Advice on a charter business

[flyboyuk40]

Hi everyone

Having been bitten by the sailing bug this year, my partner and I are frugally contemplating ways of buying a boat probably next year. Having lost our rose tinted spectacles about 5 minutes after making our decision we are now looking at the most cost effective way of owning a boat.
We are looking at the possibility of using my partners limited company to buy the boat with a view to chartering it so that we may be able to claim back/not pat VAT on the boat and it would also save my partners capital gains tax.

I realise that there are many implications in doing this and I'm just looking for feedback as to how viable this venture is likely to be.

Also does anyone know how often we would have to charter the boat out to call it a 'business'. Could we, for instance charter it just once a year and get away with it?

Could we use a charter agency to arrange the charters and still implement our plan.

Sorry for such a long post but if the plan works we could buy a bigger boat than we previously thought, and that can't be a bad thing

Cheers

Mark

<hr width=100% size=1>CageUK
www.cageuk.co.uk

 

[BlueSkyNick]

First of all, welcome to the forum. I hope you get the same level of information, entertainment and frustration from it as I do.

I have no personal experience of owning a boat on charter, but have chartered for ourselves a couple of times. However, from what I've heard, people who have a boat which they love and cherish as their own get upset and disenchanted quite quickly when it goes out to charter. IMHO, The best approach is to see it purely as a financially advantageous way of going sailing a few times a year. A bit like a timeshare apartment, in a way.


<hr width=100% size=1>It's frustrating when you know all the answers, but nobody bothers to ask you the questions.

 

[YachtKatina]

I'm new to boat owning and this forum and im crap with finance but my limited understanding is yes you can have a charter business and the capital outlay is 100% expense allowed (but as diminishing % over a few years not sure how many) and you can claim all the VAT back if you are registered. But tax person is not always stupid a few charters to friends and relatives will not fool them. Also personal use will count as taxable benefit of some kind but i understand this can be quite small.
Another option will come as a long term aim suppose you need to get money out of the business roll this profit into a boat purchace for chartering say in Med sail it out there stay three years then close business. Hey presto you are no longer resident in UK and out of reach of UK tax man!
this is just an idea i read somewhere... it is not advise
Also yes talk to sunsail nielson those kind of people are very good a the tax advantages of their purchase charter schemes.

<hr width=100% size=1>

 

[CliveG]

The best way forward would be to talk to some charter companies.
You would also need to talk to your accountant to check out the tax situation.

Most small to medium companies do managed charter.
You need to decide where you want to base the yacht and then look for a company in that area.
Go and see them or even better charter from them and see how they look after the boats.
Some are better than others.

In a lot of south coast areas moorings can be a problem.
Most charter companies will need you to have a mooring.
It can help if you buy the yacht through an agent in the area you want to keep the yacht and make the provision of a mooring a required part of the deal.

To make my position clear, I am the Web Master for a charter Company in Dartmouth.

<hr width=100% size=1>

 

[flyboyuk40]

Hi Bignick

Yes I can understand what you mean about having complete strangers using your personal property.

I'm actually trying to guage, among other things, what constitutes a 'charter business'. If I could rent it out to friends a few times a year (or less) and call it a business then it may be worth it to be able to buy able to buy a bigger/newer boat with the vat savings/tax savings. When I said Capital gains tax on my first post I actually meant income tax of which my partner is in the 40% bracket so the savings could be significant!

We have to make sure though that what we do is strictly legal and no doubt there will be other costs involved such as insurances, inspections, licences etc over and above the normal running costs of the boat and the whole thing may not be worth while after all.

Nice forum though, plenty of info and I've spent most of the afternoon trawling through it (forgive the pun).

Cheers

Mark

<hr width=100% size=1>CageUK
www.cageuk.co.uk

 

[Nickel]

If your charter plans only involve letting the boat out to a few friends and families, then both C & E [for VAT] and IR [for Corporation Tax and for Income Tax on benefits] will look askance at your venture - it would seem to miss the vital profit making motive that any genuine business must have.

Talk to charter companies, but don't take their advice on tax - their business is chartering boats, not getting to grips with tax legislation. If they misadvise you and you rely on that misadvice you will have no comeback. You will need proper accounting advice, and make it plain to any tax advisor you speak to that you will be relying on their advice in making any decisions you come to.

<hr width=100% size=1>Nickel

Being paranoid simply means - having all the facts.

 

[rhinorhino]

As a minimum to keep the VAT/tax happy you need to show that it is genuine trading venture, I have heard 16 days charter over the year quoted as a ball-park figure. If you place the boat with a charter agent (so that it is advertised for charter etc) this will also help show that is is a genuine trading venture. Charters must be to bona-fide customers paying a proper rate, not your mates!
You will have course have to pay VAT on any charter income and tax on any profits.
The industry standard rarte is 40 % to your charter agent. Beware agents who also own boats.
Tha boat will have to be coded. Depending on the boat and/or the surveyor this may range from trival to a virtual re-build.
Insurance for bare-boat charter will be around 1.5-2.5% the value of the vessel.
Your choice of boat will also be limited, the best boats fro charter are not always those you would want to sail yourself. There is little chance of getting anything less than 36' into a reputable charter fleet. Currently something with around 10 berths is your best bet on the south coast.
You will need a berth in a good marina, this is not cheap, say £6,500 for 38' with MDL. You can forget swinging moorings/ half tide moorings.
If you do not use an agent you will need to arrange to hand the boat over and to get it back at the end of the charter. Repairs/maintainance will also ned to be done promptly.
If all this has not put you off, send me a PM.

