TTM07420 - The Ring Fence: Finance costs

Singleton company

Paragraph 61 sets out the rules for allocating finance costs between the tonnage tax and non-tonnage tax activities of a single company.

See TTM07410 for the meaning of ‘finance costs’

Principle of fungibility

The rules operate on the presumption that finance is fungible. In other words, that any borrowings of a company serve to finance the activities of the company as a whole, even if they are initially earmarked for a particular project.

Just and reasonable apportionment

A company is required to consider its activities as a whole, and if any more than a just and reasonable proportion of any finance costs would otherwise be outside the tonnage tax ring fence, an adjustment is required.

The just and reasonable calculation of finance costs attributable to non-tonnage tax activities should take into account the fact that finance requirements differ from activity to activity. Shipping is generally a capital intensive activity due to the high cost of the assets and would usually be expected to absorb a significant part of any finance raised.

Adjustments required

If the company has more than a just and reasonable proportion of its finance costs claimed as deductions against profits outside Tonnage Tax, then an addition to its taxable profits is made outside the tonnage tax ring fence.

The addition is treated as if it is a non-trading loan-relationship credit.

Further guidance

Further guidance on the allocation of finance costs is given in the following instructions;

  • Broad approach of the legislation - TTM07440 
  • Computational principles - TTM07450 
  • Definition of finance costs - TTM16208 (and see TTM07410)
  • Determining the just and reasonable fraction - TTM07460 
  • Examples - TTM07470 


FA00/SCH22/PARA61 (finance costs - singleton company)


Outline of finance costs adjustment


Group companies