Share this content

Yacht Expenditure

How to deal with yacht expenditure in company with different trade

Didn't find your answer?

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.

Replies (23)

Please login or register to join the discussion.

avatar
By Paul Crowley
15th Dec 2021 17:37

Will the yacht be the location of the Christmas party?
A good yacht will have a satnav record showing where and when used

Thanks (1)
Replying to Paul Crowley:
avatar
By Leywood
15th Dec 2021 18:36

You can easily track them just from their yacht name.

Thanks (1)
avatar
By Wanderer
15th Dec 2021 17:45

Have you considered whether there should be both a cost disallowance AND a BIK?

Thanks (3)
Replying to Wanderer:
avatar
By Delboytown
15th Dec 2021 17:58

Yes we certainly have!

Thanks (0)
Replying to Wanderer:
avatar
By Delboytown
15th Dec 2021 17:58

Yes we certainly have!

Thanks (0)
Replying to Wanderer:
avatar
By Delboytown
15th Dec 2021 17:58

Yes we certainly have!

Thanks (0)
Replying to Delboytown:
avatar
By Leywood
15th Dec 2021 18:37

So good you said it 3 times, from a different profile.

Thanks (0)
Replying to Leywood:
avatar
By Southbankdelboy
15th Dec 2021 21:42

Leywood wrote:

So good you said it 3 times, from a different profile.


Thanks for letting me know - yes had to create a new account as technical issue on joining a Webinar so thought it would sort it but didn't :( This profile will be deleted thanks for the heads up!
Thanks (0)
Replying to Wanderer:
RLI
By lionofludesch
15th Dec 2021 18:02

Wanderer wrote:

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.

Thanks (2)
Replying to lionofludesch:
avatar
By Leywood
15th Dec 2021 18:39

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.

Thanks (0)
Replying to Leywood:
avatar
By Southbankdelboy
15th Dec 2021 21:49

Was told client had intended chartering it out but hardly happened. Now we get various repairs mixed in with trading expenses etc. that we fish out and disallow. It's a mess to deal with.

Thanks (0)
Replying to Leywood:
avatar
By More unearned luck
16th Dec 2021 19:19

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.

Thanks (0)
Replying to lionofludesch:
avatar
By More unearned luck
15th Dec 2021 18:44

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.

Thanks (1)
avatar
By More unearned luck
15th Dec 2021 18:20

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.

Thanks (0)
Replying to More unearned luck:
avatar
By Southbankdelboy
15th Dec 2021 21:59

Very useful thanks, we will be asking some searching questions and agree should be no different to a car if available for private use. If client says not available for private use then of course begs the question why buy through the company in the first place. Chartering has been pretty negligible though maybe it was a good idea at the time and had been expecting more chartering.

Thanks (0)
avatar
By David Ex
15th Dec 2021 18:43

Southbankdelboy wrote:

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?

Thanks (1)
avatar
By Bobbo
15th Dec 2021 19:16

Southbankdelboy wrote:

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?

Thanks (3)
Replying to Bobbo:
avatar
By Southbankdelboy
15th Dec 2021 22:02

Perhaps poor choice of words :(

Thanks (0)
VAT
By Jason Croke
15th Dec 2021 21:36

No VAT recovery either as no business use (not chartered, no evidence of being chartered).

Thanks (1)
avatar
By AndyC555
16th Dec 2021 09:31

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

Thanks (2)
paddle steamer
By DJKL
16th Dec 2021 10:06

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.

Thanks (2)
avatar
By [email protected]
16th Dec 2021 14:27

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

Thanks (0)
Replying to [email protected]:
avatar
By Tax Dragon
16th Dec 2021 20:08

peter-AT-pschapman.plus.com wrote:

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.

Thanks (0)
Share this content