VAT Issues

[brucehawsker]

Has anyone experience of demonstrating to the Customs and Excise / Revenue that since their RIB is going to be chartered out to a private company from time to time for corporate entertainment, and thus it needs to be MCA local Solent coded, the VAT should be reclaimable? I am told coding will cost around:

"The cheapest option available requires you to stay within categorised waters (ie The Solent).

This will mean the following costs:

Inspection fee £ 80.00
Safety equipment (Approx) £ 750.00* +VAT"

I guess we will have most of the safety stuff anyway, so this seems a worthwile exercise on the face of it.... The boat has a VAT element of nearly £4000.... And it will genuinely be used to scare my clients from time to time.

Thanks

Bruce

[tim griffin]

Hi Bruce
as i understand it VAT can be claimed back if you register for VAT voluntarily
or your turn over is in excess of £55,000 , not sure if its a worthwhile excercise, as when you go to sell the boat you will have to repay the Vat and start again. who will be your driver, make sure they are suitable in experience and qualifcations and either local authority boatmans license or MCA commercial endoresement k
regards Tim
www.griffmarineservices.co.u

[Cookee]

You may be able to recover the duty on the fuel used for chartering as well assuming it's a petrol boat - Customs and excise are very helpfull and will even give you the forms for this!

[Jon]

It's not as easy as just registering for VAT.

There may also be some confusion about the turnover limits. If you make standard rated sales you can apply to be registered at any level of turnover. But if your standard rated turnover is over the registration limit (currently £58k) you have to register.

For a valid registration you have to prove to the C&E that you are carrying out a trade (and they will ask for proof - sales invoices etc) and not just that there may be some incidental use of your boat. They aren't really that willing to just give you £4k because you may give a "couple of jollies" to your customers twice a year. The fact that the boat is coded is also not a sign that you have a valid trade. I have plenty of clients with coded yachts and other boats who do it for the safety but who have been unable to reclaim the input VAT once the C&E start to ask for proof of trade. When you sell the boat you will have to account for output VAT on the sale price.

Don't forget that if you have registered for VAT you also have to register the new trade for income tax (or pay a fine if you haven't done this within 90 days) and pay self-employed rates of NIC unless you already are. If you do carry out a trade you can claim capital allowances against the cost of your boat and equipment - up to 40% in the first year. This could obviously create a personal income tax loss if you own your boat which can be set off against your other personal income or CGT for the tax year.

However, beware the fact that the IR will also want to disallow the private proportion of your expenses, capital allowances etc which will probably be far in excess of any business advantage you may gain.

It's all a question of how seriously you are going to take the business use aspect. It's a big subject once you start thinking through the implications!

[Rogue Wave]

Agreed.

Theres a couple of members of the Forum who are Vatmen....perhaps they can help you.

If you really want to do it then I suggest you put it throgh a yacht management company as a charter boat. Tim Griffin ( Cowes) who charters out Toha (sorry Solent Ribs) may be able to help and another company called firstaway training or firstawaycharters working out of Ocean Village.
International Rib Specialists in Lymington or there is another guy called Mark Brown Tempest Marine (Fareham) who is big mates with Lee and Kevin and does a fair bit of work with Solent rib owners

Also you don't need coding to do what you want you can get a local license from Lymington its cheaper and more effective for occasional use

If you want it coded talk to Searider.

This post has been brought to you by Yell.com

[tim griffin]

Thanks Jon
you have cleared up a few questions i had as well, a good reply
regards Tim
www.griffmarineservices.co.uk

[jwalker]

Originally Posted by tim griffin

Thanks Jon....
....a good reply

Agreed.

[steedthrust]

Also don't forget that you will have to charge your corporate/charterers VAT on their invoice as well. Would make you 17 1/2% dearer than the next guy or 17 1/2 % worse off!!

[tim griffin]

Originally Posted by Rogue Wave

If you really want to do it then I suggest you put it throgh a yacht management company as a charter boat. Tim Griffin ( Cowes) who charters out Toha (sorry Solent Ribs) may be able to help and another company called firstaway training or firstawaycharters working out of Ocean Village.
International Rib Specialists in Lymington or there is another guy called Mark Brown Tempest Marine (Fareham) who is big mates with Lee and Kevin and does a fair bit of work with Solent rib owners

HMM! alot would depend before i consider putting boats on my books experience is the major factor , size of the rib and insurance and qualifications
just because someones boat is coded or local authority licensed does not mean they will get work through a charter company all the above has to be taken into account first. i have to be 100% sure of the ability of the skipper in charge and feel comfortable that they are safe in their operating procedures and they know what they are doing.If they are not capable i run the risk of losing business.
regards Tim
www.griffmarineservices.co.uk

[jackeen]

I've found this thread interesting to say the least. I think (which isn't often) what was ment in the first place was a way of purchasing a rib and find a creative way to miss out on the tax portion. I don't think the intention was ever to lease it back , work the boat or use it other than taking out "Personel Clients" to justify the VAT element.

So

Assuming you have your own Company - What about sponsorship of your own rib. Buy it through you own Company so its pre tax income. ie your company(yourself) buys the rib for "marketing purposes" or you buy it as an individual (post income tax money) and charge your own company (yourself) "sponsorship" for having the Companies name on it.
So it can be deemed a marketing tool for your business.

I don't know if that makes sense - reading it back but hopefully you know what I mean


Paul

[Jon]

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....

[The Jackeens]

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

[Rogue Wave]

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

[scm]

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

[tim griffin]

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
www.griffmarineservices.co.uk

[brucehawsker]

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

[Chief Wiggam]

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

[Chief Wiggam]

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!

[Jon]

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!

[mike]

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