Moore Stephens says UK Budget is neutral for shipping and good for offshore

International accountant and shipping adviser Moore Stephens says the UK Budget 2017 contained no unwelcome surprises for the shipping industry, and some good news for the offshore sector.

Moore Stephens tax partner Sue Bill says, “There are new rules, already announced, that will affect the deductions which a UK group can be claim for interest expenses. The new tax rules will restrict each group’s net deductions for interest to 30% of earnings before interest, tax, depreciation and amortisation (EBITDA) that are taxable in the UK. These rules should not affect tonnage tax companies, as those companies have no deduction for interest paid within the tonnage tax ring fence.

“There is also a reference to the government consulting later this year on legislative changes required following the announcement of the International Accounting Standard Board’s new leasing standard IRFS 16 Leases, which comes into effect from 1 January 2019. The government intends to maintain the current system of leased taxation by making legislative changes which enable the rules to continue to work as intended.

“HMRC has also confirmed that the new rules being introduced from April 2017 for non-UK domiciled individuals (‘non-doms’) will apply from 6 April 2017 for those who have been UK-resident for 15 out of the past 20 tax years.

“Improvements to the oil and gas regime, meanwhile, include an extension to investment and cluster area allowances, and tax for late-life oil and gas assets. These are aimed at improving the attractiveness of the North Sea as an area for investment.

“There have been no changes to the shipping rules, in particular those within the UK tonnage tax regime or in the taxation of non-resident shipping companies. Overall, this is probably a case of no news being good news for the shipping sector.”

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 626 offices of independent member firms in 108 countries, employing 27,997 people and generating revenues in 2016 of $2.7 billion. www.moorestephens.co.uk


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

Moore Stephens says shipping must monitor developments in wake of Greek government change

International accountant and shipping adviser Moore Stephens says it is too soon to say whether the Syriza party’s victory in the country’s elections could, as some fear, have a damaging effect on the country’s shipping industry. Rather, it says, Greek shipping interests will need to monitor how the change of government might affect them on both a business and personal level before reviewing any long-term plans.

Moore Stephens London partner Michael Kotsapas, a shipping specialist who has been advising Greek families for over fifteen years, says, “Any change of government, in any part of the world, is likely to have implications for the national shipping industry. This is particularly true of Greece, where shipping is a significant contributor to the country’s overall GDP and a major source of employment.”

Last year, the ruling government introduced a number of changes to Greece’s tax laws, including some specific to the shipping industry, such as repealing the law imposing mandatory triple tonnage tax on Greek-flag ships and foreign-flag vessels managed out of Greece, replacing it with the voluntary contribution of double tonnage tax payments for the next four years. Another measure with a potential impact on the shipping community included the introduction, for the first time in Greece, of Controlled Foreign Companies Rules covering the concept of effective management and criteria for determining same.

Michael Kotsapas concludes, “Before the election, the anti-austerity Syriza party called for a new agreement which would involve the shipping community making a greater contribution to the national economy than it already does. It remains to be seen whether that will be the case. Shipping is a key industry in Greece, and it would be surprising and disappointing if the new government’s policy, when announced, did not reflect that. In the meantime, the shipping community will be watching developments with keen interest.”

In 1963, Moore Stephens became the first international accounting firm to set up an office in Greece. It has enjoyed strong links with the Greek shipping community for more than seventy years, advising three generations of Greek shipping families and businesses.

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion.

www.moorestephens.co.uk



For more information:
Michael Kotsapas
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
michael.kotsapas@moorestephens.com

Moore Stephens says offshore maritime sector could be hit by new UK tax charge

International accountant and shipping adviser Moore Stephens says companies in the offshore maritime sector could be among those hit by a 25 percent Diverted Profits Tax (DPT) charge under draft UK legislation scheduled to enter force in April 2015.

Under the draft legislation published by the UK government in December 2014, the new DPT could potentially apply to many UK companies transacting with overseas connected parties. Moore Stephens tax partner Sue Bill says, “The legislation as currently drafted is very wide-ranging and can apply wherever a UK company has entered into arrangements with connected parties involving enterprises or transactions with ‘insufficient economic substance’. For example, this could apply where a UK company leases equipment from an overseas-connected company located in a low-tax jurisdiction, where the lessor’s staff do not carry on any significant activities and where it is reasonable to assume that the transaction or transactions were defined to secure a reduction in the UK company’s corporation tax liability.

