I would be grateful for views on this "thorn in the side" situation: Client is a trading company - not yachting related. Company buys yacht and pays for moorings, insurance and repairs etc. through the company. No chartering carried out. How should these expenses be treated in the tax comp? Client does not file a P11d (We have not yet asked if they have received any benefit from using the yacht. No allowances have been claimed on the yacht itself. Normal practice for us is to add back all yachting expenses given no chartering taking place. Would you agree? Thank you in anticipation.
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Will the yacht be the location of the Christmas party?
A good yacht will have a satnav record showing where and when used
Have you considered whether there should be both a cost disallowance AND a BIK?
Not sure about that. If there's a BIK, then it's part of the director's salary package and then the question would be is that package as a whole reasonable.
It calls for a helluva subjective judgement for the accountant. I wouldn't be happy making that call.
First questoin has to be why they bought it via the business. MDTP thoguht it was a good idea?
One of mine tried putting some expenses for an old sports car through, promising to then also transfer the car. Never happened in the end.
What is the relevance of your anecdote? In the OP's case the company has bought an asset almost certainly available for the private use of the director(s). In your case the company settled some of the pecuniary liabilities of the director.
It would only be in very exceptional cases, if any, that there would be both a bik and an add back. Richard recently referred to G.H. Chambers (Northiam Farms) Ltd v Watmough (HM Inspector of Taxes). A case where a farming company bought a very expensive Bentley for both business and the private use of the director and it was held that there should be an add back because the car was too grand. This case dates from the time of post war austerity and it doesn't appear that the issue has been litigated since, which suggests HMRC hardly ever argue that a company car is over the top. In this case the annual bik is likely to be eye watering and HMRC should be content with the tax and NIC on that sum.
You don't say why the yacht was bought and what plans there are for it or what VAT has been claimed on the expenditure to date? What types of use does the insurance cover?
If available for the private use (note no actual private use is needed, the asset merely has to be available) of directors/employees there would be BIKs for them and class 1A NIC for the company. 'Adding back' does not alter that. If bought and kept to provide BIKs then the expenditure is W&E, so why add back? This is also so if bought to hire out or charter. Also CA would be due. Losses of any chartering trade could only be set against profits of the other trade if the chartering was carried on on a commercial basis.
The way to minimise the BIK if there is no significant chartering is to debit everything to the DLA*, but this might give rise to different tax problems and there would still be BIKs for the period between purchase and the debiting*. IIRC there are anti-avoidance rules preventing the director benefiting from any fall in value between these events.
*ie the transfer of ownership from the company to the director(s)/employee(s).
Why is it a thorn in the side? Apart from car benefits being based on scale charges, it is no different to the case of a company owning a motor car.
Would you agree?
First thing I would do is speak to the client and ask them the rationale behind the purchase. If it’s purely to provide a benefit to the owner/director, then there’s either a benefit or it goes the DLA. Maybe there’s a third option?
Normal practice for us is to add back all yachting expenses given no chartering taking place.
"Normal practice"? How often are your clients buying yachts through companies?
No VAT recovery either as no business use (not chartered, no evidence of being chartered).
I think it would be tough to convince HMRC that a yacht owned by a company which doesn't charter it out isn't available for use by the directors. The BIK could indeed be eye watering. 20% of the value plus running costs.
See HMRC's Employment Income Manual 21633 for an example
As a long shot is yacht seaworthy or are works going on making it so?
If it is being refurbed is there any possibility of a trade having started in the buying , refurbing and selling of yachts?
Can you get a look at its log to see where it has been, what they have been doing with it?
I think there is likely a BIK but you ought to check the above.
Looking from a differnt angle:
What was the intention when it was bought?
+ Was there ever a "reasonable" business plan (IE if actioned, stood a chance of turning a profit, per hire or in total)
+ Was any marketing carried out
+ Etc Etc
Remember throughout the pandemic chartering a yatch hasn't really been an option
(granted there will be some possible useage cases but rather thin on the ground)
Potentially there's almost certianly a personal use BIK but the presence of the above will at least give weight to any decision to not BIK all of it
Potentially there's almost certianly a personal use BIK but the presence of the above will at least give weight to any decision to not BIK all of it
No statutory weight, obviously.
Oracle Racing has a yacht. Never chartered, afaik. Just saying. Because as per we haven't been told anything about anything, and all answers are basically balance of probability guesses.