Commentary

B3.351 Ships—deferment of plant and machinery balancing charges

Business tax
Business tax | Commentary

B3.351 Ships—deferment of plant and machinery balancing charges

Business tax | Commentary

B3.351 Ships—deferment of plant and machinery balancing charges

The rules which provide that a separate single ship pool (see B3.350) is to be used in calculating the capital allowances in respect of expenditure on ships can result in a substantial balancing charge arising when a ship is sold. The balancing charge on the single ship pool is not charged directly; it is treated as disposal proceeds in the shipowner's main pool, but as the amounts in the single ship pool are likely to exceed those in the main pool, a net balancing charge will usually arise. Moreover, even if the old ship is immediately replaced, its cost is normally included in a separate single ship pool and will not affect the amount of the balancing charge in the general pool. This liability to a balancing charge could put UK shipowners at a disadvantage in comparison with many foreign competitors.

To give a measure of relief in such a situation, it is provided that where certain conditions are satisfied (see below) a shipowner may claim deferment of a such a balancing charge and set it off against the cost of another ship acquired within six years of the disposal of the old one1. Where the shipowner is a company, the replacement can be made by another company in the same 75% group2.

A claim to defer a balancing charge must be made broadly within two years, which means that in many cases details of the new shipping are not known. There are conditions

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