“Companies caught by the rules will be subject to a 25 percent tax charge. This will not usually apply to tonnage tax companies, because any transactions with related parties are unlikely to reduce the company’s tax liability as this is based on the net tonnage of vessels owned or chartered in to the company. However, the new rules could potentially affect many other companies, including those operating in the offshore sector.

“Her Majesty’s Revenue & Customs has said that further consideration needs to be given in certain circumstances to the interaction of these new rules with the cap on bareboat charter payments made to an associate by a company working on the UK Continental Shelf (UKCS). It is therefore not yet clear whether these rules will be modified for companies working on the UKCS.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping, offshore maritime and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


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

Moore Stephens welcomes UK tonnage tax training initiative

Moore Stephens welcomes UK tonnage tax training initiative

International accountant and shipping adviser Moore Stephens has welcomed an initiative by the UK Department for Transport (DfT) which it says will encourage the training of ratings.

The DfT is to pilot a change to the tonnage tax training commitment which will allow three ratings to be trained in place of one officer-cadet. It will gather evidence regarding this proposed change with a view to making it permanent. The intention is that the pilot scheme will start in October 2015, but this is subject to the DfT receiving regulatory clearance in time.

Under the existing rules, the commitment is to train one ‘UK cadet’ per year for every fifteen officer posts on the safe manning certificates for all vessels in the tonnage tax regime. In addition, companies must continue to train recruits for the previous two years, so that once a company has been in tonnage tax for three years it will be training three UK cadets for every fifteen officer posts. A ‘UK cadet’ must be (i) a national of an EEA state, or a British citizen from the Channel Islands or the Isle of Man, and (ii) ordinarily resident in the UK. In addition, under the current rules for ratings, companies must review annually the feasibility of adopting each of the ratings’ employment and development options agreed by the tripartite Ratings Task Force.

Moore Stephens tax partner Sue Bill says, “The DfT initiative is a positive development. It should ensure that the UK training commitment is more flexible, and encourage the training of ratings.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 667 offices of independent member firms in 105 countries, employing 27,081 people and generating revenues in 2013 of $2.7 billion. www.moorestephens.co.uk


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

Moore Stephens welcomes EC decision to maintain maritime state aid guidelines

International accountant and shipping adviser Moore Stephens has welcomed a decision by the European Commission to keep in place in their current form the guidelines relating to state aid to maritime transport, which include EU tonnage tax regimes. The decision follows an EC review of the guidelines and has been formally communicated to the European Community Shipowners’ Associations (ECSA).

Sue Bill, a tax partner with Moore Stephens, says, “This is extremely good news for the shipping industry, both in the UK and elsewhere in the EU, which is facing severe competition from countries such as Singapore. It means they can now rely on a stable tax regime for the foreseeable future.

“It is understood that there are some outstanding issues relating to the guidelines which are still to be clarified. But it is believed that these are relatively minor points, and should not dilute the satisfactory overall conclusion of the review, which had generated widespread interest and concern in the shipping industry.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 624 offices of independent member firms in over 100 countries, employing 21,224 people and generating revenues in 2012 of $2.3 billion. www.moorestephens.co.uk

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

Tax tribunal rules that security deposit interest is ring-fenced under tonnage tax

International accountant and shipping adviser Moore Stephens has welcomed a decision by the UK First Tax Tribunal that interest received on security deposits relating to loans taken out to buy ships within tonnage tax is not taxable.

HMRC had argued that the interest income was outside tonnage tax as it related to the purchase of ships by London-based bulk and chemical tanker operator Euroceanica (UK) Limited, which was not a trading activity for the purposes of the tonnage tax legislation. It had further maintained that the giving of a security deposit was not a ‘necessary and integral’ part of the activity of operating ships as it was not a mandatory or ‘necessary’ part of ship financing. 

However, the First Tier Tax Tribunal, which hears appeals against decisions relating to tax made by Her Majesty’s Revenue and Customs (HMRC), ruled that the crucial issue was whether the funds from which the interest income arose were currently being used for the purposes of Euroceanica’s trading activities, and whether the interest arose from cash which was ‘at risk’ in the company’s trade.

