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Yacht and aircraft chartering via limited company

Yacht and aircraft chartering via limited company

I've been asked to do a bit of research on the subject of chartering expensive "boys toys", like yachts, jets, helicopters and the like.  It's actually a yacht, but I want to address the wider subject too.

So far I've come across VBN46000 and VBN74600, as well as VTRANS110340 and VAT Notice 744C. Thank you Google.

I'm comfortable on the VAT issue in principle.  It has to be a business.  It ought to have a view of profit (which will then be liable to CT, but we'll get capital allowances).  I'm happy so far.

There will be benefit in kind implications if the asset is placed at the disposal of any employee, director or shadow director, and a possible benefit distribution if it made available to a participator in a close company who isn't an employee, director or shadow director.

So how? How do we make sure it's a business? How do we avoid it being "at the disposal" of these people other than when they're using it?

Presumably there are businesses out there that will, "manage" the asset as agents?  Does that deal with both issues?  Is there a VAT self-supply or private use adjustment if these people use it for their private purposes?  What if it's a yacht and the company uses it for entertaining? or promotion?

I realise that there would need to be a capital allowances adjustment for entertaining use.

Does anyone have any experience that can please (a) answer some (or even all) the above questions? and/or (b) identify any issues that I haven't touched on?

And does anyone know of any books (reasonably recent, because I know that the VAT position has been developing in recent years) that cover the subject?

Thanks.

G

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By BKD
24th Jan 2013 14:59

I'll answer the easy one

As you say, it us usual to charter yachts through an agent. HMRC will accept (at least they did in the one case I have dealt with) that the asset is not available for use by employees etc if the agent is in control of the keys, and that the individuals in question have to go through the same booking procedures as everybody else.

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By Paz
22nd Apr 2015 14:01

Yacht unavailable for private use

Can you help please?  I have a client company who bought a yacht for chartering, it was offered at a very attractive price and a business plan showed it to be a lucrative new business stream.  This is not their normal line of business or area of expertise. In the past the company used to charter yachts to entertain their clients.

The directors agreed at a board meeting before acquiring it that it would not be available for private use. They placed it with an agent who is the key holder, and it is moored miles from the company. The marina also holds a key, my client company does not. The contract states that if the company wants to use it then it must be put in writing in advance. Copies of the key logs and yacht useage logs have been provided to HMRC, but the key logs do not cover the whole period, the useage logs do.

As before, the company use the yacht for entertaining clients half a dozen times a year, but there is no private use. It has been chartered by the chartering company but as it is a top end yacht, in the recent financial climate this has been disappointingly low, the yacht was bought at a very good price reflecting the times.

HMRC will only accept that it is unavailable when the yacht was out of the water.  This seems wholly unreasonable based on the evidence provided by 3rd parties.  I have tried to search for tax case but come up with nothing. 

Any ideas please?

Paz

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By Paz
12th Apr 2016 11:38

Urgent - Yacht unavailable for private use

Hi 

I'm really grateful for your advice.  HMRC are blinkered to the reality of it not being available. They don't want to let this go and are now about to issue assessments.  I'm trying to see what other angles I can employ to stop them issuing them.

Are you able to provide any further information on your case please? Name of Inspector?

Something I can use 'in confidence' with HMRC would be fantastic.  

Even with an agent in control of the keys, a contract detailing that the company must give prior written notice of its intention to use the yacht for entertaining clients, a log maintained by the chartering agent of its use and another access log maintained by the marina, the inspector wont accept there is no private use.

Please message me if you can help.           [email protected]

Many thanks

Paz

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BKD
12th May 2016 08:54

Comment removed by poster.

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24th Jan 2013 16:48

Still on yachts

A long article by Hm revenue and customs on the place of supply of services. See Particularly section 7- on means of transport.

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por...

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24th Jan 2013 17:28

Thank you both

Slight hiccup with Alastair's link. For the benefit of others it would point to VAT Notice 741A, but for a trailing space on his link.

BKD's experience confirmed my suspicion on the BIK issue, and I think the VAT issues are probably deducible from what I've got so far, unless any of our resident VAT experts want to step up to the plate and offer any specific pearls of wisdom?

I've started to doubt myself slightly on the capital allowances position.  There are special rules for ships. I haven't looked at the definition, but I assume that ship is defined to be a big boat by reference to its weight/load bearing capacity, and a yacht wouldn't fall into it.

As an additional point, I've also been thinking about canal barges.  Asset benefit or living accommodation?

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24th Jan 2013 17:42

The usual

definition of a yacht is a vessel used solely for private purposes

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24th Jan 2013 17:46

Ship definition?

The Maritime and Coastguard agency give out specific classifications on vessels, and whether they are a ship or otherwise.

https://www.gov.uk/vessel-classification-and-certification

specifically you will probably be interested in the definition of Large commercial yachts.

"classification and certification

Large commercial yachts are defined as those vessels which are:

in commercial use for sport or pleasure
24 metres load line length or more or over 150 gross tonnes if built before 21 July 1968
carry no cargo and no more than 12 passengers
are in commercial use for sport or pleasure"

In relation to Canal Barges I'm afraid I would say Living accommodation unless you say proximity to pubs is a benefit ;)

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24th Jan 2013 18:10

Are you ACCA?

