SolvedTTM09140 | Capital allowances: During tonnage tax (P&M)
From HM Revenue & Customs · Tonnage Tax Manual
Change of use of non-tonnage tax asset
Asset begins to be used wholly for tonnage tax trade
Where plant and machinery used by a tonnage tax company for non-tonnage tax activities begins to be used wholly for the purposes of its tonnage tax trade:
the provisions of CAA01/S61 (1)(e) apply, so that
a disposal value is brought into account in the general pool (or other pool as appropriate) of the non-tonnage tax trade,
the company is treated as having acquired the asset at its disposal value,
the disposal value will be market value, per table in CAA01/S61 (2) , and
there is no effect on the tonnage tax (frozen) pool.
A balancing adjustment arising as a result of this disposal event is calculated under the normal capital allowance rules. Reduction under the rule at FA00/SCH22/PARA78, see TTM09210, is not available as the balancing charge does not arise ‘under this Part of the Schedule’, that is, under FA00/SCH22/PARA68 to PARA88. It arises under the normal rules before the vessel enters the tonnage tax regime, although as a result of entering it.
Asset begins to be used partly for tonnage tax trade
Where plant and machinery used by a tonnage tax company for non-tonnage tax activities begins to be used partly for the purposes of its tonnage tax trade:
the provisions of CAA01/S61 (1)(e) and CAA01/S206 to S207 apply, so that
a disposal value is brought into account in the capital allowance computation, then
a pool for a notional trade is created using that disposal value,
the disposal value will be market value, per table in CAA01/S61 (2),
any subsequent writing down allowance given, or balancing charge, on the notional trade pool is reduced in proportion to its tonnage tax use, and
there is no effect on the frozen pool.
A balancing adjustment arising as a result of this disposal event is calculated under the normal capital allowance rules. Reduction under the rule at FA00/SCH22/PARA78 (see above) is not available as the balancing charge does not arise 'under this Part of the Schedule', that is, under FA00/SCH22/PARA68 to PARA88.