TTM09250 - Capital Allowances: Balancing charges (P&M)

Procedure on deferred balancing charge

A balancing charge deferred under paragraph 80 (see TTM09230) is not dealt with as a deferred balancing charge under CAA01/S135 (previously CAA90/S33F).

(Under those normal rules (see CA25400) the balancing charge will not be brought into account in the corporation tax computations if a claim for deferral is made for that period. And there are procedures for recovering the balancing charge if a replacement ship is not acquired

Under the Tonnage Tax rules, paragraph 80 only allows a claim to be made if:

• a balancing charge arises

and

• within the relevant period capital expenditure is incurred on a qualifying ship, (see TTM09230).

Thus, in order to make a claim the company must have already acquired the replacement ship(s).

Example 1

A tonnage tax company, with an accounting period year ended 31/12/05, makes a balancing charge on disposal of a ship on 30/11/05, and acquires a new ship (of sufficient value) on 31/8/06, then

• it makes a claim for deferral of the balancing charge in its self-assessment return for AP year ended 31/12/05 (filed in October 2006), and
• the balancing charge will not be included in its returned profits, and remains ‘held over’ against the new ship.
• You should make a forward note to ensure that the charge is reinstated for the AP year ended 31/12/95 should the new ship be sold within the 7-year period of entering Tonnage Tax (see TTM09230).

Example 2

As for Example 1, but the company does not acquire a new ship until 31/10/07 (within the time limit expiring 30/11/07), then:

• in its computations for the AP year ended 31/12/05, with filing date of 31/12/06, it must include the balancing charge (and pay tax on it), and
• claim relief after 31/10/07 (6 year time limit - see CT10610) in respect of its acquisition of a new ship, and submit an amended return (see CT10331) for AP year ended 31/12/05.
• You should make a forward note to ensure that the charge is reinstated for the AP year ended 31/12/95 should the new ship be sold within the 7-year period after entering Tonnage Tax (see TTM09230).

References