TTM03100 | Qualifying companies and ships: Operating or managing a ship - meaning

Ships

FA00/SCH22/PARA16 (1)(b) requires a qualifying company to operate ‘qualifying ships’ - in this context ‘ships’ can mean a single ship. From 1 April 2024, FA24/SCH8/PARA2 (1) extended this to operate or manage qualifying ships.

Operating a ship - meaning

The general rule is that a company is regarded as operating any ship that is

• owned by the company, or

• chartered to the company.

Exceptions

A company is not regarded as the operator of a ship:

• where part only of the ship has been chartered to it (see below), or

• the ship has been chartered-out by it on bareboat charter terms, except as provided in FA00/SCH22/PARA18 (4) to (6). See TTM03150, which deals with exceptions for short-term over-capacity, charters to non-third parties and charters of UK-registered ships to government departments.

The practical effect of these restrictions is that profits from a charter of part of a ship, or from a ship that is chartered-out on bareboat terms, will not (subject to the specified exceptions) be included in a tonnage tax company’s relevant shipping profits - and they will therefore by charged to Corporation Tax outside the ring fence in the normal way.

A company which has temporarily ceased to operate any ships may be treated as if it were still operating any ship or ships it owned immediately before the temporary cessation, if certain conditions are satisfied, see TTM03050.

Managing a ship - meaning

The general rule is that a company is regarded as managing any ship that is operated by a tonnage tax company where the company undertakes activities in relation to the ship that would be tonnage tax activities and those activities represent a significant contribution to the operation of the ship.

'Significant' here is taken to mean large enough, and of sufficient prominence and salience, to be worthy of attention rather than focusing on size only. So, for example, a ship manager providing any one or more of the services reflected in the meaning of commercial management set out at TTM03820 will be regarded as making a significant contribution regardless of relative size where the service is necessary to operation. It is therefore possible for several ship managers to elect into tonnage tax managing the same ship provided the contributions are significant in this sense.

Part of a ship

A company is not regarded as the operator where part only of the ship has been chartered to it. This restriction is aimed at 'slot charters' and 'space charters', where the company is effectively hiring space on a ship, rather than chartering the ship itself.

This restriction does not apply to a joint charter of the whole ship. A company will be regarded as operating a ship which is chartered to it jointly with one or more other persons.

See TTM15030 for further details of the different types of charter that a shipping company may enter into.

Operating or managing?

There is scope for confusion as operating and managing are not unambiguously defined industry terms. FA00/SCH22/PARA18 and PARA18A respectively give the tonnage tax meanings of operating a ship and managing a ship. The former focuses on companies owning or chartering a ship; the latter on undertaking management activities that represent a significant contribution to the operation of a ship. PARA18A (b) and PARA18A (c) thus distinguish between general activities in relation to a ship which are carried on by an operator, and management activities carried on by a company which represent a significant contribution to ship operation.

An owner or charterer who operates a ship, even if this is taken to extend to some management, will not be regarded as a ship manager in the context of FA00/SCH22/PARA18A. It follows that only the first column of the daily profit ('operated ship') at SCH22/PARA4 (2) Step One will apply in these circumstances.