The tribunal decided that the giving of the security deposits in this case was a genuine commercial arrangement entered into by the shipowner in order to obtain better loan terms from the relevant banks. The security deposits should not be regarded as investments, said the tribunal, as the company was not interested in the rate of return on the deposits and would have preferred to use the cash to generate shipping income. The funds were being used for current purposes, namely to collateralise the financing of ships. The cash deposits were of a relatively short-term nature, even though interest was received on the deposits over a number of years.   

The tribunal concluded that the deposits were being actively employed in the trade. Therefore, the relevant interest income should be treated as trading income and within tonnage tax. 

Sue Bill, a tax partner with Moore Stephens, says, “Although HMRC may lodge an appeal, the decision provides some clarity on the contentious issue of the extent to which interest received by a tonnage tax company is within the tonnage tax ring-fence. It is slightly surprising that HMRC felt able to defend its position on this issue at tribunal, particularly given that it accepts that interest on security deposits for leases can be within tonnage tax provided that certain conditions are met. The tribunal commented that neither it nor HMRC was able to see any distinction, and that HMRC had been forced to argue that its guidance relating to leases must be incorrect. Although very good news for the taxpayer, this case does show that the HMRC guidance on tonnage tax is not always correct.”

 Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser.   Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 624 offices of independent member firms in over 100 countries, employing 21,224 people and generating revenues in 2012 of $2.3 billion.   www.moorestephens.co.uk

For more information:                                                                       

Sue Bill                                                                                   

Moore Stephens LLP                                                              

Tel: +44 (0)20 7334 9191                                                       

sue.bill@moorestephens.com 

Moore Stephens says UK Budget is generally good news for shipping sector

International accountant and shipping adviser Moore Stephens says the UK Budget 2013 contains generally good news for the shipping sector.

Measures which will have an impact on the shipping industry include a reduction in the main rate of UK corporation tax.  This is 23 per cent for the year ended 31 March 2014, reducing to 21 per cent from April 2014. A further reduction to 20 per cent from April 2015 has now been announced. 

There was also good news for shipping on the capital gains front. Last year the government announced that, where a company had a functional currency other than sterling, capital gains and losses on disposals of shares would with effect from April 2013 be calculated in that functional currency rather than in sterling. Moore Stephens tax partner Sue Bill says, “Now, following representations by Moore Stephens and others, it has been announced that this measure has been extended to cover the disposal of ships and aircraft as well as shares, thus removing an anomaly in the calculation of capital gains and losses arising on ships outside the UK tonnage tax regime.

“Where ships are held outside the UK tonnage tax regime, capital allowances (or tax depreciation) are available in respect of the capital cost of the ship.  For many years, no first-year allowances (being accelerated capital allowances available in the year of acquisition) have been available in respect of ships. This exclusion from claiming first-year allowances has now been removed for ships and railway assets.  This, however, may be of limited benefit as first-year allowances are currently only available in respect of a limited number of assets, in particular energy-efficient and environmentally beneficial plant and machinery of a description specified by Treasury order, which can qualify for 100 per cent allowances in the first year.  Therefore it is not yet clear how beneficial the removal of this anomaly will be in practice.”  

Sue Bill concludes, “The Budget 2013 is generally good news for the shipping sector as the UK government is clearly looking to ensure that the UK tax system is as competitive as possible, and certain anomalies having a potentially detrimental effect for some shipowning companies have been removed.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 624 offices of independent member firms in over 100 countries, employing 21,224 people and generating revenues in 2012 of $2.3 billion. www.moorestephens.co.uk

For more information:                                                          

Sue Bill                                                               

Moore Stephens LLP                                                    

Tel: +44 (0)20 7334 9191                                              sue.bill@moorestephens.com                                         

Moore Stephens welcomes change of heart on tonnage tax trap

International accountant and shipping adviser Moore Stephens has welcomed the UK government’s decision to minimise the effect of new rules in Finance Bill 2012 which resulted in a potentially serious trap for existing UK shipowners entering tonnage tax.

Finance Bill 2012 originally extended some anti-avoidance rules relating to leasing companies, so that they applied to existing UK shipowning companies chartering out ships which enter UK tonnage tax. But the rules have now been changed following representations made by Moore Stephens and by other shipping industry representatives.

