Example
A has deferred a balancing charge of £1m arising in respect of the disposal of a ship on 20 August 2001. On 7 October 2002, A acquires two new ships, S1 and S2 for £500,000 and £750,000 respectively. A initially attributes £500,000 of the deferred amount to both of the new ships.
On 24 March 2003, A sells S1 for £500,000. As a result of the original claim for deferment, this sale will give rise to a further balancing charge of £500,000. A does not expect to incur any further expenditure on shipping. As a result, A will not be able to defer any of this amount. However, provided A does so within the time limits provided by this section, A can vary the original attribution to maximise the amount attributed to S2 (in other words to £750,000 leaving only £250,000 attributed to S1).
Section 143: Effect of attribution
551.This section is based on section 33C of CAA 1990. It gives effect to an attribution as a disposal value in the single ship pool.
552.This may seem a roundabout way of doing things. The shipowner has in effect already had tax relief for the expenditure on the new ship against the earlier balancing charge. So it might be thought that all that is needed is to provide that some or all of the expenditure on the new ship is not qualifying expenditure. Although that would adequately reduce future plant and machinery allowances it could also cause problems. For example, when the new ship is sold, section 62 might mean there was no disposal value. The approach here, which in effect:
lets the shipowner add the expenditure on the new ship to a pool but
requires a disposal value in the pool,
fits in better with the wider scheme of Part 2.
Section 144: Amounts which cease to be attributable
553.This section is based on section 33A(4) of CAA 1990. It deals with cases in which deferred amounts cease to qualify for deferment. For example, if an amount is deferred, it may become clear (either during the six-year period or at its conclusion) that there will not be sufficient expenditure in the period to which the deferred amount may be attributed. In such cases the amount qualifying for deferment is retrospectively reduced as appropriate.
Section 145: Requirement to notify where no entitlement to defer amounts
554.This section is based on section 33F(5) and (6) of CAA 1990. It requires the shipowner to notify the Inland Revenue on ceasing to be entitled to a deferment.
555.The shipowner has to notify the Inland Revenue no later than three months from the end of the relevant chargeable period. Failure to do so makes the shipowner liable to a penalty under section 98(5) of TMA 1970.
556.This will almost invariably give rise to a change in the shipowner’s taxable profits in earlier chargeable periods. Subsection (4) allows assessments to be made outside the normal time limits.
557.Section 33F(5) has as one of its conditions that “a claim for deferment has been made”. However, the context makes it clear that the provision is only relevant if a deferment has actually been made (rather than simply claimed). As a result this section refers to an amount having actually been deferred.
558.Section 576 gives the meaning of “Inland Revenue”. Section 577 defines “notice”.
Section 146: Basic meaning of expenditure on new shipping
559.This section is based on section 33D(1) of CAA 1990. It provides the basic conditions for expenditure to qualify as expenditure on new shipping. Sections 147 to 150 give further rules.
560.Subsection (3)(a) requires that the expenditure is incurred wholly and exclusively for the purposes of a qualifying activity carried on by the person incurring the expenditure. This stops expenditure from qualifying if, for example, the ship is used only partly for purposes of the qualifying activity of the person incurring the expenditure.
561.Subsection (3)(b) requires that when the expenditure is incurred, it must appear that the ship will be used for a qualifying activity (as a qualifying ship) and will continue to do so for at least three years. This is to prevent the attribution of deferments to ships that are not intended to be used as qualifying ships. Section 33D(1)(a) does not include the words “when the expenditure is incurred”. But they are implicit in CAA 1990.
562.Subsection (3)(c) requires that the expenditure on the ship is allocated to a single ship pool. This stops expenditure on, for example, some ships for leasing from qualifying for the deferment rules.
Section 147: Exclusions: ship previously owned
563.This is the first of four sections with further conditions for expenditure to qualify for attribution. It is based on section 33D(4) and (5) of CAA 1990. It stops expenditure qualifying for attribution if, broadly speaking, a person, A, buys a ship:
within six years of previously owning it; or
which had been owned in that six-year period by a person who is connected with A at any time between:
the disposal event; and
A becoming the owner of the ship.
564.“Connected person” is defined in section 187.
