Company boat ownership

[youngr]

I'm a complete newbie at boating, but have been lurking for a while on and off and have been thinking about buying a boat now for a couple of years. This year's going to be the year, and I've been to look at a few smallish family sports cruisers, the Sea Ray 240 Sundancer being the favourite at the moment.

Anyhow, my main question is about financing the boat - I've heard of people who run limited companies buying the boat through the company and running it that way - does anyone here have experience of doing this, and what the justification is (Corporate entertainment?), any pitfalls, etc.?

Thanks
Russell

 

[Chris_d]

I might be talking rubbish, but I think its a bit of myth brought about by non-boaters trying to explain away the millions of pounds worth of boats they see sitting in marinas apparently going nowhere.
The taxman isn't stupid and you have to prove its not for pleasure use. You can have a boat coded for charter use, but it isn't cheap and with something as small as a 240 I doubt it would be worth it.
I'm afraid its a good old loan or hard cash like the rest of us.

 

[DOK]

Anyone can set up a company and then you can buy the boat (or anything else for that matter) through the company BUT.... the company will still need funds with which to to buy the boat - presumably you will put in those funds - and defray the running costs - ditto. So ... what have you really achieved by owning the boat through a company??

There is one potential pitfall you need to be aware of if you do consider buying through a company. You will, no doubt, be a director of the company and you will be using the boat for personal use - technically, you will be liable for tax on the boat as a benefit in kind. There is no logic to this charge - it arises simply because of the way the legislation on biks is drafted but I have seen HMRC take the point.

 

[youngr]

Thanks for the replies so far...

The company's already running and has the money in the bank, so the potential savings of running through the company (assuming it were legal) would be:

Dont have to get the money for the purchase or running costs out (and hence incurring income tax 40%),
Being able to reclaim VAT on servicing, fuel, mooring and other expenses

You're right about having to pay tax on the boat as a benefit in kind when using it for non-business use, but does this mean just the running costs or the purchase price of the boat also? And also I wonder what would constitute business use - entertaining clients? Sounds like it's probably not worth pursuing, but I thought I'd ask the question anyway in case it was a common practise.

 

[Chris_d]

I do know of several people who have started a company, made a bit of money and needed to spend it quick to avoid paying income tax on it, a boat is a good way to spend a lot of money quickly /forums/images/graemlins/smile.gif

 

[raquet]

When I was living in the UK I 'sold' the boat I had then (a 30ft Iroquois cat) to the limited company I used for my freelance work. I offered the boat for charter but clearly wasn't very good at it because I never had a single customer. Perhaps that was because I didn't advertise. All running costs came from the company and were therefore expensed before tax. I reclaimed VAT on purchases for the boat. During the three years I did this I was subject to a VAT inspection. The inspector asked me what the boat receipts were for. I told him I had a boat for charter - he accepted that without further enquiry. In those days my accounts were audited and my auditor had no problem with the accounts. Neither did the tax man. I was asked about personal use. I replied that, as a responsible charter owner, I was obliged to use the boat at frequent intervals to ensure that the boat and all equipment was in good safe working order. Some of the equipment I bought (and recovered VAT on), like my Decca, required extensive testing in a variety of locations - France and the Channel Islands being good test grounds. The suggestion that I should claim the cost of the cruise, sorry, test sail against tax did raise an eyebrow so I didn't push it.

This was 15 years ago so things may have changed. However, at that time there was nothing to stop you trying to offer a small boat for charter and nothing which said you needed to be successful at it in order to claim tax deductions.

 

[DOK]

[ QUOTE ]
Being able to reclaim VAT on servicing, fuel, mooring and other expenses

[/ QUOTE ]

Provided (and to the extent that) it is a business asset, of course.

[ QUOTE ]
You're right about having to pay tax on the boat as a benefit in kind when using it for non-business use, but does this mean just the running costs or the purchase price of the boat also?

[/ QUOTE ]

It would be the direct costs (unless you personally reimburse them) plus 20% of the cost of the boat each year.

