Trading with a view to profit?

Trading with a view to profit?

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My client is considering purchasing a boat which could be chartered out. It should be possible to achieve enough charters to cover the running costs and loan repayments(capital and interest) . Once the capital allowances were deducted from the small profit made, there should be a loss in the first year. In subsequent years obviously the capital allowances would get smaller and therefore the loss would get smaller or the small profit would get bigger.

The intention would be to subsidise the cost of the boat's purchase and private use, rather than make a profit on chartering but it seems likely that there would initially be a loss which would gradually change into a profit.

When the boat was sold it would be unlikely to achieve it's cost price.

The client is VAT registered but paid no VAT on the boat purchase.

Could he be considered to be trading with a view to profit, in which case he would need to pay over VAT and prepare accounts, or do you think HMRC would take the view that the purpose of the charters was to fund the purchase of the boat and that this would not be considered a business activity?

Your ideas would be welcomed!
Marie-Anne Rose

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By martinfoley07
12th Jun 2009 22:29

Well, it's true there is no longer a separate .........
.........IR and C&E. But when they merged into one HMRC, the tax laws for vat and income tax were most emphatically not merged.

You need consider two totally separate sets of questions / tests :
(i) is there trading with a view to profit for IT purposes, and
(ii) is there economic activity for vat purposes.
The answer to one does not necessarily lead to the same answer for t'other.

If your client is a sole trader, I agree with the first respondent ; beware vat situation in spades.
One immediate possible solution if the client is a sole trader, would be for him / her to buy the boat jointly with someone (changes the legal entity undertaking the economic activity)

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Scalloway Castle
By scalloway
12th Jun 2009 22:07

Is he a sole trader?
Is your client a sole trader? If he is then any activity he undertakes that might be construed as business will attract VAT on income received. I have a client who has a boat that he charters for a few days a year which is invoiced plus VAT. I then recover a proportion of VAT on his costs.

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