Moore Stephens tax partner Sue Bill says, “The rules apply where, very broadly, at least half the value of the company’s plant and machinery is chartered out or at least half its income in the previous twelve months is from the chartering out of plant and machinery, including ships, even where the chartering is to another group company.

“As originally drafted, the proposed new rules could have applied where a UK shipowning company in a tonnage tax group entered tonnage tax because it started to carry on activities which qualified for tonnage tax, for example because it owned a vessel which ceased to be chartered out on a long-term bareboat charter, or a vessel that started to be used ‘at sea’, or because the company’s ships started to be strategically and commercially managed in the UK. The rules also applied in some circumstances where a company was acquired by a UK tonnage tax group.

“Broadly speaking, if the rules apply, the company will be taxed on an amount equal to the excess of the net book value of its assets over their tax written-down value. It may be possible to reduce this taxable income using tax losses and/or capital allowances. Clearly, this could result in a very large tax liability. Once the company has gone into tonnage tax, the normal transitional rules will apply whereby a balancing charge can arise if any vessels held on entry into tonnage tax are sold within seven years. This could mean there is effectively a double charge to tax.

“The rules have now been amended so that they apply only where there is a change in ownership of the company chartering out plant and machinery. They will still apply where a company leasing out plant and machinery becomes a member of a UK tonnage tax group, whether or not the company goes into tonnage tax at the same time. A company will become a member of a UK tonnage tax group if, broadly speaking, it comes under common control with companies in a UK tonnage tax group."

Although the effect of the new rules has been significantly reduced, care will need to be taken where a company comes under common control with companies in a UK tonnage tax group.

Sue Bill concludes, “It was unfortunate that the Finance Bill 2012 originally introduced legislation which posed a potentially serious threat for some UK shipowners going into tonnage tax. The government has however listened to representations and acted quickly to minimise the effect of the proposed new rules. This seems to be a sign of the UK government’s commitment to ensuring as far as possible the stability of the UK tonnage tax regime.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

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

Moore Stephens warns on new trap under UK tonnage tax

INTERNATIONAL accountant and shipping adviser Moore Stephens has warned that, alongside some encouraging signs for shipping, the UK Budget 2012 also extends anti-avoidance legislation which could result in a potentially serious trap for existing UK shipowners entering tonnage tax.

Moore Stephens tax partner Sue Bill says, “HMRC has significantly extended some anti-avoidance rules relating to leasing companies, so that they apply to existing UK shipowning companies chartering out ships which enter UK tonnage tax. The rules can apply where, very broadly, at least half of the value of the company’s plant and machinery is chartered out or at least half its income in the previous twelve months is from the chartering out of plant and machinery including ships, even where the chartering is to another group company.

“Currently, there is no window of opportunity for an existing UK shipowner to enter tonnage tax. The new rules may however apply if a UK shipowning company in a tonnage tax group enters tonnage tax because it starts to carry on activities that qualify for tonnage tax, for example because it owns a vessel which ceases to be chartered out on a long-term bareboat charter, or a vessel that starts to be used ‘at sea’, or the company’s ships start to be strategically and commercially managed in the UK. The rules may also apply in some circumstances where the company is acquired by another tonnage tax group.

“Broadly speaking, if the rules apply, the company will be taxed on an amount equal to the excess of the net book value of its assets over their tax written-down value. It may be possible to reduce this taxable income using tax losses and/or capital allowances. Clearly this could result in a very large tax liability. Once the company has gone into tonnage tax, the normal transitional rules will apply whereby a balancing charge can arise if any vessels held on entry into tonnage tax are sold within seven years. This could mean there is effectively a double charge to tax.”

The new rules will apply, including where there is no tax avoidance motive, to companies entering tonnage tax on or after 21 March 2012.

Sue Bill concludes, “Generally, the Budget was encouraging for the shipping sector as it emphasised the importance that the government attaches to ‘rebalancing’ the economy and ensuring that the UK is a competitive regime for industry. Unfortunately, at the same time, the government has introduced legislation which poses a potentially serious threat for existing UK shipowners going into tonnage tax. Whilst there will be many tonnage tax groups that are not affected by these new rules, it is essential that those who might be affected consider their position carefully.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

More informationn:
Sue Bill
Tel: +44 (0)207 334 9191
sue.bill@moorestephens.com

Moore Stephens says UK Budget 2012 includes encouraging signs for shipping industry

INTERNATIONAL accountant and shipping adviser Moore Stephens says the UK Budget 2012 contains some encouraging signs for the shipping industry.

