UK tax regime continues to provide stability for shipping and offshore maritime

International accountant and shipping consultant Moore Stephens has outlined a number of unexpected changes introduced by the UK Budget 2018 which could have implications for the shipping and offshore maritime industries. But it stresses that these are relatively minor alterations which will have a limited impact on what continues to be a stable tax regime for the maritime sector.

The Annual Investment Allowance (AIA) will increase from £200,000 to £1m per annum for all qualifying investments in plant and machinery made between 1 January 2019 and 31 December 2020. This means that it will be important to either delay or bring forward any large expenditure on plant and machinery accordingly. However, there will be a reduction in the rate of writing-down allowances for special-rate pool assets from 8% to 6% per annum on a reducing balance basis.

A new 2% capital allowance will be available in respect of the construction costs of new commercial non-residential structures and buildings, including land alteration and improvement costs. Very broadly, the building must be used for a commercial purpose. This will apply where the contract is entered into on or after 29 October 2018.

There will be a restriction on the use of capital losses for companies. From 1 April 2020, the proportion of annual capital gains that can be relieved by brought-forward capital losses will be restricted to 50%. However, companies will have unrestricted use of up to £5m capital or income losses each year, so this rule is likely to be of limited application.

The government will consult on introducing a new targeted relief for the cost of goodwill (the amount paid for a business that exceeds the fair value of its individual assets and liabilities) in the acquisition of a business with eligible intellectual property from April 2019.

New rules apply to off-payroll working in the private sector, where an individual who is effectively an employee is actually employed by a private company. In this case, responsibility for operating the off-payroll working rules will apply to the organisation or other third party engaging the worker. This change will apply from April 2020.

There are no changes to the corporation tax rate, which will fall to 17% in April 2020. But there are some changes to Entrepreneurs’ Relief (ER). For example, from 6 April 2019, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months. There are also changes to the definition of ‘personal company’.

The government is to consult on some changes to the principle private residence relief from capital gains tax for owner-occupiers, including a reduction in the final period exemption from 18 months to 9 months. These rules will apply from April 2020.

Moore Stephens tax partner Sue Bill says, “There were no big surprises for the maritime sector in the UK Budget 2018, with the result that the UK tax regime continues to provide certainty and stability for the shipping and offshore maritime sectors.”


Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport

For more information:
Sue Bill
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
sue.bill@moorestephens.com

London P&I Club issues guide to ECDIS management

THE London P&I Club has joined forces with London Offshore Consultants (LOC) to produce a guide to the proper management of ECDIS (Electronic Chart Display and Information System) on board ships.

The driving force behind the publication, ‘Is your ECDIS contributing to safe navigation or introducing risk?’ is the increasing number of negative findings recorded by the club during ship inspections which are attributable to the manner in which the introduction of ECDIS on ships is being managed.

In the latest issue of its StopLoss Bulletin, the club notes that the more common failings identified include a lack of ECDIS content in the watch handover checklist, a lack of familiarity on behalf of bridge-watchkeeping officers with the manual position-fixing method, a lack of GPS position cross-checking, a lack of understanding of the safe application of deep-contour, safety-depth, shallow contour and safety contour, and a failure to revise the Safety Management System (SMS) to include ECDIS.

The club says, “The introduction of ECDIS can easily be assumed to be a simple application of beneficial technology. Indeed, it is a powerful navigational tool which, when well-managed and in the hands of well-trained and motivated users, can bring various enhancements to navigational safety. However, managers should ensure that the users of such systems, while potentially experienced navigators, are able to apply vital navigation skills such as manual position-fixing and parallel indexing in the ECDIS environment.

“While the skills of an experienced navigator can be presumed, familiarity with the electronic method of applying the ECDIS equivalent cannot. The importance of type-specific quality training cannot be overstated in ensuring that staff can perform their fundamental navigational tasks. Also, the ‘at a glance’ constantly updated nature of a GPS position, making progress along a planned course line in ECDIS, whilst a useful feature, can encourage the watchkeeping officer to neglect to cross-reference the satellite-derived
position with visual and radar fixes.

“It has become evident that a strong management-of-change policy at the heart of SMS reduces the likelihood of such issues arising. A well-structured SMS policy and a good-quality, type-specific training programme can help avoid navigational safety shortcomings caused by the introduction of technology which ought to enhance safety.”


www.londonpandi.com

Ship operating costs expected to rise in 2018 and 2019

International accountant and shipping consultant Moore Stephens says total vessel operating costs in the shipping industry are expected to rise by 2.7% in 2018 and by 3.1% in 2019, according to our latest survey.

