,
consequential and transitional provisions as appear to the
Treasury to be necessary or expedient.
35
      (7)
In this paragraph “prescribed” means—
(a)
specified in, or
(b)
determined in accordance with,

regulations under this paragraph.”.
Flagging: rules for dredgers and tugs
40
9
After paragraph 22C insert—
“Flagging: rule on first operation of qualifying dredger or tug
22D   (1)
This paragraph applies if—
(a)
a company begins to operate a ship which—
(i)
is a qualifying dredger or a tug,
45

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
147

(ii)
would, apart from this paragraph, be a qualifying
ship, and
(iii)
has not previously been operated by the company
or, if the company is a member of a group, by any
member of the group, and
5
(b)
on the date on which the company so begins to operate the
ship, the ship is not registered in one of the Member States’
registers.
      (2)
The ship shall not, at any time on or after that date, be regarded
as—
10
(a)
a qualifying ship operated by the company, or
(b)
if immediately before that date the company is a member
of a group, a qualifying ship operated by any company
that is or becomes a member of the group.
      (3)
But sub-paragraph (2) does not apply if the ship has become
15
registered in one of the Member States’ registers by the end of the
period of three months beginning with that date.
Flagging: rule on subsequent re-flagging of qualifying dredger or tug
22E   (1)
This paragraph applies if—
(a)
a qualifying ship operated by a company ceases to be
20
registered in any of the Member States’ registers, and
(b)
the ship is a qualifying dredger or a tug.
      (2)
The ship shall not, at any time on or after the date on which it
ceases to be so registered, be regarded as—
(a)
a qualifying ship operated by the company, or
25
(b)
if immediately before that date the company is a member
of a group, a qualifying ship operated by any company
that is or becomes a member of the group.”.
Flagging: restrictions where dredger or tug ceases to be qualifying ship under paragraph 22E
10
After paragraph 22E insert—
30
“Flagging: restrictions where ship ceases to be qualifying ship under paragraph 22E
22F   (1)
This paragraph applies where a qualifying ship operated by a
tonnage tax company ceases to be a qualifying ship by virtue of
paragraph 22E.
      (2)
No notice may be given under section 130 of the Capital
35
Allowances Act 2001 for the postponement of all or part of a
relevant allowance to which—
(a)
the company, or
(b)
if immediately before the date on which the ship so ceases
to be a qualifying ship (“the cessation date”) the company
40
is a member of a tonnage tax group, any company that is
or becomes a member of the group,

becomes entitled on or after the cessation date.

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
148

      (3)
In sub-paragraph (2) “relevant allowance” means an allowance in
respect of—
(a)
qualifying expenditure on the provision of the ship, or
(b)
qualifying expenditure which—
(i)
is incurred on the provision of the ship, and
5
(ii)
is allocated to a single ship pool.
      (4)
No claim may be made under section 135 of that Act for deferment
of all or part of a balancing charge—
(a)
to which the company or, if immediately before the
cessation date the company is a member of a tonnage tax
10
group, any company that is or becomes a member of the
group becomes liable, and
(b)
which arises when there is a disposal event in respect of the
ship on or after the cessation date.
      (5)
Relief in respect of a relevant loss shall not be given under section
15
393A(1) of the Taxes Act 1988 (losses: set off against profits of the
same, or an earlier, accounting period).
      (6)
Group relief under Chapter 4 of Part 10 of that Act shall not be
available in respect of a relevant loss.
      (7)
Accordingly, relief in respect of a relevant loss shall be given only
20
under section 393(1) of that Act (losses other than terminal losses).
      (8)
In sub-paragraphs (5) to (7) “relevant loss” means a loss which is
incurred in respect of the ship on or after the cessation date in the
course of a trade carried on by—
(a)
the company, or
25
(b)
if immediately before the cessation date the company is a
member of a tonnage tax group, any company that is or
becomes a member of the group.”.
Requirement to prove compliance with safety etc standards
11
After paragraph 43 insert—
30
“The requirement to prove compliance with safety etc standards
43A   (1)
The Secretary of State may make provision by regulations for or in
connection with requiring qualifying companies or qualifying
groups to provide evidence of compliance with prescribed
standards relating to—
35
(a)
health and safety in connection with qualifying ships
which are not registered in any of the Member States’
registers;
(b)
environmental performance of such ships;
(c)
working conditions on such ships.
40
      (2)
The provision that may be made by regulations under this
paragraph includes provision for or in connection with—
(a)
requiring returns to be made at prescribed intervals;

Finance (No. 2) Bill
Schedule 7 — Tonnage tax
Part 1 — Amendments of Schedule 22 to FA 2000
149

(b)
authorising the Secretary of State to require persons to
provide prescribed information in prescribed
circumstances;
(c)
enabling audits to be carried out on behalf of the Secretary
of State;
5
(d)
authorising the Secretary of State to issue certificates of
non-compliance in prescribed cases or circumstances;
(e)
the effect of such a certificate (including preventing the
making of a renewal election when such a certificate is in
force);
10
(f)
enabling persons to apply to the Secretary of State for the
cancellation of such a certificate;
(g)
requiring or enabling the Secretary of State to revoke a
tonnage tax election after a prescribed period of non-
compliance;
15
(h)
the making of appeals;
(i)
authorising the disclosure of information between the
Secretary of State and the Inland Revenue.
      (3)
Regulations under this paragraph may create criminal offences in
respect of failures to comply with requirements imposed by the
20
regulations.
      (4)
Regulations under this paragraph shall be made by statutory
instrument which shall be subject to annulment in pursuance of a
resolution of the House of Commons.
      (5)
Regulations under this paragraph—
25
(a)
may make different provision for different cases, and
(b)
may contain such supplementary, incidental and
transitional provisions as appear to the Secretary of State
to be necessary or expedient.
      (6)
In this paragraph “prescribed” means prescribed by regulations
30
under this paragraph.”.
The ring fence: capital allowances: general: introduction
12    (1)
Paragraph 68 is amended as follows.
      (2)
In sub-paragraph (2) (description of general scheme of Part 9 of Schedule 22)
for paragraph (c) substitute—
35
“(c)
on leaving tonnage tax—
(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
40
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.”.
45