The government has stated that it will consult later this year on whether to introduce a rule allowing companies with a non-sterling functional currency to compute their capital gains and losses in such functional currency, rather than in sterling, as is currently the case. Moore Stephens tax partner, Sue Bill, says, “This is of particular relevance for UK companies which own vessels outside the UK tonnage tax regime, either because the company did not elect into tonnage tax, or because the ship does not qualify for tonnage tax, for example because it is chartered out on a long-term bareboat charter, or is a type of vessel excluded from tonnage tax such as a fishing vessel. As all capital gains are currently calculated in sterling, where a company has a different functional currency its capital gains and losses will include an exchange gain or loss. This possible change in the rules would minimise taxable capital gains arising due to (or being reduced by) exchange rate movements.”

Another change introduced by the Budget is a reduction in corporation tax rate by an additional one per cent from April 2012. This means that the rate will be 24 per cent from April 2012, reducing to 23 per cent in April 2013 and 22 per cent in April 2014. The government has said that it expects this measure to increase the level of business investment in the UK by approximately one per cent.

The government has also announced an internal review to examine the role of employee ownership in supporting growth and to look at options to remove barriers, including tax barriers, to its wider take-up. However, the likely outcome of any such review remains unclear at present.

Sue Bill says, “Generally, the Budget has emphasised the importance which the government attaches to ensuring that the UK is a competitive regime for industry, and of ‘rebalancing’ the economy. This is an encouraging sign for the shipping industry, which is awaiting consultation on the UK tonnage tax regime and the forthcoming EU review of the State Aid Guidelines to Maritime Transport.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

For more information:
Sue Bill
Moore Stephens
+44 (0)207 334 9191
sue.bill@moorestephens.com

Moore Stephens calls for EU tonnage tax stability

International accountant and shipping adviser Moore Stephens has called for stability for European tonnage tax regimes now that the EC has begun its review of EU State Aid Guidelines to Maritime Transport

The start of the EC’s review of the EU State Aid Guidelines to Maritime Transport was announced on 14 February 2012. These guidelines cover European tonnage tax regimes as well as other state aid to the maritime sector. The EC has published a detailed and very comprehensive questionnaire regarding these state aid guidelines, inviting responses from citizens, organisations and public authorities.

The EC says the objective of the consultation is to invite member states, other institutions and stakeholders to provide information on industry developments, feedback on the application of the 2004 Community Guidelines on State Aid to Maritime Transport (due for review within seven years of their date of application) and their effects, as well as any comments and proposals regarding state aid for maritime transport. The Commission will analyse the outcome of the consultation before deciding to what extent changes to the current rules are necessary and, if appropriate, come forward with a proposal for revised guidelines. At this stage, the Commission has not taken a position concerning a possible modification of the existing guidelines.

Moore Stephens tax partner Sue Bill says, “We hope the EC will bear in mind the importance of stability to European tonnage tax regimes. This is particularly important given the current difficult economic climate, and the fact that EU tonnage tax regimes are competing with other jurisdictions, such as Singapore, which offer very attractive tax breaks to the shipping sector. It will be important for all interested parties in the EU to ensure that they are involved as much as possible in the consultation process.”

In a separate development, shipowners in the UK tonnage tax regime were recently encouraged by positive remarks made at the UK Chamber of Shipping’s recent annual dinner by Shipping Minister Mike Penning, who said the UK government had no intention of touching the UK tonnage tax regime.

Sue Bill says, “The minister’s remarks referred to HMRC’s reinterpretation of the rules relating to the requirement that strategic and commercial management of the ships is located in the UK. HMRC has published revised, interim guidance which broadly reinstates HMRC’s pre-2009 position. Further consultation with the shipping industry has been promised, although no additional information has been provided regarding the scope and timing of the consultation.

