Purchase of caravan through Ltd Co?

Purchase of caravan through Ltd Co?

Didn't find your answer?

A client who is in the construction industry wants to purchase a caravan (approx £35k).  The ground rent etc will be approx £8k per year.

Two of his mates have told him that they bought the caravans through the ltd company as plant and machinery.  I've never come across this before.

The caravan would never be used for business purposes.

Is it possible to purchase this as a business asset, claim VAT and corporation tax relief on this? The company then pays the rent each year and the client pays a BIK on the rent and the benefit of the caravan (20% on the £35k)?

I've done some research and can't seem to find an answer to this one. 

Replies (15)

Please login or register to join the discussion.

Teignmouth
By Paul Scholes
12th Jun 2012 10:47

Capital Allowances

Hi - I too have not heard of this.  For the company to be able to claim capital allowanes on the cost the van will have to be on a licenced holiday home site and be let as a holiday home.

I suppose the question then is whether letting only to him, free of charge would be regarded as letting a holiday home?  To my mind this is not a commercial venture and so I don't see how they could claim the capital allownces.

Will be interest to see other views espcially as I own one!

Thanks (0)
avatar
By twj4789
12th Jun 2012 17:01

Agree with above

Surely this would fail the wholly and exclusively rule?

My thoughts are If it were to go through the company then the rent amount taken as BIK would have to include ground rent and rent on the caravan (probably have to be independantly verified). It isn't something I have ever come accorss before, but if VAT was reclaimed on the purchase then would VAT have to be charged on the rent apportioned to the caravan?

 We often have clients that tell us what their friends have done! We normally politely explain if and why we do not advise them to do the same. It always reminds me of what my parents said..."if your friend jumped in front of a bus would you follow?"

Thanks (0)
Replying to manruss:
By djn24
13th Jun 2012 08:40

Ok maybe ignore the VAT. 

Ok maybe ignore the VAT. 

If the company did purchase this and is blocked from claiming capital allowances as a few people have commented, what would happen in 10 years time when it's worth say £10k?  Would the company have any tax relief then?What about the ground rent etc.

I've been advised that the bik would probably be worked out using the living accommodation rules.

 

Thanks (0)
By Steve Kesby
12th Jun 2012 17:25

Mobile v Fixed

You seem to be asking about a fixed residential caravan, so I wouldn't expect there to be any VAT. If it's a holiday caravan, perhaps there would be, but you can't recover it unless it's connected with the making of taxable supplies, which it doesn't seem to be.

You can't get plant and machinery capital allowances for a fixed caravan, because it's a "structure". I imagine the two mates are itinerant subbies who've bought mobile caravans (which can be plant) and take then from site to site, thus using them in their business (so that they get capital allowances and are able to claim the VAT.

As twj4789 says, there will also be a benefit in kind charge if you put this through company.

 

Thanks (0)
Teignmouth
By Paul Scholes
12th Jun 2012 19:17

Steve

At £35K I'd guess the OP is talking about a holiday site, residential sited caravans would normally start at many times this in cost, maybe £150K upwards (Doesn't make sense to me either).

If on a licenced holiday site I believe that, if let as holiday accommodation, it would get capital allowances as it is excepted from the fixed structure rule under S23 CAA2001 set out in CA22100.  Can you tell me if you think this no longer applies?

Thanks (0)
By Steve Kesby
12th Jun 2012 20:41

Thanks Paul

I wasn't aware of the relative costs.

I've never come across the point in practice, so you could well be better informed than me, but I'd always understood that the point only applied to people that ran the caravan sites and had fixed caravans available for rental, rather than to individual owners who happened to rent them out.

That view's based on subsection 5 of S.23 which reads:

"(5)     In item 19 of list C, “caravan” includes, in relation to a holiday caravan site, anything that is treated as a caravan for the purposes of—

(a)     the Caravan Sites and Control of Development Act 1960, or

(b)     the Caravans Act (Northern Ireland) 1963."

The underlining's mine.

See also the paragraph in that section of HMRC's manuals that begins "In the 1950s...".

Like I say though, that's just from reading, rather than any practical experience in the area. Have you ever had your own claim challenged by HMRC?

In any event, I think we agree that the OP's situation falls outside the margins.

Thanks (0)
Teignmouth
By Paul Scholes
12th Jun 2012 22:36

Hi Steve

No actual practical experience but I did consider it myself a few years back when buying our van and did quite a bit of research.  The same question arose last year in this thread and, as you can see HMRC seemed to confirm that this would be OK.

I am certain it no longer applies to just sites themselves.  At one time, several years ago, HMRC carried out a review, as they perceived widespread abuse, and I seem to remember they brought in some extra restrictions to the normal FHL rules to make sure that van lets were commercial ventures. I think they restricted sideways losses (but not CAs), insisted that there were at least 4 vans and that you had a business plan (!) and other badges of a proper business.

Having said that I'm sure these were just guidelines and notlaw and I've read other comments over recent years where sole vans are OK, again though, as long as you can show it is a proper commercial venture.

