Taxes Consolidation Act 1997 Schedule 18B paragraph 10

Plant and machinery used wholly for tonnage tax trade

Paragraph 10 of Schedule 18B sets out the capital allowances treatment of machinery or plant acquired before a company enters tonnage tax and subsequently used for the purposes of its tonnage tax trade, including the rules that apply when such assets later leave the tonnage tax trade in whole or in part.

• Where machinery or plant acquired before entry into tonnage tax is used exclusively for the tonnage tax trade, the capital allowances position is frozen: no balancing adjustments arise on entry, no further allowances are given, and no deemed wear and tear is treated as having been made during the tonnage tax period.
• If the asset subsequently leaves the tonnage tax trade entirely, the un-allowed capital expenditure is taken as the amount that was un-allowed at the date of entry into tonnage tax, and any balancing charge is calculated on that basis.
• For the purposes of calculating any balancing charge, the disposal proceeds are capped at the lowest of the original cost, the open market value on entry to tonnage tax, and the actual sale proceeds or open market value on disposal — ensuring that any clawback relates only to allowances granted before entry into tonnage tax.
• Where the asset begins to be used partly for non-tonnage tax purposes, it is treated as two separate assets and the capital allowances rules are applied independently to each part, with any allowance or balancing charge on the non-tonnage tax portion being such amount as is just and reasonable in the circumstances.

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