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Cruise speaking / lectures - is a free cruise taxable?

Cruise speaking / lectures - is a free cruise...

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My client is a director of a small limited company. She has been asked to give a number of lectures on a cruise ship, while at sea.  The contract states she will be self-employed for the provision of services and is responsible for her own tax liabilities. It states what she is required to do in return for FEE plus accommodation and meals.  Fee is stated at nil. So she receives a free cruise with accommodation and meals, but no excursions or drinks.

a) As no money changes hands, the fee is stated at nil, and she cannot sell on her free room, is anything taxable?

b) If so what value is taxable? (For example cruises have a top line brochure price but then most places are sold at discount.)

c) If taxable on some form of money's worth, given the lecturer doesn't know what class of cabin she will be given until she boards (and it won't be the best), which level should one use?

d) The speaker is allowed to bring one companion.  What is the tax treatment of their part of the free meals and accommodation deal?

e) If this is properly taxable as self-employed income, what deductions can be claimed? (Travel from business base to the port? Subsistence (ie drinks) while aboard?)

f) As the speaker is a director is there any potential liability as employment income, even though contract says self-employed? If so, how valued?

g) Has anyone ever had an engagement like this specifically raised with HMRC, and if so how did it end? (In tears?)

Thanks for taking the time to read this. If you can only answer some points your views and experience would be appreciated.

Replies (7)

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By The Innkeeper
01st Mar 2013 08:42

My view

would be to look at this on what the marginal cost of the cruise line be for having one extra person on board. Answer zero. So if there is a benefit of any sort the answer is zero

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By WhichTyler
01st Mar 2013 09:13

HMRC's view

It may not surprise you to know that HMRC may disagree:

All receipts arising from contra, barter or reciprocal arrangements must be valued at the fair value of the goods and services exchanged.The corresponding expenses should also be brought into account.   But I suppose that if it is a condition of the contract that the speaker stays on board, and has no choice but to eat on board, then there would be a matching expense to absorb the notional income received.     

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By Alastair Johnston
01st Mar 2013 09:08

She'll be hungry and thirsty then!
But there must be some costs, such as food and drink.

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By shoshana
04th Mar 2013 12:10

Direct tax and VAT

She is not giving her services away here - the consideration is the market value of the cruise she receives.

If her limited company is the medium through which she would typically deliver this type of service I would have thought that it should be accounting for the transaction. I am surprised the cruise operator does not want to contract with her company as this would all but remove any possible liability it could have if HMRC later rules she was an employee for this purpose.

Anyhow, whichever the case, she must account for sales revenue equal to the market value of the cruise, net of any VAT she or the company must account for (if the cruise operator belongs in the UK then 1/6th of the consideration must be paid over to HMRC as output VAT - if the cruise operator belongs outside the UK the supply is outside the scope of VAT).

She/the company can then claim any expenses incurred which are wholly and exclusively incurred for the purpose of the trade. This should include travel expenses to and from the port and any necessary subsistence she/it has to pay for.

Marginal cost only applies to in-house benefits provided to employees following the decision in Pepper v Hart.



Malcolm Greenbaum

Director, Greenbaum Training & Consultancy Limited


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By George Attazder
04th Mar 2013 12:37

Market Value

Very good Malcolm.  The problem is what is market value?

Is it the brochure price?Is it the price the cruise gets advertised on Teletext the date before the boat sets sail?Is it somewhere in between the two?Is it the price that it a willing seller could sell it to a willing buyer and must we assume that the only willing seller we should consider is the cruise company?Since it's an arm's length transaction could we take the approach that it is, in fact, equal and opposite to the market value of the services being provided? Perhaps it would be easier to put a figure on that?

This poor lady's being incarcerated on a floating hell for god knows how long, so that she can deliver a few speeches.  Surely it would be appropriate to discount the market value for the shear bloody inconvenience of it all.

Having assigned an amount to the income though, part of that income relates to some of the very things that she needs to fulfil her engagement; accommodation and subsistence.  So if we're bringing it in as income, we can also bring in some of it as an expense surely?

Just as we would do if it was an exchange of advertising services to which UITF 26 applies?

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Replying to GW:
By shoshana
04th Mar 2013 15:40

Market value is an estimate.

George, I would never be a willing buyer of a cruise so I share your sentiments but there are millions who disagree with us (wrongly, of course....)

Now there is no single figure that we could say in this case is the market value. Evidence needs to be obtained of the price the cruise company was willing to sell for (in each cabin type) before the lady in question boards.

This could come from web searches, newspapers (I know the weekend Times have loads of cruises advertised in their travel pages). I would then take the cheapest of the ones I had found then print it out or electronically store it in case HMRC ever comes and asks.

I would certainly not advocate the full list price.

I don't think you can impute expenses she hasn't actually incurred so I am not convinced that the price can be reduced for accommodation and subsistence. If they wanted to do it properly, she should invoice them for the lectures, and they should invoice her for the travel and accommodation, meals etc.


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By PatriciaRr
06th Mar 2013 12:20

As a I am Regular Cruiser...

... it may be of help for you to know that the time spent working by speakers  while on the cruise usually extends way beyond the actual lectures. These speakers will usually engage with passengers around the ship throughout the cruise discussing their subject matter. This includes dinner where they will likely be put on a large table and cocktail parties etc where they would be introduced by officers as "one of our guest speakers".  I love cruising but would be very sceptical about a similar arrangement as I would not want to spend a whole cruise dishing out free tax advice ( goodness knows how that would work with PI insurance).They are also often asked to travel with excursions as a ships representative with emergency numbers, first aid etc and do the required headcounts. Accompanying partners often get involved with excursions and and the socialising aspect too. My instinct would therefore have been that the cruise accommodation for the speaker (and his reasonable drinks & travel to ship) would not be a benefit or taxable but necessary to enable her to do the work. The problem is that as she is receiving no fee, then if it is not to her benefit the why would she do it. I would suggest that this is because her partner can come too and therefore the partners fare would be the taxable consideration maybe reduced by any time she spends "on duty" if that applies. In order to determine the appropriate fare I would bear in mind that they are probably travelling on what is known as a guarantee basis ie no specific grade or location of cabin. This is usually lower in cost and the marginal cost for a second passenger is usually relatively low as there are huge single supplements applied. As you get nearer the date the cost for one person can be the same as for two but fares are low. I think that if HMRC agreed with my analysis then they may want to use the guarantee fares based on marginal cost at the date the contract was agreed rather than the sailing date. I have not dealt with this in a professional capacity but would find it very interesting to do so and would love to know what you decide. Of course it would be useful to see the contract in case that gives any indicators Let me know if you need any more information.

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