Chartering and Coding

[simongoldthorpe]

Having just got back from the boatshow I have inevitably fallen in love with a boat I can't afford so I am going through the fantasy of thinking I can afford it if I do some chartering.
Does any private owner have any practical experience of chartering or the process/costs involved in getting a new boat MCA coded?
Thanks.

 

[Deleted User YDKXO]

Simon, I have been looking at buying a boat to put in the Med for a mix of charter and private use myself. I've spoken to a couple of charter companies and the consensus seems to be that a 35-50' sports or flybridge cruiser based in Mallorca would be the ideal combination. Placing the boat with a charter company would mean that they handle all the marketing and vetting of charterers but they take at least 15% of the charter fee and maybe upto 25% if you use them for gardiennage as well. I understand that you could expect 4-8 weeks of charter per year and the chartering season is generally June/July/Aug so dont expect to use your boat yourself a lot during this time especially as you get occasional ad hoc day charters as well. I've been told that boats need to be relatively new, certainly not older than 5yrs, to attract charterers. A decent 40' boat might get £5000/week during high season but maybe half that out of season. However, your costs will be high, maybe £10k a year to moor the boat in Palma, if you can get a berth, increased insurance and maintenance costs. I would reckon on £15k per year for a 40' boat before any financing/depreciation. I believe the MCA coding would cost about £2000 as a one-off charge. You could set up the operation as a limited company in which case VAT could be reclaimed on costs including the boat itself but you would need to come to an arrangement with the Inland Revenue with regard to benefit in kind for your own personal use of the boat. You have to prepare yourself for the fact that your pride and joy will be somewhat trashed after a few years of charter and, therefore, worth less when you come to sell it so I dont think you can look at this as a business proposition, only a way of recouping some of the cost of your boating

 

[EME]

Mike

You're making me think. Do you know if you buy a second hand VAT boat in your own name and then transfer into a limited company for the purposes of not paying VAT but keeping the boat for charter , whether this actually works with the French and Spanish authorities?

Or do you have to pay the VAT and then attempt to reclaim it?

Any tax experts out there?

...I wanna boat please..

 

[Deleted User YDKXO]

I'm not an expert but I dont believe you can buy a VAT paid secondhand boat in the name of a limited company and reclaim any VAT. You can buy a secondhand ex-VAT boat but if you purchased the boat in the UK, the seller would present you with an invoice showing VAT which you would have to pay to the seller and then reclaim in the normal way. You could buy a new boat but the same applies, you have to pay the VAT first and then reclaim it.
On the other hand, you could buy an ex VAT new or secondhand boat from a foreign EC based VAT registered company and providing they showed your VAT number on their invoice, you will not have to pay over any VAT.
Another way to reduce VAT is to buy an ex VAT boat from the Channel Islands, agree with the seller to understate the value of the boat on the invoice and that will reduce the VAT payable on importation into the EC. Obviously, this is totally illegal and I would'nt reccomend it. I did hear a while back of a Belgium based leasing scheme which, due to the peculiarities of Belgian Law allowed VAT to be reclaimed on privately owned boats but the cost of the scheme was about 7% pa plus set-up costs and was generally only worthwile for boats in excess of £300k
Whatever you do and this is absolutely vital anywhere in the EC, you have to obtain the original invoice (not a photocopy)showing that you or a previous owner has paid over VAT in an EC country irrespective of whether you or anyone else has later reclaimed the VAT. If you base the boat in Spain or France and providing you have all the correct paperwork, you wont get a problem from the local authorities. However, if you do set up a UK based limited company specifically to own and charter a boat, the Inland Revenue will sooner or later get around to asking whether there is any private usage of the boat so I'm told its best to get your accountant to agree a benefit in kind at the start

 

[EME]

Thanks for the clarity. That's the end ofthestorythen.

Sounds easier to pay the VAT and not worry about it.