Responses to the firm’s latest annual Future Operating Costs Survey revealed that drydocking is the cost category likely to increase most significantly in both 2018 and 2019, accompanied in the latter case by repairs and maintenance. The cost of drydocking is expected to increase by 2.1% in 2018 and by 2.3% in 2019, while expenditure on repairs and maintenance is predicted to rise by 2.0% in 2018 and by 2.3% in 2019.

The increase in expenditure for lubricants is expected to be 1.9% in 2018 and 2.1% in 2019. Meanwhile, projected increases in spares are 1.9% and 2.2% in the two years under review, while those for stores are 1.6% and 1.9% respectively. The survey also revealed that the outlay on crew wages is expected to increase by 1.3% in 2018 and by 1.9% in 2019, with other crew costs thought likely to go up by 1.5% in 2018 and by 1.8% in 2019.

The cost of hull and machinery insurance is predicted to rise by 1.3% and 1.6% in 2018 and 2019 respectively, while for protection and indemnity insurance the projected increases are 1.2% and 1.4% respectively. Management fees, meanwhile, are expected to increase by1.0% in 2018, and by 1.2% in 2019.

The predicted overall cost increases were once again highest in the offshore sector, where they averaged 4.1% and 4.2% respectively for 2018 and 2019. By way of contrast, predicted cost increases in the bulk carrier sector were 1.8% and 2.6% for the corresponding years. Operating costs for tankers, meanwhile, are expected to rise by 2.4% in 2018, and by 2.9% the following year, while the corresponding figures for container ships are 4.2% and 3.8%.

Respondents to the survey highlighted various areas of concern likely to result in increased operating costs over the next two years. Regulation was high on the list, with one respondent noting: “New regulations will lead to extra costs for all owners, for example the Ballast Water Management Convention and IMO’s 0.50% global limit on the sulphur content of fuel oil used on board ships.”

On the subject of crew costs, one respondent said, “We do not expect any major variations in 2019. Basic crew wages for Filipino seafarers, however, will come under review in this period, and we may see some increase there.”

Fuel costs were referenced by a number of respondents. “The cost of fuel treatment equipment will increase in the next two years,” said one, while another remarked, “The Sulphur 2020 Rules will have a significant impact.”

One respondent noted, “Maintenance in general has been somewhat on hold, and we will see a correction in that in 2018 and 2019,” while another said, “We will see an increase in costs for automation and communications, not least because electronics have a shelf life.”

On a more general level, respondents voiced concerns about environmental issues, trade wars, the cost of securing finance, and the global economic recession, all of which were perceived to have the potential to result in increased operating costs.

Overall, the cost of new regulation was identified as the most influential factor likely to affect operating costs over the next 12 months, at 23%, up from equal third place at 15% last year. 18% of respondents identified finance costs in second place, down from 20% and first place last year. Competition ranked in third place at 15% as it had last year. Meanwhile crew supply fell to 12% compared to 19% and second place in last year’s survey.

Richard Greiner, Moore Stephens partner, Shipping and Transport, says, “The predicted 2.7% and 3.1% increases in operating costs for 2018 and 2019 respectively compare to an average fall in actual operating costs in 2017 of 1.3% across all main ship types recorded in the recent Moore Stephens OpCost study.

“One year ago, expectations of operating cost increases in 2018 averaged 2.4%, so the increase now in that expectation to 2.7% must be regarded as sobering – if not unexpected –news. Projected increases in operating expenditure are part and parcel of the workings of any industry, and must be factored into budget projections. But these latest predicted increases, whilst a cause for concern, should not unduly surprise or concern shipping, an industry which has seen – and in many cases endured – much larger increases during the past decade.

“New regulations were included this year for only the second time in the life of the survey among the list of factors which respondents could cite as most likely to influence the level of operating costs over the next 12 months. This has proved to be a timely addition, with 23% of respondents citing new regulation as an influential factor, ranking it in first place. The Ballast Water Management Convention (BWM) and Sulphur 2020 are the major items on the list of incipient shipping legislation, but the industry is becoming more tightly regulated generally in terms of both safety and environmental responsibility, so compliance with evolving national and international regulation is likely to remain a significant item in operating cost analyses and projections for the foreseeable future.

