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TTM03835 | Qualifying companies and ships: Strategic and commercial management - chartering in

From HM Revenue & Customs · Tonnage Tax Manual

Chartering in

Where the operator charters in a ship it may be on ‘bareboat’ terms (see TTM15110), in which case it will be responsible for ship management in much the same way as an owner. Where, however, it time-charters in a ship, much of the ship management will fall to be undertaken by its charterparty counterpart, with reduced management requirement. In origin, this reflects the approach of the European Commission's state aid guidelines, in the following paragraph:

  • Qualifying ships may be owned by or time-chartered by the company electing into tonnage tax, but the proportion of ships held on time-charter may not exceed 75 per cent of the total tonnage operated by the company. This only applies to companies which operate ships.

This limit is reflected in the legislation at FA00/SCH22/PARA37. It follows that the management of a ship by a company that time-charters it in may be quite limited, for example route planning, bookings, insurance and provisioning; the actual features will depend on the terms of the charterparty. This will be interpretad as satisfying the strategic and commercial management test in its application to management of the ship chartered in provided the company’s strategic and commercial management activities as a whole reflect the policy of ensuring there is a reasonable dergee of active business undertaking.

When undertaking risk assessment, officers will be alert to the possibility that through arrangements involving time chartering:

  • only very limited strategic and commercial management activities are undertaken in the UK by a company overall, or

  • a non-tonnage tax company is able to claim capital allowances on a ship chartered to a company within tonnage tax in the same group.

A company chartering in under these arrangements would be unlikely to satisfy the strategic and commercial management test and arrangements designed to achieve a tax advantage would be reviewed against the anti-avoidance provision of FA00/SCH22/PARA41, see TTM05510.