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Global shipping lines will benefit from tax breaks from April 2022 if they fly the historic UK merchant navy flag, the Red Ensign.

Chancellor Rishi Sunak on Wednesday announced in the budget that shipping companies flying the red flag with the union jack would have a better chance of being able to join the UK tonnage tax relief scheme.

The device, introduced in 2000, allows shipping companies to access an “alternative method of calculating corporate tax profits by reference to the net tonnage of the vessel operated”. The tonnage tax regime allows shipping companies to pay predictable and much lower taxes, which one expert says has created a “near zero tax environment”.

Sunak said Brexit allowed the UK to offer the new red flag tax incentive. In addition to making it easier for foreign companies to access the tonnage tax regime, it was also designed to increase the use of the sign, which fell out of favor when shipping companies moved to the flags of other nations.

“Now that we have left the EU, today we are starting to reform our tonnage tax system to make it simpler and more competitive,” Sunak said in his budget speech. “When we were in the old EU system, vessels subject to the tonnage tax regime had to fly the flag of an EU state. But that doesn’t make sense for an independent nation.

“So I can announce today that our tonnage tax will reward – for the first time – companies for adopting the United Kingdom’s merchant navy flag, the red flag. This is entirely appropriate for a country with a maritime history as proud as ours. “

Richard Stephens, partner at the Watson Farley & Williams maritime law firm, said the complicated program allowed the profits and costs of shipping companies to be “enclosed in a tonnage tax barrier” and “not taken into account. account for tax purposes “.

Instead, the companies are “deemed to earn a daily profit based on the tonnage of their fleet,” Stephens said. “The presumed profit figure is low, so the tonnage tax creates a near zero tax environment.”

Stephens said the program also allows members to further reduce their tax bill by allowing them to access other tax breaks. “It is important to note that UK tonnage tax companies can benefit from the UK’s wide range of double taxation treaties,” he added.

The red flag, also known as the red feather duster, has been used by British merchant or passenger ships since 1707. Locally adapted versions with emblems of the British Overseas Territories are used by ships registered in Bermuda, British Virgin Islands, Cayman Islands, Falkland Islands, Gibraltar, Guernsey, Jersey and Isle of Man.

From next year, HM Revenue and Customs will now consider the tonnage tax scheme of companies whose ships fly the UK flag as an important factor. Ships that help reduce the UK’s net carbon emissions are also more likely to be accepted into the program. This includes scientific research vessels and ships that lay cables to help create wind farms.

Gavin Simmonds, director of trade policies at the UK Chamber of Shipping, said his organization welcomed the changes which he said would “immediately enhance British flag shipping, encourage innovation in the offshore energy sector and would attract international investment ”.

Caroline Lucas, MP for Brighton Pavilion and former leader of the Green Party, said on Twitter: ‘The only advantage of Brexit is that the Chancellor can find the chance for British ships to fly the red flag and reduce taxes on the alcohol ? You couldn’t make it up.


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