“The fact that drydocking emerged as the cost category likely to increase most significantly in both 2018 and 2019 is unsurprising, given the need to comply with the existing and emerging regulatory framework within which the industry is being obliged to operate. The same may be said of repairs and maintenance, where any previous delay in attending to items of a non-critical nature will need to be addressed.
Estimates relating to the likely increase in the cost of lubricants over the two-year period, meanwhile, are towards the higher end of the survey scale, which is in line with a predicted rise in oil prices this year and next.

“Expected increases in the price of hull and machinery insurance are up on estimates made 12 months ago but, due to the highly competitive nature of the market, cannot be regarded as an entirely reliable bellwether. Estimates of protection and indemnity cost increases are also up, perhaps reflecting increased management costs and the possibility that the market’s recent benign large claims experience may not be repeated over the next couple of years.

“Elsewhere, there were some interesting predicted cost increases in the individual market sectors. The offshore industry, for example, is predicted to be facing increases of 3.1% in repairs and maintenance for 2019, compared to the 1.9% predicted for tankers. Indeed, the offshore sector is expected to face the biggest increases in operating costs in 2019 in every category of expenditure covered by the survey.

“One could argue that the level of predicted operating cost increases for 2018 and 2019 ought to be manageable in a competitive, viable industry environment. Nobody doubts shipping’s essentially competitive nature, but the issue over viability is less clear-cut.

“Shipping has held up well during a ten-year economic downturn, and investors continue to express confidence in the industry’s potential for profit. Sadly, some good companies have gone to the wall over the past decade but, overall, the industry has become leaner by virtue of having let market forces function as they should. Yet market intelligence and common sense suggest that freight rates still need to improve significantly in order for shipping to start making the sort of money it should command in light of the vital role it plays in international trade and commerce.

“The more money that shipping makes, the more comfortably it can meet its operating expenses. Increases in operating costs must be expected, and budgeted for. Those costs may change in nature, because new technology is already helping to reduce outgoings in some areas, while on the other side of the coin there is the evident need for technological investment to combat the likes of cyber-crime.

“There are more Ifs involved in the shipping industry than there are in Kipling’s poem. If freight rates go up, if world trade increases, if political tensions and trade wars allow, if China continues to flourish, if oil prices rise, if stock markets hold their nerve, if Brexit means Brexit, if Brexit means something else, then shipping will be in a position to reap the benefits. It will require good management, good judgement, good research, good advice and good luck. And it will require good husbandry. As Benjamin Franklin said, “Beware little expenses; a small leak will sink a great ship.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and transport & logistics adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 614 offices of independent member firms in 112 countries, employing 30,168 people and generating revenues in 2017 of $2.9 billion. www.moorestephens.co.uk/shipping-transport

For more information:
Richard Greiner
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
richard.greiner@moorestephens.com

Liberia creates Offshore and Gas Technology Department

Liberia, the fastest growing major open registry in both shipping and offshore, has established its Offshore and Gas Technology Department, renewing the registry’s focus in these sectors. This department strengthens Liberia’s presence in the offshore and gas sectors and is a response to the registry’s unprecedented growth in 2018.

Long trusted as a leading ‘expert flag’ in the offshore field, Liberia has formalized its in-house technical and commercial capabilities in the offshore sector with the formal creation of its Offshore and Gas Technology Department at its US headquarters, comprising members from its global network of industry experts.

This Offshore and Gas Technology Department is headed by Capt. Stephen Bomgardner, an industry expert and consultant with offshore experience as a Master/OIM of drillships. The department includes Technical, Safety, and Registrations personnel and capabilities.

Alfonso Castillero, CCO of the Liberian International Ship & Corporate Registry (LISCR), the US-based manager of the Liberian Registry, says, “The reasons for establishing this department are twofold – to service the exacting requirements of our existing offshore clients, and to keep up with the growth we have experienced in the offshore sector with so much demand for the flagging of drillships, rigs, and FPSOs in our registry.”

Liberian-flag fleet growth has reached an astronomical 9.8% so far this year, far surpassing all other flag states. Alfonso Castillero says, “The first half of 2018 has shown what a strong presence the Liberian flag has in the offshore sector, with an increase in market share more than three times that of the next major open registry. This is due in no small measure to the strong fundamental understanding by the registry’s staff – many of whom have practical experience of the offshore industry - of the problems facing this fluctuating sector.”

The Liberian Registry has a long-established track record of combining the highest standards of safety for vessels and crews with the highest levels of responsive and innovative service to owners. Moreover, it has a well-deserved reputation for supporting international legislation designed to maintain and improve the safety and effectiveness of the shipping industry and protection of the marine environment. www.liscr.com