Interest came from number of boats advertised 'ex-VAT' , but obviously like French leasing only really works with new boats.

...I wanna boat please..

 

[tcm]

Re: benefit in kind

Since the boat is owned by the compnay, any use of it should be paid for by the user - and this includes you, even though it's your company. So, you rent the boat, and pay the company.

Note also that any work done by you on the boat, such as cleaning it or guarding it would be worth money to the company, and might be recompensed from the company, or you might do it as a favour.

If you did any work on the boat, it would be sensible to take it on a test run, a series of test runs, or a whole week of refitting and cleaning and testing which i suppose starts sounding a bit like a standard boat trip but anyway...

Note that any money yo pay for the rentals "goes round" so if you pay handsomely, the boat compnay will only lose a bit of money, whereas if if you beat your own boat charter compnay up for a discount, the boat charter company will lose money hand over fist.

Importantly, the boat-owning company CAN'T just charter to you, and must show rentals from others. The company will get the VAT back, but will have to pay the VAT first of all.

BUT - as a vat-registered company, it has to charge vat...which is where the thing falls to bits - the charterer won't pay inflated VAT-inclusive amounts - he'll rent from the casual types with vat-paid boats. So your rates will have to be low, so you'll make less money, you'll be selling a non-vat-paid boat which lots of people don't realy understand and be poncing around with pieces of paper for ever instead of having a holiday.

Pay the vat and be done with it, imho

As mike says, the boat gets a bit trashed, and imho this won't take 5 years.

 

[EME]

Re: benefit in kind

That's exactly where I got to.

I worked out a way of doing it commercially and making money through big scale shared ownership and protecting from the VAT -man (which professional advice endorsed) but the bottom line is unless you are big and can demonstrate consistent intent to make 'profits' he can have you anyway....which is I suppose fair given that we are trying to beat the system. Not sustainable as you say.

If you are looking to defray the cost then take it like a man/woman.

...I wanna boat please..

 

[Deleted User YDKXO]

Re: benefit in kind

Some good points although the Revenue are going to smell a rat if you beat up your own company too much for a discount. Still, creating a nice little tax loss could be very useful
Good point about VAT chargeable on charter rates - didnt think of that. Re ex VAT secondhand boats, is'nt the real problem that buyers are scared of buying an ex charter boat and could you not simply pay the VAT and sell the boat as VAT paid?

 

[EME]

Re: benefit in kind

There are a number of boats 2-3 yr old , particularly in Spain, which were ostensibly available for charter but deliberately were not used for this purpose. Many were registered in BVI and similar and are in my experience, which extends to 3 specific boats, owned by non-EC citizens.
So , IF , there were a way around it which enabled VAT free purchase then I would do so BUT can not see any other way around it. Paying/Reclaiming VAT and declaring insolvency if chased bythe VATman at a later date is not feasible for me.

...I wanna boat please..

 

[tcm]

Re: benefit in kind

Yup, you could. Essentially, you buy the boat personally - but you don't save the vat you only save the vat on the depreciation, so lots of work with a guaranteed massive tax bill at the end. Accountants think it's all fine, but basically an auditor gets to rummage through your holidays - "and was your wife with you for the duration of these two weeks?" and so on.

 

[Deleted User YDKXO]

Re: benefit in kind

There are always a lot of ex VAT boats on the secondhand market and, frankly, I dont know how the owners do it other than as part of a charter operation. Many years ago you used to be able to buy a boat through your company claiming it was for entertaining customers but the Revenue put a stop to it. There was a story in one of the mags a few years back about a bloke who bought Princesses through his company which he used for making presentations to customers but, if I remember correctly, he still negotiated a benefit in kind with the Revenue for personal use.
The BVI boats are owned by non-EC nationals and non-EC registered so I think VAT would have been paid on purchase but reclaimed on 'exportation' of the ownership in the same way as Channel Islands residents can boat VAT free in the EC. Actually, as a UK resident you could buy a VAT free boat in the Channel Islands and avoid VAT payment providing you did not visit the EC ie UK or France but the first time you visited a French or UK port, theoretically VAT would be payable
There's a lot to be said for tcm's view - just pay the VAT and sleep easy

 

[MRC]

VAT - ExVAT

On a £5 million boat then getting the VAT back or buying the boat Ex VAT makes sense but on say a £200,000 boat the VAT is £30k all you would be saving is the cost of carry/funding on the £30k (VAT part) and at say 2.5% interest (4% less 40% tax) you would save £750 a year - Is it really worth it??

