Enthusiastic response to UK tonnage tax

Shipping organisations in the UK have responded enthusiastically to proposals outlined in August by UK Deputy Prime Minister John Prescott in his White Paper

Charting a New Course

to introduce a tonnage tax regime for UK shipping. The decision to accept the recommendations of an independent enquiry on the subject by Lord Alexander lies at the heart of a wider shipping policy package proposed by Mr Prescott.

In March 1998 a report submitted to Mr Prescott by the Shipping Working Group recommended that tonnage-based corporation tax should be introduced for UK tax resident companies.

A tonnage tax is a shipping-specific method of corporation taxation, which is paid according to the size of a company`s fleet rather than the profits earned by a company. Although a tonnage tax may not significantly affect the tax companies currently pay, it does have a number of advantages, including the fact that the level of tax will be known and minimal, thus reducing the need to make provision for deferred tax and increase earnings per share. Companies will also have more freedom to choose when to buy ships and how to finance them, and their tax position will be more readily understood and attractive to investors.