All may become academic after this summer with the weather dampening this aspect of the holiday trade?

 

Thanks (0)
By Steve Kesby
13th Jun 2012 10:25

@ Paul

That's all really interesting. For my own part, I'd still feel reluctant if there was a single caravan (or even possibly a number of single caravans on separate sites) for the following reasons:

It just seems to go against the grain for me, but then tax has a habit of not making any sense.Even if a holiday caravan isn't a structure for P&M capital allowances purposes, it must first be plant (or machinery - which I think we can discount) used in the business. In the case of a single caravan (or possibly more than one) then it doesn't seem to me to be plant used in the business; it is the business, but refer to point 1.

We can only hope one of these capital allowancy types shows up with some practical experience, but I imagine they're all busy at the moment because of the new fixtures in properties rules.

I certainly agree with you on the holiday trade. It's a good time to start up a holiday ark business. Damn this hosepipe ban!

Thanks (0)
By Steve Kesby
13th Jun 2012 10:37

@djn24

I think it's probably easiest to start with the BIK point. Yes, I think the living accommodation rules would apply and the BIK would be the ground rent paid plus a notional annual (rateable) value.

Because, the expenditure is to remunerate, the ground rent is then an allowable deduction for the company and, on reflection, there's then merit in Paul's orginal point of capital allowances possibly being available for the caravan (subject to the concerns I've expressed to him above) for the same reasons.

My view remains the same on the VAT aspect though.

Turning to your other point, on the assumption that capital allowances can't be claimed.

Despite the fact that it's permanently situated, I think it's likely to be considered to be tangible moveable propery. If it is, and it has a life of less than 50 years then there's no relief. If it's not tangible moveable property, or if it is, but has a life of 50 years or more, then you'd be able to claim a capital loss. You'd then need a chargeable gain to set it against though.

Thanks (1)
7om
By Tom 7000
15th Jun 2012 11:04

Not tax deductable

Sorry No CAs available, well according to HMRC who I spoke to about this, The Caravan isnt being used in the performance of the company duties, its additional to them and thefore doesnt qualify. Because you are using it to sleep in. If you used it to move tools etc it would be ok, but then its a trailer nota  caravan.

 

If it was where would this end...I just bought a yacht and anchored it in monte carlo and I sleep in it when I visit my clients there...so can I have CAs please....dont think so...

Thanks (0)
Replying to jimeth:
By djn24
15th Jun 2012 14:09

Ok so let's summarise

Its seems as if the following is the case:

-Ltd company can purchase the caravan.  No capital allowances available for cost of caravan just capital loss at the end.

 

-Company can pay all the annual rental etc and receive corp tax relief for all this.

 

-Director pays BIK on the annual rental etc based on the accommodation rules.

 

In this way my client would pay a bit of NI each year but then avoid paying higher rate tax on the £35k of inital purchase (would need to draw dividends to payt for it).

 

The BIK would balance out by the extra tax that would be payable on the dividends that would have to be drawn to pay the annual rent if purchased personally.

 

Does anyone agree with the above?

 

Thank you.

Thanks (0)
Replying to djn24:
avatar
By newmoon
24th Feb 2017 13:57

So what happened in the end - did your client get the caravan and what was the benefit in kind calculation?
I know this is 5 years old now, but I have exactly the same situation!
Thanks

Thanks (0)
avatar
By letsface.it
15th Jun 2012 16:35

Assets Bought as part of remuneration package

Hi

This caught my eye, would this not apply as per HMRC toolkit:

 

Broadly speaking, company expenditure on assets provided for directors' and/or employees' use as part of their remuneration package is accepted as incurred wholly and exclusively for the purposes of the qualifying activity and consequently for capital allowances purposes.

 

Thoughts?

Thanks (0)
Teignmouth
By Paul Scholes
15th Jun 2012 17:28

Not a machine and is it holiday accommodation?

Letsface.it - Have a look at CA27100 a caravan is not a machine and so HMRC will not accept that it is plant for CA purposes.

djn24 - I don't think you've said where this bloody (sorry) thing is going to be sited but, as discussed above, if it's on a holiday site then the rental value used to calculate the BIK could be very substantial.  On my site vans are rented out for perhaps £500 - £700 per week during the high season and half terms and then perhaps £300 per week at other times.  Evan if the thing is only useable for the normal 8-9 months a year that is going to be a lot of rental to be taxed on. see EIM11421.

All in all, this is a bit smelly so I'll bow out of this one now.

Thanks (0)
avatar
By letsface.it
16th Jun 2012 13:48

Int.erpretation

Hi There

It seems to me that as with many things the question is whether you presume the item in question is plant or not. From what I can see in this case would depend on where the van is sited and whether it is moved (moveable).

There is always a danger in forums of stating a view as a fact rather than just pointing to the various articles and letting the person raising the question weigh all this up and come to their own view. Which is what they then have to defend if indeed there was a challenge raised at a later date

Thanks (0)