UK: UK Tonnage Tax

Tonnage Tax is an optional alternative method of calculating the corporation tax of shipping companies based in the UK.

It is calculated by reference to the net tonnage of ships operated by such companies. Tonnage tax profit replaces both the tax-adjusted commercial profit/loss on a shipping trade and chargeable gains/losses made on tonnage tax assets. Other profits of companies electing to apply the tonnage tax regime are taxed in the usual way. Depending on a shipping company's/ group's particular tax profile (for example, does it already qualify for substantial tax losses or reliefs under general corporation tax rules) the tonnage tax regime may offer a more favourable effective rate of corporation tax for shipping companies based in the UK.

What is the purpose of Tonnage Tax?

The tonnage tax regime was introduced in the UK in 2000 to create a positive economic environment for international shipping companies that are based in the UK. The aim was to enable the renewal and growth of existing UK-based shipping companies, whilst also attracting inward investment. This regime has addressed the decline in the UK merchant fleet. The number of shipping companies based in the UK has increased and subsequently this has also increased the number of individuals employed in the UK shipping industry.

Which companies qualify?

Companies that are liable to pay corporation tax and which operate 'qualifying ships' that are 'strategically and commercially managed in the UK' are qualifying companies and can elect to apply the Tonnage Tax regime. All qualifying companies in a group must elect to apply the regime together.

When is a company 'operating' a ship?

As a general rule, a company is deemed to be operating a ship if it is, 'owned by, or chartered to, the company', subject to certain exceptions.

A company is deemed to be operating a ship (with certain exceptions), if it is:

  1. used by the company; or
  2. time or voyage chartered-out; or
  3. bareboat chartered-out to another UK group member or, in some circumstances, bareboat chartered-out to a third party where there is short-term over-capacity and the charter does not exceed three years.

(N.B. A singleton company or group cannot elect to apply the tonnage tax regime if more than 75% of its net tonnage is time or voyage chartered-in from outside the group.)

What is a qualifying ship?

A qualifying ship must be:

  1. Seagoing - a ship is seagoing if it is certificated for navigation at sea by a competent authority of any country and part of the normal commercial operations of the ship are carried out at sea;
  2. at least 100 gross tons; and
  3. used for:

    1. Carriage by sea of passengers; or
    2. Carriage by sea of cargo; or
    3. Towage, salvage or other marine assistance carried out at sea; or
    4. Transport by sea in connection with other services of a kind necessarily provided at sea.

Vessels that are excluded include:

  1. Fishing vessels or factory ships;
  2. Pleasure craft (this does not include cruise liners, which do qualify);
  3. Harbour or river ferries;
  4. Offshore installations;
  5. Tankers dedicated to a particular oil field;
  6. Certain tugs;
  7. Certain dredgers; and
  8. A vessel the main purpose of which is to provide goods or services normally provided on land (e.g. floating hotel or supermarket).

Ships that are strategically and commercially managed in the UK

Guidance published by HM Revenue & Customs ("HMRC") emphasises that Tonnage tax is, 'a State aid approved by the EU Commission'. The guidance states that the qualifying 'test is ... aimed at ensuring that there is, through the strategic and commercial management of ships in a territory, a substantial contribution to economic activity and employment within the EU' (Tonnage Tax Manual, TTM03800).

The HMRC guidance indicates that they will 'adopt a common-sense interpretation' of this test, taking into account activities including:

1) Strategic

  1. Location of headquarters, including senior management staff
  2. Decision-making of the company board of directors
  3. Decision-making of operational board
  4. UK stock exchange listing

2) Commercial

  1. Route planning
  2. Taking bookings for cargo or passengers
  3. Managing the bunkers, provisioning and victualing requirements
  4. Personnel management
  5. Training organisation
  6. Technical management of vessels
  7. Extent to which foreign offices/branches work under the direction of UK-based personnel
  8. Support facilities in the UK (e.g. training centre, terminal, etc.)

3) Other factors

  1. Extent to which work is carried out in the UK compared to elsewhere
  2. Nature and extent of accommodation in the UK
  3. Number of employees in the UK
  4. Residence of key staff, including directors, in the UK
  5. For an international group, a reasonable balance between UK activities and tonnage in the UK
  6. Flagging, classing, insuring or financing of vessels in the UK

How do you calculate Tonnage Tax profit?

The tonnage tax profit of a company is calculated by applying the following four steps:

  1. Profit per day a ship is 'operated' by a company is calculated by reference to the table below:

    For each complete 100 net tons up to 1,000 £0.60
    For each complete 100 net tons from 1,001 to 10,000 £0.45
    For each complete 100 net tons from 10,001 to 25,000 £0.30
    For each complete 100 net tons above 25,000 £0.15

(A ship is treated as 'operated' by a company if it is owned or chartered to the company. N.B. If a ship is laid up it continues to be operated by the company and tonnage tax will be due.)

  1. The profit per day or daily profit is multiplied by the number of days in the accounting period (unless the ship was only operated by the company as a qualifying ship for part of the period, in which case multiply it by the number of days it was operated for in that part).
  2. Complete calculations in 1 and 2 above for each ship operated.
  3. Add all of the amounts together and the total for all of the ships is the company's tonnage tax profit for the accounting period.

Which profits are relevant?

The profits covered by the tonnage tax profit include those from:

  1. core qualifying activities in operating its own ships;
  2. other necessary ship-related activities integral to the above;
  3. qualifying secondary activities;
  4. qualifying incidental activities, not exceeding 0.25% turnover from qualifying core and secondary activities;
  5. distributions from overseas shipping companies (which only operate qualifying ships);
  6. loan relationship profits and foreign exchange gains, which would otherwise be trading income; and
  7. gains on the disposal of tonnage tax assets.

What count as qualifying secondary activities (as above)?

Qualifying secondary activities are ship-related activities which are not the direct operation of the company's own ships but have a substantial connection with the company's or a fellow group member's core qualifying activities.

These include:

  1. support services to fellow group member's ships that would be qualifying core or secondary activities if carried out for their own ships;
  2. carriage of passengers or cargo beyond the sea-leg of an inclusively priced journey where the transport is bought in from a third party;
  3. administration and insurance services;
  4. embarkation and disembarkation of passengers (if not part of the operation of a port);
  5. loading and unloading cargo (if not part of the operation of a port);
  6. excursions for passengers where a cabin remains available to those passengers;
  7. normal sales and services to and entertainment of passengers;
  8. similar services to third parties where use of surplus capacity; and
  9. reciprocal arrangements with third parties.

How does a company elect to apply it?

If a 'qualifying company' wishes to elect to apply the tonnage tax regime, they must do so within a specified time period.

A company that is new to the regime, as it has just become a qualifying company, must make the election, '[...] before the end of the period of twelve months beginning with the day on which the company became a qualifying company'.

Any company that wishes to join the tonnage tax regime that has been a qualifying company since 28 July 2000 may not elect to apply this alternative regime, unless the Treasury allow this by making an order which stipulates that, for further periods of time qualifying companies may elect to apply the tonnage tax regime, or a member of a group has just become a qualifying company, allowing a group to become a qualifying group.

This alternative regime is, therefore, only readily available to those companies that have just become qualifying companies and also satisfy all of the criteria.

If a company elects to apply the tonnage tax regime, this election will be for a period of ten years. If the company wishes to re-elect to continue applying the regime they can do so at any point during the ten year period, at which point the clock will start running again, for another ten years.

UK Tonnage Tax

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.