 

[EME]

Is it worth it......??

if you're unemployed - yes
if you're salaried - yes
if you want to be rich - yes
if you want to stay rich - yes
if you want to be comfortable - yes
if you want to get richer - yes

if you want to stay out of prison - ....... no


...I wanna boat please..

 

[MRC]

Re: Is it worth it......??

haha - ill get my coat then.....

Another thought on why I (sounds like its only me) dont think its worth it is, if you are ex vat you would have to charge VAT on the charter income too, therefore on a boat of say £200k im assuming the week charter would be approx 3k? If you had to charge VAT that would mean £450 odd quid would end up being payable in VAT, so if after the £750 saving on the carry of the VAT this would be eroded by less than 2 weeks charter and would also keep you out of prison.

hmmm on the other hand you could also reclaim the VAT on the running costs, berth, service etc etc.

 

[tcm]

Re: Is it worth it......??

no no MRC, i'm with you, as (i think) are most. Note that with a med-based boat, you'd be chargeing and reclaimning french vat from the tresor publique, which must be quite a game.

 

[stewart]

Cayman Islands etc

I could be wrong on this, but I thought that if the boat was sold by the manufacturer for export outside the EU (e.g. to BVI or Cayman Islands company) then VAT wasn't charged. Providing the boat wasn't kept in the EU for more than six months per annum then the VAT does not become payable, and I think Gibraltar counts as outside the EU so you can berth in Palma for 6 months and Gib for the rest of the year. Also as the charter profits are being made by a BVI company then there won't be any tax payable on these or any benefits in kind etc. Works even better if you've made a little money which inland revenue don't know about and have already put that off shore (I hear royalties/licensing type payments work especially well for this....)!

I might not be 100% on this but that's kind of how I think it works but no doubt someone will correct me.....

 

[Deleted User YDKXO]

Re: Is it worth it......??

You're right. Claiming back VAT on foreign sourced goods and services is a nightmare so not even worth bothering with. Probably cost you more in accountants fees than you'd get back

 

[EME]

Re: Is it worth it......??

On the contrary...I agree with you entirely.

I'd rather be poor and broke than in gaol!!!!

You can take your coat off!!!!

...I wanna boat please..

 

[Deleted User YDKXO]

Re: VAT - ExVAT

Yeah but we're talking about comparing with private ownership. So £35,000 VAT at average marine mortgage rate of 7% grossed up at 40% tax rate means you have to earn about £4080 per year before tax just to fund the VAT on your boat and then we have'nt taken account of depreciation. If your new boat depreciates 20% in 5 yrs, then the depreciation of the VAT element is costing you another £2330 per year in grossed up income.
Thats a fair chunk of money to throw away

 

[MRC]

Re: VAT - ExVAT

It is a chunk of cash, agreed, after tax £3,846 pa, breakeven of around 5/6 charters so getting close. Also I suppose if your doing it as a business then you can also claim back tax relief on the finance if you treat it as a business loan?

Buy a PC to work the accounts out and get a 100% allowance in the first year on it

Claim back the cost of flights to an from the MED as part of travel expense

What about using the inland revenue capital allowance of 40% 1st year against depreciation then 25% each year after that.

All off set agaisnt income tax in employed job?

Number crunching starting to add up, you know what I may look at that larger boat that I couldnt warrant buying....Anyone got any boat show tickets going????