TTM10520 - Ship Leasing: Quantitative restrictions on allowances
Restrictions cease to apply: Example
A ferry is acquired on 1 January 2004 by Selpats Ferries Ltd (a tonnage tax company), under a finance lease from their bank. The cost of the ship is £90 million.
On 30 June 2006 Selpats Ferries Ltd is taken over by the larger Regian Group of companies (which is not within Tonnage Tax). Under the rules on mergers (see TTM12300), Selpats Ferries Ltd ceases to be a tonnage tax company and the leasingrestrictions cease to apply from 30 June 2006.
The capital allowances available to the Bank are as follows (amounts in £000s):
Accounting period ended 31 December 2004
|
(£’000s) |
25% pool |
10% pool |
Non-qualifying |
Total allowances |
|
Cost (90,000) |
40,000 |
40,000 |
10,000 |
|
|
WDA |
10,000 |
4,000 |
0 |
£14,000 |
|
Balance c/fwd |
30,000 |
36,000 |
10,000 |
|
Accounting period ended 31 December 2005
|
(£’000s) |
25% pool |
10% pool |
Non-qualifying |
Total allowances |
|
Balance b/fwd |
30,000 |
36,000 |
10,000 |
|
|
WDA |
7,500 |
3,600 |
0 |
£11,100 |
|
Balance c/fwd |
22,500 |
32,400 |
10,000 |
|
Accounting period ended 31 December 2006
As at 30/06/2006 the leasing restrictions stop applying. The ship is treated as disposed of as at 30/06/2006 for its tax-written down value at that point. In this case the tax written down value (TWDV) is worked out by recomputing notional capital allowances for the period on the full ‘qualifying expenditure’ (paragraphs 89(3) and 88(1)) of £90 million, as if in a single asset pool (paragraph 100):
|
(£’000s) |
notional single asset pool |
|
Cost |
90,000 |
|
Notional WDA for ye 31/12/2004 |
22,500 |
|
Balance c/fwd & b/fwd |
67,500 |
|
Notional WDA for ye 31/12/2005 |
16,875 |
|
Balance c/fwd & b/fwd |
50,625 |
|
Notional WDA for 6m 30/6/2006 |
6,328 |
|
TWDV |
£44,297 |
This ‘tax written down value’ of £44,297K is treated as if it were a normal disposal and apportioned between the 25% and 10% pools in same proportion as the original cost of the ship (paragraph 97):
|
Pool |
Proportion of TWDV |
Allocated to pool |
|
25% pool |
44,297 x 40,000/90,000 |
19,688 |
|
10% pool |
44,297 x 40,000/90,000 |
19,688 |
|
Non-qualifying |
44,297 x 10,000/90,000 |
4,921 |
Assuming that the bank has no other ships leased within Tonnage Tax, the 25% and 10% pools will be closed, with balancing adjustments as follows:
|
(£’000) |
25% pool |
10% pool |
|
|
Balance b/fwd |
22,500 |
32,400 |
|
|
Disposal proceeds |
(19,688) |
(19,688) |
|
|
Balancing allowance |
2,812 |
12,712 |
£15,524 |
The bank can then bring a new amount of qualifying expenditure into its normal machinery and plant pool in respect of the ferry. That amount is the original £90 million cost of the ferry reduced at a rate of 25% per year from acquisition on 1 January 2004 to 30 June 2006 (paragraph 99(3) and (4)), i.e. £44,297K, as computed above.
The writing down allowance for the bank’s accounting period ended 31 December 2003 (after the CAA2001s220(1)) restriction) will be:
£44,297,000 x 6/12 x 25% = £5,537,125
References
|
FA00/SCH22/PARA99 (change of circumstances taking out case) |
|
|
FA00/SCH22/PARA100 (determination of tax written down value) |
|
|
FA00/SCH22/PARA97 (treatment of disposal proceeds) |
|
|
FA00/SCH22/PARA89 (expressions same meaning as in Part IX) |
|
|
FA00/SCH22/PARA88(1) (definition of ‘qualifying expenditure’) |
|
|
Restrictions cease to apply: Introduction |
|
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Restrictions cease to apply: Procedure |
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Tax written down value |
