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Old 24 September 2004, 10:37   #11
Jon
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Company or personal asset?

If I had a fiver for every time a client has asked me about this I would have bought a Scorpion by now - but hey, what's wrong with the Ribeye - no, don't start!

If the company buys the boat for commercial purposes you're right in saying that it pays for it after tax - 19% if the company is "small" and the profits are therefore under 300k pa. The company can claim capital allowances on the boat but these are restricted if there is private use.

However, once owned by the company you need to take note of the benefit in kind issues. BIK's are chargeable on personal use of company assets and the Revenue can try to argue that the boat is solely for the personal use of the director/employee in which case a BIK of 20% of the cost of the asset is declared on the P11D (and the employee will pay tax at their marginal rate) and the company will pay Class 1a NIC on this at 12.8%.

The Revenue will also seek to disallow a large proportion of the running costs of the boat for tax purposes unless it can be proved that the commercial benefit of the company is the main purpose and that personal use is merely incidental. On sale the company will be able to claim for the business proportion of the loss on sale or if it is a profit this will be added back into the tax computations.

I have seen many situations where we have tried to claim that this is a marketing expense - we've dione it for aircraft and other assets too and it's quite difficult to get the Revenue to agree it - but then if it was easy everyone would do it!

If the boat is purchased privately and then made available to the company for corporate entertaining, marketing and other commercial purposes, a charge can be made by the owner. The company can claim that this charge is a trading expense and get relief for this against corporation tax.

The individual can, as explained in a previous post claim tax relief on the expenses as far as they relate to the commercial use of the boat and set the costs against the charge raised to the company. On sale, if you have used the boat as a business asset the commercial proportion of the loss or profit on sale will be subject to tax or available to set against your other income as a loss.

It's all a bit swings and roundabouts really but it depends on the funding structure of the business, whether you want to incur the wrath or interest of the Revenue - they will get involved where there is a boat! - and what you want to do eventually. I have clients who have boats in the company who just accept the BIK charge as a cheap way to boat and a cashflow advantage by having the company fund the asset.

For bigger boats we have used other methods of tax efficient funding that can also help to save the VAT etc - but that's not for here....
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Old 24 September 2004, 11:36   #12
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Jon,


Many many thanks for your detailed response and your time taken to draft it. You explained it extreamly clearly and is very useful. Gives me something to chew over.



Paul
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Old 24 September 2004, 14:42   #13
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Nice one Jon I spose Ribeyes and Accountants can't be all bad If anybody needs advice on how to run a charter company at a loss I seem to be doing quite a good job of that at the moment.

First you need a very wet summer and you need to buy a fkkn big rib with a CAT engine
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Old 24 September 2004, 15:53   #14
scm
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Jon,
Thank you for a very detailed response that was a great help to me.

I would like to discuss some of these issues over the dog and bone if that would be poss? I will PM you with my details.

Once again many thanks.


Regards
Stuart
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Old 25 September 2004, 03:52   #15
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Jon
thanks again for a excellent answer,once again you have cleared up a huge amount of grey areas for me and others well done
regards Tim
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Old 28 September 2004, 20:05   #16
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Thank you everyone for your careful thoughts and advice. My situation is (inevitably) not quite as simple as some of you may have imagined. Close to how Paul suggested but with subtleties. Is anone on this post an accountant who knows this stuff backwards and work with my accountant and thus could help / dissuade me? Not looking for free advice - happy to pay for a consultation. Frankly a lot of this stuff is too hard for me to understand....

PM me please if you can help.

Thanks

Bruce
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Old 30 September 2004, 10:33   #17
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VAT on RIB's

Chaps......

I can categorically state that the VAT on a commercial RIB would only be considered if the boat is coded or if there is a Boatman's license in place - this then assumes that the local Council have inspected and confirmed the safety equipment is up to date....without coding or license there is little chance. After all if the boat cannot be used for a commercial purpose i.e. not coded or licensed then it cannot be a business and why would the VAT be repaid to the claimant! The M C A site is also worth noting as last time I looked they were asking for sightings or information as to the use of uncoded vessels. In respect of the Inland Revenue that is a different matter but I can confirm that benefit in kind would be pursued against the directors or employees of a business who were using the 'asset' even occasionally.

The Chief
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Old 01 October 2004, 04:42   #18
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And.......there's more

Any commercial user who uses the RIB for private purposes is also due to account for VAT on the rate charged to the usual customers - Section 19.5 VAT Act 1994. This is particularly relevant where a company owns the boat but the Director or employee uses it on a private basis. The MCA requirements for logged passage plans must also be adhered to and the logbook can be requested by the tax authorities as part of the business records.........

It's tough at the top!
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Old 01 October 2004, 06:30   #19
Jon
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But you might not want to reclaim...

If you're buying the boat through a company to take advantage of the pre-personal tax earnings position but intend to make personal use of it to a large extent, it wouldn't be worth reclaiming the input VAT if the cashflow advantage of an early reclaim was outweighed by the amount of VAT that would have to be charged to the individual on the BIK.

Many clients who buy a boat in their business accept the fact that they will pay tax on 20% of the asset value as a BIK but don't attempt to reclaim the input VAT on purchase on the basis that there will be no commercial use.

The advantage is that on a 20k boat and engine package a 40% tax-payer will only pay 1600 per year in tax with the company paying Class 1a NIC. To get this cash personally from salary would mean earning 33k + Er's NIC or a cost to the company of 38k before tax relief. That 18k extra is worth a few years of benefit especially with the cashflow advantage added in!
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Old 02 October 2004, 02:52   #20
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10 seats

My understanding is that in order to zero rate your useage ie not have to pass the vat on to customers you need 10 seats, otherwise the vat has to be passed onto the customer.

Mike
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