<hr width=100% size=1>

 

[Sunnyseeker]

We set our boat up for charter and the additional cost to be MCA coded which would be required on a british flagged vessel, was in the order of £6,000 on a fairly well found yacht. Some of the required changes were not in my view necessary, other were worth considering. You can get a copy of th eblue code from the MCA to see what needs changing. I did all the required work on my boat as well if you were to pay a yard under supervision from MCA surveyor it would probably cost more.
You also need tonnage certificate and part one registry.

<hr width=100% size=1>

 

[Peppermint]

Re: Firstly

You must understand that a successful charter boat may not be the boat you want to buy. Bunks are everything in the general bareboart market. So you need a popular version of a mass produced yacht with the maximum number of berths.

I'd have it managed. You give customers a better service using dedicated agents than most one man bands can offer. You've got a much better chance of meeting the tax mans requirements too.

Great care should be taken in placing your yacht with a charter company. I've used lots of companies, as a charterer,and only a few would meet my requirements
if I wanted a boat managed.

Consider were you would like the boat stationed. A good charter company will find a berth for a boat they really want even in marinas that have long waiting lists.

Get used to the idea that your boat might be successful. That means you will have more trouble planning your personal cruising. If you can cruise mid week that can be less of a problem as much of the market on the S.Coast is weekend work.

If you ant to knock this about a bit and speak to a couple of people I trust in the trade PM me.


<hr width=100% size=1>

 

[rhinorhino]

Re: Firstly

Totally agree, sound advice...

<hr width=100% size=1>

 

[MainlySteam]

<<<If I could rent it out to friends a few times a year (or less) and call it a business >>>

And maybe you could rent your house out to friends a few times a year (or less) too and call that a business as well!

And the car too! And that could be easier; just give a friend a lift a few times and charge them for the ride - you don't even have to let anyone else drive it.

Think you are dreaming myself, else we would all be doing it.

John

<hr width=100% size=1>

 

[Goodge]

Re: Firstly

Peppermint, I'm following this thread with interest as I'm considering buying a yacht for charter myself.

Is it ok to PM you as well as it sounds like you have good knowledge / experience in this field.





<hr width=100% size=1>

 

[bedouin]

You certainly need to take professional advice on this - the cost of getting it wrong is rather high!

I did something similar to this several years ago and it is likely that the rules have been tightened somewhat since then.

However in general this is the usual way of owning a yacht if you are seriously trying to generate charter income from it, even if you don't already have a limited company to do this.

AIUI the most serious potential problem with owning the yacht through a business is that you using the yacht can then be classed as a "benefit in kind" and you may be liable for tax on that

<hr width=100% size=1>

 

[YMRookie]

We have had a boat on charter in the Caribbean for several years with Horizon Yacht Charters. It has proved financial sound and given us weeks of fun into the bargain. Research thoroughly and the Yacht Management route can provide really cost effective sailing. However companies do go bust and reserving some of your income will enable you to resolve any problem that can arise.
Contrary to some advice given here I do not believe that numbers of Berths/bunks is critical. Some locations and nationalities prefer comfort and convenience. Large groups are harder to coordinate so we average 4-6 guests. i.e. for a given boat length owners 3 cabin boats do as well as 4 cabin versions.

<hr width=100% size=1>

 

[Sybarite]

Tax men have a habit of looking at substance over form. It's not really difficult to see what the real situation is.

In France the taxmen tend (or at least tended) to turn a blind eye to the individual who occasionally chartered his boat on the grounds that if you apply depreciation of the capital cost to the other costs associated with chartering, it was highly unlikely that you would arrive at a taxable profit.

What was interesting was to run a crewed charter business in which case it was assimilated to the hotel industry and losses (provided you chose the correct legal entity form) could be set against other earnings.

John

<hr width=100% size=1>

 

[snowleopard]

been there, done that, got the scars

i bought a fleet of 3 boats as a going concern. i lost money on it but recouped my losses in the end by smartening them up and selling them.

a lot of good points have already been made, but here are a few of mine.

1. talk to the yacht charter association, they have an information pack for would-be charterers.

2. don't assume that a ready-to-sail boat is ready to charter, the extra equipment needed will set you back a lot of dosh.

3. don't know where you get CGT, you won't make a capital gain on a boat!!

4. the tax men won't let you offset all the running expenses against profit if you use the boat for your own pleasure as well. they will either pro-rata it or charge you income tax on your use as a taxable benefit.

5. if you use an agent they will charge you 30-45% of the income as commission. if you try to run it yourself you'll clock up a lot of advertising expenses.

6. charterers are typically less competent and careful than owners. if it's your pride and joy, the constant stream of damage and lost gear will be very upsetting. expect the boat to depreciate more than normal. when you come to sell, if buyers know it has been chartered they will run a mile.

7. as has been said, an ideal charter boat is not an ideal boat to own, the main criteria for a successful charter boat are (a) as many berths as you can possibly cram in and (b) a well-known make.

sorry to be so negative but most people go into this with rose-tinted specs and come out disillusioned.

if you only want to cut the costs of boating, buy an older boat, keep it on a mooring and do your own repairs.

<hr width=100% size=1>