Moore Stephens to make representation on tonnage tax changes

International accountant and shipping consultant Moore Stephens is to make representation to Her Majesty’s Revenue & Customs in connection with recently issued draft revised guidance in respect of the UK tonnage tax regime, some of which it considers to be unhelpful.

Moore Stephens tax partner Sue Bill says, “None of the changes are fundamental. Indeed, some of them are helpful, for example the revised comments regarding the circumstances in which a tonnage tax company is regarded as only temporarily having ceased its activities and therefore eligible to be within the regime when it resumes activities. Such changes show that HMRC is prepared to be more flexible in certain circumstances.

“There are, however, a couple of areas where the update is unhelpful. For example, HMRC has said that it does not regard the recent decision in Euroceanica (UK) Limited v HMRC (2013) UKFTT 313 as binding. In Euroceanica, the First Tier Tribunal, which hears appeals against HMRC decisions relating to tax, held that interest received on a security deposit which was required in order to take out bank loans to acquire ships in the tonnage tax regime was within the tonnage tax ring-fence, and that therefore no further tax was payable. However, HMRC has now said that, as a general principle, it does not accept that interest arising on such security deposits is within tonnage tax. Given the First Tier Tribunal’s decision, it is difficult to see the justification for HMRC’s position.

“The revised guidance also includes the comment that the transfer pricing rules apply where a UK company lends funds to a UK tonnage tax company to which it is connected. This means that there is likely to be taxable notional interest receivable outside the tonnage tax ring-fence and no relief for any notional interest payable unless, for example, some or all of the loan is performing an equity function. It is well-known within the shipping industry that this is a potential problem but it is now clear that HMRC is not going to be flexible on this issue. This is unhelpful and means that tonnage tax groups must take care to minimise or eliminate any loans to tonnage tax companies being made by other UK companies in the same group, whether or not the lender is a tonnage tax company.”

Moore Stephens is assisting the UK Chamber of Shipping in making representation with regard to some of the proposed amendments, and will itself also be making separate representation to HMRC.

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 urges changes to UK tonnage tax vessel written-down values

International accountant and shipping adviser Moore Stephens has made representations to Her Majesty’s Revenue & Customs (HMRC) about changing the way in which the written-down values of vessels are calculated under the UK tonnage tax rules, which it considers are not realistic in terms of their interaction with the capital allowances regime.

Moore Stephens tax partner Sue Bill says, “Where a company exits tonnage tax other than on the expiry of an election, and still owns ships, unless a ship falls within the definition of a ‘long-life asset’, its cost for capital allowances purposes is written down broadly as if the company had claimed capital allowances at 25 per cent on a reducing balance basis for each year that it owned the ship.

“The company’s ships are therefore likely to have relatively low tax written-down values which will bear no relation to the capital allowances that would have been claimed if the company had not been in tonnage tax for the relevant period. As a result, the company is likely to exit tonnage tax with large deferred tax liabilities. This will apply to companies that cease to satisfy such requirements for the tonnage tax regime as the strategic and commercial management tests.”

Moore Stephens considers that the tax written-down value should be calculated in a different way. Sue Bill explains, “Other possible methods are to write down the cost of the vessel to market value, or for the cost of the vessel to be depreciated on a time-apportionment basis, bearing in mind its expected economic life when new. Another possible but less beneficial option, although one which is likely to be more acceptable to HMRC, is to adjust the existing rules so that the cost is written down in line with the normal rates for plant and machinery capital allowances, which have reduced from 25 per cent to 18 per cent.”

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 calls on HMRC to consult on tonnage tax

Leading accountant and shipping adviser, Moore Stephens says companies operating within UK tonnage tax could consider leaving the UK, as a result of HMRC’s decision to unilaterally reinterpret the regime rules.

Sue Bill, a tax partner with Moore Stephens, says, “Given the substantial increase in the UK fleet since 2000, it is widely considered that UK tonnage tax has been a success. At the outset, the regime promised clarity and stability, but HMRC’s unilateral reinterpretation of the rules could be detrimental.”

HMRC’s decision to reinterpret the legislation results from comments in the 2004 EU guidelines on state aid to maritime transport. The changes, set out in HMRC’s tonnage tax manual, focus in particular on the strategic and commercial management tests that are fundamental to qualification for the regime.

HMRC says that this follows ‘ten years of experience and legal advice received’. But, as Sue Bill points out, “The Revenue has not consulted with the shipping industry. And, although HMRC’s interpretation is widely disputed, it has not released a detailed explanation of this legal advice.

“The UK government has emphasised 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. Throughout the regime’s history, it has taken care to ensure stability and to minimise as far as possible any unexpected changes, treating fairly those shipowners operating within tonnage tax.

"But the reinterpretation by HMRC means that some groups no longer qualify for the UK regime despite having previously received HMRC clearance.

“These fundamental changes may have a detrimental effect on UK shipping as internationally mobile shipping groups consider leaving the UK. They do not appear to arise from government policy, but from changes in HMRC’s views that were finalised without consultation with the shipping industry.

“In considering their effect, HMRC needs to ensure that it continues to act fairly and reasonably by protecting shipowners who elected into the regime for a ten-year period based on the original HMRC rules and clearances, which in some cases now no longer apply, at least in HMRC’s view.

"HMRC should also now consult on the reasons for its changed interpretation of the tonnage tax rules.

“It is time for HMRC to work in concert with the shipping industry in order to safeguard British 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