Boat charter "business"

Boat charter "business"

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A client purchased a motor cruiser for £96,000 in May 2004, intending for it to be chartered for a daily / half-daily fee.

Since the date of acquisition the boat has been chartered only a handful of times and the costs of maintenance and mooring alone greatly exceed the income earned.

I would be grateful for clarification on the following:

1. Can the losses be regarded as trading losses and relieved against other income of the same year (the client has advised me that the boat was placed on the books of a charter company and he genuinely expected it to be chartered on a regular basis and make a profit)?

2. What capital allowances will be available? The client does not believe that the boat would have had an economic life exceeding 25 years and I assume, therefore, that writing down allowance should be available at 25% per annum rather than limited to 6% per annum. However, am I correct in thinking that, since the trade involves the leasing of the main asset, any claim for loss relief against other income of the same year cannot include any capital allowances, since the client does not devote substantially the whole of his time to this trade, and that the capital allowances would simply have to be carried forward and offset against future profits of the same trade?

As you will note, the charter boat business commenced in 2004/2005. The client omitted to include any mention of it on his 2004/2005 Tax Return, assuming that there was no need to, since it was making a loss. If the loss, with or without capital allowances, can be offset against other income of 2004/2005, I will need to file an amended Tax Return for that year by 31 January 2007. Advice and guidance on this matter at the very earliest opportunity would therefore be greatly appreciated!

Many thanks.

JAYE

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Euan's picture
By Euan MacLennan
28th Jan 2007 11:03

Amended 2004/05 Return
You need to file an amended tax return for 2004/05, regardless of whether the loss can be set off against other income of the year or carried forward, simply to establish the amount of the loss.

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By User deleted
29th Jan 2007 10:53

Thank you
Many thanks for your guidance and assistance.

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By User deleted
28th Jan 2007 11:35

Thank you.
Euan

You are of course correct regarding the need to file an amended Return in any event and I am grateful to you for pointing this out.

I do not suppose, by any chance, that you have any particular view or guidance regarding the possibility of setting off the loss against other income of the same year and whether I am correct in thinking that the CA's can only be carried forward?

Many thanks.

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By User deleted
29th Jan 2007 10:38

Been there, got the T-shirt
You are right that no sideways relief is available for CA's. Expect a critical analysis from HMRC of whether this is a business, or merely an attempt o claim tax relief on a hobby.
Typical questions:-
How many days has the boat been in the water in the year?
What attempt has been made to charter it during that period?
Has the boat been registered through a recognised chartering agent?
Copies of advertising material etc. etc.
For how many days has it in fact been chartered?
For how many days has it been used by the taxpayer?

A particular issue , if the priciple that this is a business is accepted, will be how to allocate the days when it was neither chartered nor used by the owner. Are they'charter' days or 'private use' days?

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