The tonnage tax scheme in the UK is a special tax regime designed for qualifying shipping companies or groups. It offers an alternative method for calculating tax liabilities based on the tonnage of qualifying ships owned or operated by the company rather than the traditional profit-based system.

The UK has once again opened an election window that permits shipping companies to elect for the tonnage tax regime, including companies that previously exited the regime. A tonnage tax election may be made at any time during the period beginning on 1 June 2023 and ending on 30 November 2024. Elections may take effect from the beginning of the accounting period in which it is made, but not before 1 January 2023.

A shipping company qualifies for tonnage tax purposes if:

It is within the charge to corporate tax;
It operates one or more qualifying ships; and
Those ships are strategically and commercially managed in the UK.

Additionally, effective 1 April 2024, the scope of the tonnage taxation scheme is extended to include third-party ship management companies.

A qualifying ship means a sea-going vessel over 100 gross tons used for the carriage of passengers, cargo, salvage, or other marine assistance or used for transport in connection to services provided at sea. However, qualifying ships exclude fishing vessels, factory ships, or ships that are not used for commercial purposes.

A non-resident company can qualify for the regime if it has a permanent establishment in the UK and satisfies the conditions above. Under this regime, only income and expenses directly related to qualifying shipping activities are subject to tonnage tax. Taxable profits under the regime are calculated based on the net tonnage of the vessels:

Net Tonnage of Ship (rounded down to nearest 100)	Daily Profit Rate per 100 tons (in GBP) (Managed Ship)	Daily Profit Rate per 100 tons (in GBP) (Operated Ship)
0 – 1000	0.12	0.60
1000 – 10,000	0.09	0.45
10,000 – 25,000	0.06	0.30
Above 25,000	0.03	0.15

A 75% limit applies on chartered in tonnage, i.e., not more than 75% of the net tonnage of qualifying ships can be chartered in other than on ‘bareboat charter terms’. The limit does not apply to companies that do not operate any qualifying ships, i.e., ship management companies.

An election, once made, is in force for 8 years unless:

The company or group ceases to qualify for the regime;
The 75% chartered in tonnage limit is exceeded (as per the HMRC); or
The company is excluded on grounds of having entered into tax avoidance arrangements.

Detailed guidance has been issued by HMRC regarding the tonnage tax regime, which may be accessed here.

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