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Cost of providing the ship - Example

This example illustrates the operation of the quantitative restriction on capital allowances for expenditure on qualifying ships used by a tonnage tax company.

Year 1

At the start of its accounting period, a bank buys Ship A (not a long life asset) for 拢70 million and leases it to a tonnage tax company.

As the ship costs less than 拢100 million the full cost qualifies for writing-down allowances at 18%. The bank claims capital allowances of 拢12.6 million on this vessel for Year 1.

Year 2

During Year 2, the tonnage tax company pays 拢32 million for installation of a helicopter deck on Ship A.

This brings the total cost of providing ship A up to 拢102 million.聽 This has no effect on the amount of allowances available to the bank, which continues to claim writing-down allowance at 18% on the 拢57.4 million expenditure brought forward in its 18% pool.

Year 3

During Year 3, the bank pays a further 拢15 million to have decking of a newly developed material installed.

Taken together with the original 拢70 million, the bank has incurred 拢85 million in providing the vessel in its current state.聽 However, this does not mean that the lessor can claim 18% allowances on the additional 拢15 million.聽 When this additional 拢15 million was incurred, total expenditure on the ship (by both lessor and lessee) already stood at 拢102 million (over the 拢100 million limit for 18% allowances).聽 So the bank鈥檚 second block of expenditure (拢15 million) only qualifies for writing-down allowances at 6% and is allocated to the bank鈥檚 6% pool.

References

Quantitative restrictions on allowances	TTM10400
Cost of providing ship	TTM10430