“The minister’s comments are a very encouraging development, but it is not yet the end of the story. It is important that the consultation goes ahead, so that final guidance can be issued, in order to give further reassurance to the shipping industry. The government should take the opportunity to simplify and improve the regime. In addition, HMRC needs to act in a reasonable and consistent manner with regard to all matters relating to the UK tonnage tax regime, not just the strategic and commercial management test.

“As the UK government is required to act within the EU guidelines, the outcome of the EC review will also be important.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 636 offices of independent member firms in 100 countries, employing 21,197 people and generating revenues in 2011 of $2.3 billion. www.moorestephens.co.uk

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

Moore Stephens says HMRC may rethink its tonnage tax changes

Leading accountant and shipping adviser, Moore Stephens, understands that Her Majesty’s Revenue & Customs (HMRC) has agreed to re-examine, in consultation with the shipping industry, its earlier intention to unilaterally reinterpret the UK Tonnage Tax rules to the potential detriment of many shipowners.

Widely disputed changes based on unspecified ‘legal advice’ were set out in HMRC’s tonnage tax manual in September 2009. These focused in particular on a reinterpretation of the strategic and commercial management tests that are fundamental to qualification for the tonnage tax regime.

UK tonnage tax is widely credited with having helped increase the UK fleet substantially since its introduction in 2000, when it was regarded as a model of clarity and stability. Then, as now, there was the need for a stable UK tax regime to both support British business and to encourage international businesses to operate and stay in the UK. Under the reinterpretation of the rules, some groups would not have qualified for the UK regime, despite having previously received HMRC clearance, with the result that internationally mobile shipping groups could consider leaving the UK.

Sue Bill, a tax partner with Moore Stephens, says, “HMRC’s reinterpretation of the rules created a lack of certainty and sent completely the wrong signals to international shipowners who had relocated to the UK to take advantage of its tonnage tax regime. It would therefore be excellent news if, as we understand to be the case, HMRC decides to consider the matter afresh, and to consult fully with the shipping industry. This would be seen as an indication that the government means to continue to act fairly and reasonably, not least by protecting shipowners who elected into the regime for a ten-year period based on the original HMRC rules and clearances.

“While no formal change to HMRC’s position has yet been confirmed, it is understood that any changes to the rules will now be assessed carefully. HMRC has warned that this re-examination may not result in any change in its position at all. But we are hopeful that HMRC and the UK government will let us have a more considered view.

“We have been working with the industry, and in particular the Chamber of Shipping, in campaigning for some time, and we are delighted at this positive development.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 638 offices of independent member firms in 97 countries, employing 20,588 people and generating revenues in 2010 of $2.151 billion.
www.moorestephens.co.uk

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

UK Budget good news for shipping despite mixed news for non-doms

Leading accountant and shipping adviser Moore Stephens says that, despite mixed news for non-UK-domiciled individuals, the UK Budget 2011 appears to be good news for shipping.

The bad news in the Budget, announced on 23 March, is that the existing annual remittance basis charge for non-doms resident in the UK for twelve years or more will increase from £30,000 to £50,000, albeit not until 6 April, 2012.

The good news is that the government also proposes not to tax foreign income or capital remitted to the UK for the purposes of ‘commercial investment in UK businesses’, and to simplify some aspects of the current rules for non-doms to remove administrative burdens, which increased significantly from April 2008. It is also proposed that no other substantive changes to the rules for non-doms will be made for the rest of this parliament. The government will issue a consultation document in June with a view to implementing the rules from 6 April, 2012.

Sue Bill, a tax partner with Moore Stephens, says, “The government will also be consulting on the introduction of a statutory definition of residence. Under current rules, the residency of individuals is a very grey area and greater certainty is only to be welcome. Again a consultation document is proposed for June with implementation of the new measure from April 2012. It is unlikely that there will be more detail until June, but the timetable should provide time for adequate planning.

“Overall, there seems to be an acceptance by the government of the positive impact that inward investment by non-doms brings to the UK”.

Other, minor changes in the Budget include a change to the rate of capital allowances on ships which are leased to tonnage tax companies. The rate of writing-down allowances that can be claimed on the first £40 million of expenditure will be aligned with the rate applicable to other ships, including where the ship is a long-life asset. This legislation has effect for expenditure incurred on or after 1 January, 2011, and is likely to reduce the rate of writing-down allowances in respect of such ships.

