CFM97910 - Interest restriction: special regimes: tonnage tax
TIOPA10/S455
Tonnage tax is a special tax regime for shipping companies under which they pay Corporation Tax based on their qualifying shipping tonnage rather than their adjusted accounting profits. The tonnage tax rules are applied before the CIR.
The tonnage tax regime ring fences tonnage profits away from non-tonnage tax profits, losses and deductions, particularly finance costs. The tonnage tax rules do not permit interest deductions against the shipping activities. However, reliefs and deductions may be set off in the normal way against any profits of the tonnage tax company which fall outside the ring fence. In line with these rules, tonnage tax amounts are excluded when calculating the CIR.
The CIR tonnage tax rules only apply where an effective election into the tonnage tax regime has been made.
Tonnage Tax and CIR Example
A worldwide group consists of a UK parent (non-tonnage tax company) and a wholly owned UK subsidiary which is within the tonnage tax regime. The companies have accounting periods ending on 31 December 2025.
The UK parent (non-tonnage tax company) has adjusted corporation tax earnings (tax-EBITDA) of £40m and the UK subsidiary (tonnage tax company) has £38m of tonnage tax profits.
The tonnage tax rules and any applicable adjustments (for example finance cost adjustment rules) are applied before the CIR is calculated under either the fixed ratio method or the group ratio method.
Tax-EBITDA for the worldwide group is £40m. This leaves out of account the £38m of tonnage tax profits (calculated under Schedule 22 FA 2000).