11 November 2024

FB Shipping Limited & FC Shipping Limited v HMRC [2024] UKFTT 1013 (TC)

The taxpayers made claims for capital allowances in relation to ships each of which were leased to Fortis Finance (a subsidiary of Fortis Bank) under a head lease and sub-leased to a company within the tonnage tax regime (which were subsidiaries of Vroon Shipping UK Ltd). The rentals under the head lease were guaranteed by Fortis Bank. In the case of a lease of a qualifying ship, paragraph 90 of Schedule 22 FA 2000 restricts capital allowances if the lease or any transaction or series of transactions of which the lease forms a part “makes provision the effect of which is to remove the whole, or the greater part of, any non-compliance risk which, apart from that provision, would fall directly or indirectly on the lessor”. Non-compliance risk is “a risk that a loss will be sustained by any person if payments under the lease are not made in accordance with its terms”.

The Tribunal dismissed the appeals and held:

• The statutory definition of “lease” is wide enough to encompass multiple steps between the lessor and lessee, and in this case the lease comprised both the head lease and the sub-lease. Moreover, the identity of the intermediate lessee/sub-lessor constituted provision made by the lease (or transactions of which the lease formed a part);
• The guarantee provided by Fortis Bank constituted a “security” but was not excepted under the terms of paragraph 91 of Schedule 22;
• The greater part of the non-compliance risk was removed for the taxpayers as a result of (1) the fact that the payment obligations under each head lease were borne by Fortis Finance, rather than the Sub-Lessee and (2) the guarantee provided by Fortis Bank. Overall the Tribunal considered that these transactions were a “prime example” of something which falls within the purpose of paragraphs 89-91 of Schedule 22.

Jonathan Bremner KC, Ben Elliott and Ed Hellier acted for HMRC.

You can find a copy of the decision here.

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