There is also a new exemption from tax on foreign branches of UK companies whereby a UK company operating outside the UK through a foreign branch will be able to make an election to exempt the profits of its foreign branches from UK corporation tax. Such companies may be able to reduce or eliminate the UK corporation tax payable on branch profits by offsetting foreign tax paid on these profits in any case. This new foreign branch exemption, however, does not apply to shipping, to the extent that the foreign branch is not taxed in the overseas jurisdiction as a result of the terms of a double tax treaty.

Minor changes have also been made to the ‘controlled foreign company’ (CFC) rules. The de minimis exemption is to be increased to companies with chargeable profits below £200,000 per annum, and there will be a statutory three-year exemption from these rules for foreign subsidiaries that come within the scope of the CFC regime as a consequence of a reorganisation or change to UK ownership. There will be further consultation on these rules.

Finally, corporation tax rate will be reduced by a further 1 per cent, so that, from April 2011, the corporation tax rate will be 26 per cent and, by 2014, it will be 23 per cent.

Sue Bill says, “There is mixed news for non-UK-domiciled individuals. But there are few other changes that will affect shipping. The government has emphasised the need for stability, and clearly intends to consult before making any major taxation changes. The government has also emphasised the need for the UK corporation tax regime to be attractive to international businesses. Overall, it seems to be good news for shipping.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 638 offices of independent member firms in 97 countries, employing 20,588 people and generating revenues in 2010 of $2.15 billion. www.moorestephens.co.uk

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

Moore Stephens says capital allowance changes could represent tax blow for shipowners

Leading accountant and shipping industry adviser Moore Stephens has warned that the tax advantages available in respect of capital expenditure on ships may be greatly reduced following changes to the UK capital allowance regime which came into effect on 1 January 2011.

Ships have traditionally enjoyed significant tax advantages over other types of assets. Prior to 1 January 2011, ships outside tonnage tax were specifically excluded from the long-life asset regime, and the normal rate of writing-down allowances therefore applied. But, following changes to the capital allowance rules, expenditure on ships incurred on or after 1 January 2011 is no longer excluded from the regime, under which the writing-down allowances are considerably lower than those for other assets. Ships acquired prior to 1 January 2011 will continue to be excluded from the long-life asset rules.

The writing-down allowance available on ships outside the long-life asset regime is 20 per cent per annum up to 1 April 2012, and 18 per cent thereafter, on a reducing balance basis. The comparable allowances for long-life assets, meanwhile, are 10 per cent and 8 per cent per annum.

An asset may be regarded as long-life if it is reasonable to expect that it will have a useful economic life of at least 25 years when it is new. Sue Bill, a tax partner with Moore Stephens, says, “Some ships may reasonably be expected to have a useful life of at least 25 years when they are new, and may therefore be regarded as long-life assets. But this will depend on the type of vessel involved.

“Broadly speaking, the date when expenditure is regarded as having been incurred for capital allowance purposes is the date when there is an unconditional obligation to pay. In the case of a shipbuilding contract, although the obligation to pay for that part of the asset that has been completed becomes unconditional when the work is certified, there are exceptions to the general rules.

“The date when expenditure is regarded as having been incurred will also depend on whether or not the company incurring the expenditure is already carrying on an existing trade as a shipowner or operator. Where a company is not yet trading, expenditure is regarded as having been incurred for capital allowance purposes on the date the company starts to trade. This will usually be the date when the ship is delivered. Where the exact date is important, specific advice should be obtained.

“Companies which incur expenditure on ships after 1 January 2011 will now have to consider whether the ships may reasonably be expected to have a useful life of at least 25 years when new when claiming capital allowances. It is likely to be beneficial if this is not the case.”

Moore Stephens LLP is noted for a number of industry specialisations and is widely acknowledged as a leading shipping and insurance adviser. Moore Stephens LLP is a member firm of Moore Stephens International Limited, one of the world's leading accounting and consulting associations, with 630 offices of independent member firms in 98 countries, employing 20,864 people and generating revenues in 2009 of $2,078 million. www.moorestephens.co.uk
For more information:
Sue Bill,
Moore Stephens LLP
Tel: +44 (0)20 7334 9191
email: sue.bill@moorestephens.com