Yachts Under Attack
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Published originally 8 October
been two recent cases of yacht chartering that have recently made tax
claims and then come under HMRC attack, with mixed results. In A
Salmon (TC3789) the taxpayer lost over
the question of “active involvement” in ITA 2007, whereas in Beacon
Estates (TC03808) the taxpayer
won, having demonstrated the realistic possibility of recording a
In the Salmon case, the taxpayer bought a
which he chartered (hired) to customers. In his tax return, he said he
the yacht chartering and skippering business, and claimed tax losses
from capital allowances against his other income. He was unaware that
s75 precluded such losses being used in this way unless he spent at
his time carrying on the trade.
Involvement - Salmon
discovery assessments (TMA 1970, s29) to recover the tax when they
that the taxpayer did not meet the requirements of s75. The taxpayer
saying the return contained sufficient information for HMRC to have
the incorrect claim in due time. He argued that his description of his
as chartering and skippering made it clear that there were two separate
activities. This should have led HMRC to note that one activity,
involved the mainly passive letting out a yacht on a bareboat basis,
therefore could not have satisfied the conditions in s75.
First-tier Tribunal (FTT) disagreed that the description should
have indicated the business was bareboat chartering. It was considered
unreasonable for HMRC, from the business description, to have assumed
taxpayer met the active involvement test. An inspector would have had
for more information to know there was an underpayment. Furthermore,
“of fairly limited relevance”, used mainly in the context of “hobby
and it was “unrealistic to assume that the average inspector should be
to have been aware of it”. HMRC were entitled to raise a discovery
and the taxpayer’s appeal was dismissed and therefore the tax losses
Commercially – Beacon
In the second
case, the FTT was asked to consider whether a business was being
commercially in Beacon Estates (Chepstow)
Limited v HMRC TC03808.
carried on a yacht chartering business and had a number of difficulties
gave rise to losses. In considering whether those losses were eligible
relief, it was necessary to determine whether s393A, Income and
Taxes Act 1988 (now s44, Corporation Tax Act 2010) applied – both
the same test that the trade must be carried on “on a commercial basis
a view to the making of a profit in the trade or so as to afford a
expectation of making such a profit”. The need to satisfy such a test
being questioned by HMRC.
A View to making
The FTT said in
Beacon Estates that “with a view to
the making of a profit” should be interpreted to mean “allow a
possibility of making a profit”, thereby importing an objective element
into the test.
test to the facts of the case, the tribunal decided there was a
possibility or reasonable expectation of the company making a profit
chartering activities and the losses were thus allowed.
conjunction with other recent cases, including Glapwell,
Murray and Thorne,
the key element has been the ability to provide evidence to prove that
motive existed, usually via a business plan. It is fair to say that it
assumed that all tax loss claims will be questioned by HMRC and answers
at the ready if required. It is essential that there is evidence of
involvement and commerciality. Ideally there must be both diaries and
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email;
firstname.lastname@example.org, Website; www.butler-co.co.uk
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2015-03-16 11:26:44 in Tax Articles