BTW take proper advice, don't take anything I say as professional advice /forums/images/graemlins/smile.gif

 

[oceanfroggie]

Hi Russell. Sorry but dream on!

Btw, understand you'r only interested in this if it was legal. The Revenue are well on top of the so called "corporate entertainment" scam. Well they are over here. The CAB have confiscated boats and sold them on legally keeping the cash. Any accountant worth their salt will advise you to forget it. Folk have tried this, and some as of yet have managed to stay under the revenue radar. But I can tell you revenue staff regularly visit marinas, checking the registration and ownership of vessels. Other silly scams included one boat charter fleets, survey boats, floating offices, etc, bla, bla, bla. You get my drift. In a situation where a company does own and operate a vessell in the course of its business or trade, employees or directors who use the boat for leisure activities are liable to benefit in kind taxes. There are also VAT issues, and it is usually the diligent and well resourced VAT man who uncovers most of the twits. Better to play safe and enjoy your boat without looking over your shoulder every time somebody wearing a suit walks down the marina jetty /forums/images/graemlins/laugh.gif /forums/images/graemlins/laugh.gif Remember it is not the advisors who get hit when the tax man cometh looking for his pound of flesh.

 

[Nautorius]

Russel,

I have recently looked at this as a way of getting a much nicer boat. My brief understanding from reading up (no professional advice) is as follows.

Set up a new division of current company and buy the boat through it. Get the boat MCA coded for charter and actually register it with a charter agency/company. This means the purchase VAT is not paid (or reclaimed). All running costs go against the boat and a loan covering interest only can be put against any income. When you use the boat either pay a BIK or, my way would be to pay the equivalent charter price into your company account. There are two benefits of this. Firstly any actual charters will not cover running costs so you will need to subsidise it. Paying BIK gives it to Gordon, which I hate. You would have to pay in extra cash so if you did this through the company you are not liable for BIK and have charter income. You are allowed a few days use for 'Testing etc' but these should be no more than say 12 days a year and LOG them.

The end result is that after 2/3 years you have enjoyed the benefits of a new boat, had a little extra income, had the tax benefits and then you can buy the boat off the company and pay VAT on the resale value not the new one.

This plan requires quite a bit of work and diligence and is esier to operate as part of another business than on it's own if there are limited charters. You will also incure accountants fees but they should be limited to £400-£500 a year if you keep accurate books. One way to get extra income through the books is to ensure that when you take friends out they pay the charter fees (or you record they do).

It is hard work and may save you £1500 a year on running a £75k boat, a searay 240 might not be worth it.

This is all what I have gleaned and I am happy to be corrected. On a new £172,000 boat I reckon the savings for me as it would have to be mortgaged are about £2500 a year based on lower mortgage value (no VAT element to finance) 15 days of professional charter, 40 days of personnal charter and 6 days of Freinds charter. It is a lot of hassle for that amount of money, but if it was £5000 I would do it.

Of course the companies other interests have to make a profit or you will get done from HM Govt inspectors!

If done properly it is not Risky, but the temptation to cut corners to save a £100 may put you in deep trouble.

Are you disciplined enough? /forums/images/graemlins/confused.gif

Cheers, IMHO,

Paul /forums/images/graemlins/laugh.gif

 

[itsonlymoney]

Very interesting reading paul. I reckon, however it may be possible you would have to be saving a min of 10k pa for all that paperwork and hassle.

 

[Nautorius]

Yep,

A lot of Hassle for a few thousand, but if in time you were expecting getting a bigger boat then the practice (and risk) would be worthwhile. Still can not make it work for me so the big shiny new boat is still a few years off.....

Cheers

Paul /forums/images/graemlins/laugh.gif

 

[Lenboat]

Check out www.boatsdirect.co.nz

 

[Nautorius]

How does that help with Company boat ownership? Also what has it to do with Tax efficiency as you still have to pay VAT and Import duty just like a UK purchased boat? Can you please explain. We like to help each other on here and a bit of explanation...unless someone asks for a link, would help,

Cheers

Paul /forums/images/graemlins/laugh.gif