TTM03595 - Qualifying companies and ships: sea - meaning of

To qualify for Tonnage Tax, the ship must be operating at sea. The term “sea” is not statutorily defined for Tonnage Tax purposes. However under FA00/Sch22/Para19 (5) sea does not include:

The word “estuary” is not defined. It takes the ordinary dictionary meaning.

Merchant shipping legislation

In considering whether a particular stretch of water is “sea” for the purposes of para 19(1), HMRC will consider factors including

• whether the waters are classed as “sea” for the purposes of the relevant local legislation on merchant shipping
• whether a ship needs to be certified as seagoing to operate in those waters.

UK Waters

For UK territorial waters, the Maritime & Coastguard Agency (MCA) categorises waters that are not regarded as “sea” for the purposes of Merchant Shipping legislation (excepting marine pollution).

The MCA is the competent authority for certification of ships for navigation at sea. The MCA regards waters in MCA category A,B,C and D as not being “sea” HMRC regards these waters are not sea for the purposes of para 19(1)(a to d) Sch 22.

For sheltered foreign waters see TTM03530 

Estuaries

Harbour or river ferries were excluded from Tonnage Tax by paragraph 20(1)(c) Schedule 22 FA2000, and paragraph 20(4) states that a ‘harbour or river ferry’ means a vessel used for harbour, estuary or river crossings.

Paragraph 19(5) Schedule 22 (amended by FA2005 Paragraph 4(4) with effect from 1 July 2005) directs that ‘sea’ does not include, a port, harbour, estuary, tidal or other river or an inland waterway.

Ferries operating in estuaries have never qualified for Tonnage Tax. Any vessel operating in an estuary is not a qualifying vessel after 1 July 2005 because they are not operating at sea.

The word estuary is not defined and the word would normally take its ordinary dictionary definition:

the tidal mouth of a large river, or

the wide lower tidal part of a river, or

an arm of the sea that extends inland to meet at the mouth of a river.

The word estuary is not defined by any other specific geomorphic definition based on, for example, relative salinity.

The Maritime and Coastguard Agency (MCA) is the competent authority for the purpose of paragraph 19(4) Schedule 22; certification of vessels for navigation at sea. The MCA has issued a statutory Merchant Shipping Notice, MSN 1719(M), which categorised waters around the United Kingdom. The categorisations determine the waters that are not regarded as ‘sea’ for the purposes of Merchant Shipping legislation.

The MCA defines waters in Category C as ‘Tidal rivers and estuaries and large, deep, lakes and lochs where the significant wave height could not be expected to exceed 1.2 metres at any time.’ It defines Category D waters as ‘Tidal rivers and estuaries where the significant wave height could not be expected to exceed 2.0 metres at any time.’

Like HMRC, the MCA uses the ordinary dictionary definition for estuaries. The MCA has considered the waters in Categories C and D and has determined, by statutory notice, that the waters are either tidal rivers or estuaries (or deep lakes).

HMRC take the view that any waters in MCA Category C or D are either estuaries or tidal rivers or lakes. Any ferry operating in these waters is excluded for Tonnage Tax under Paragraph 20(1) Schedule 22.

Harbour

A harbour is a refuge or shelter for shipping. It may be a natural harbour or man-made.

Although the term “harbour” is not defined in FA00/Sch22, there is a useful definition of “harbour” at section 313 Maritime Shipping Act 1995. This includes:

“estuaries, navigable rivers, piers, jetties and other works in or at which ships can obtain shelter or ship and unship goods or passengers.”

In the United Kingdom there are a number of statutory harbour authorities, which have been given “powers of duties of improving, maintaining or managing a harbour.” HMRC regard waters over which a statutory harbour authority has such powers as being a harbour for the purposes of Tonnage Tax.

For waters outside the United Kingdom, if the waters come under the powers of an authority equivalent to a harbour authority then HMRC will regard this as evidence that the waters are part of a harbour for Tonnage Tax purposes.

References