Just a thought, there was a virtual briefing on "The Bribery Act: how to avoid the grey areas around business entertainment, hospitality and expenses" i'm not sure if its totally relevant to the cause though, so apologies if i've come up with a random thought!

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24th Jan 2013 18:28

Yes

Looks like normal capital allowances then.  i think the barge is probably living accommodation too.

EDIT: I'm not ACCA.  I suppose it might or might not be a random thought dependent on an exact situation.  I suppose no hospitality should be excessive though.

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By Glennzy
24th Jan 2013 19:22

Benefit in kind might attract attention from HMRC
I am working on a case where the company owns a yacht in Spain which is used as a charter business, a side line to main uk based business. The directors use it for 2 weeks in summer and it is available for charter the othe 50 weeks. Since the recession they only managed to charter it out 5 weeks last year. Revenue are trying to say the the yacht is available to directors at all times it is not in use on charter ie 47 weeks, and trying to slap a BIK on the Directors of 20% of the list price of it. Which is substantial. I own a boat myself and the best advice I would give is don't do it. The revenue you will bring in will barely cover its costs and create a lot of problems tax wise if you try and claim its a business, when there is private use involved. If the directors see it is a cheap way of having boating holidays it's not. If they want 2 weeks holiday on a yacht charter someone elses it's a lot cheaper.

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25th Jan 2013 08:53

BIK can be avoided by arms length charge

George, I know it's obvious but charging for personal use at arms length is always good. It helps, of course if there are substantial 3rd Party sales to establish the principal of a fair charge.

Had experience of this with 2 directors and the Corp Jet. one (savvy to this) paid for private use, the other was more of a "it's mine and I'll do what i like" person. Let's say one of the big 4 who did his tax made quite a bit of billing time out of him.

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25th Jan 2013 10:27

Thanks for the further responses

More great points raised.

Where are all the VAT experts. Anything I'm missing on the VAT?

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25th Jan 2013 11:18

Vat wise we are saling into a potential minefield here . I have posted below links to some of the relevant HMRC guodance. Also bear in mind that the Lennartz accounting method which was used for private use of yachts has been withdrawn as you will see from the attached.

http://www.hmrc.gov.uk/briefs/vat/brief5609.htm 

http://www.hmrc.gov.uk/briefs/vat/brief0210.htm 

 

Hope this helps

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25th Jan 2013 11:41

Thanks Shaun

Subsequent to brief 02/10, I vaguely recollect there being a statutory instrument and amendment to the VAT regulations that effectively made boats and aircraft relevant assets for CGS purposes and then required a CGS style method of accounting for assets where there was mixed business and private use.

I'll be having a hunt through my VAT legislation, but if you did happen to know the number of the statutory instrument concerned, it might help me not miss it!

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By hiu612
25th Jan 2013 12:09

Benefits in kind

a

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By hiu612
25th Jan 2013 12:06

Benefits in kind

Whilst HMRC are adamant about the "made available" basis of calculation of benefits in kind, the legislation does allow for a calculation based on actual use where more appropriate - see EIM 21631 "In practice whether the tax charge is calculated on the basis of availability of the asset, or of actual use of the asset, will depend on the facts of each case. As a broad rule of thumb, if the asset is used solely or largely for private use by a director or senior employee and the asset is at that person’s disposal most or all of the time a charge based on availability is reasonable. If the asset has a more mixed use, to include use by the employer and/or other employees, it may be fairer to calculate the benefit based on actual use. There are no hard and fast rules and the legislation allows for either approach, regardless of the facts"

 

We have previously managed to get written acceptance of this basis of measurement for a client company owning a helicopter, although following a company re-structure and a serious upgrade to the size of helicopter in question (a new one approximately 5x the cost was bought) it proved impossible to have the agreement transferred to the new entity and machine.

 

Nonetheless there are arguments to be had if and when HMRC challenge any benefit calculation. As Democratus says, the fees in arguing are likely to stack up, but that reflects the monstrous scale of a benefit in kind charge based on (say) 45 idle weeks taken at 20% of the list price.

 

In the end we decided to step away from the company owning the aircraft and put together a separate structure which we felt offered much better all round protection whilst remaining tax efficient (VAT recovery, for example).

 

Happy to discuss it with you if you like?

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25th Jan 2013 12:35

Thanks Hiu

In this situation, one of the motivators is to not have to extract funds from the company to fund the purchase, so I don't think adopting a more practical structure will help us.  If the existing company is in anyway a party to the structure we still get a BIK issue and/or a S.455 issue.

I think I know broadly the direction you're coming from though.

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By blok
25th Jan 2013 12:51

.

had one client show an interest in a private jet .

my conclusion was that it was fraught with the unkown and I developed the feeling that an LLP would be the best structure because of the losses and the bik.

i also thought that these guys http://www.blackstar.eu.com/vat-services/yacht-services.html

were well placed to speak with

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25th Jan 2013 13:14

Duh!

A don't do it in the UK option! Hmmm...

Thank you.  Those guys look expensive though...

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