Plain Sailing or Stormy Seas ahead?

HMRC have just announced their new tactics against their favourite topic of yachts. The new tactics effectively try to attack those who believe they have already managed to jump through the loops and had their VAT Registration (and subsequent input VAT recovery paid) all agreed. They will attack anything they consider as abusive, such as:

(The existence of one or more of the following features might indicate an abusive structure (the list is not exhaustive - the indicators are illustrative of the points that we might take into account, together with others):

· The main user of a pleasure craft is the ultimate owner of the chartering or leasing entity.

· The main user of a pleasure craft funded the purchase of the vessel (directly or indirectly).

· The person who funded the purchase of a pleasure craft (directly or indirectly) uses the vessel for prolonged periods in the peak chartering season.

· The chartering of a pleasure craft to third parties would not, alone, be of sufficient continuity and substance to comprise an economic activity.

· The chartering or leasing entity shows significant ongoing losses in its financial statements.

· Charter fees or lease instalments due from the main user of a pleasure craft are paper transactions only (for example being offset against loans).

· Charter fees or lease instalments are below open market value.
The terms of a lease differ significantly from normal commercial practice (for example, the duration of the lease is unusually long).

If you are off the boat show in Southampton in the next couple of weeks then you may want to rethink your plans now before you find significant penalties (HMRC have to reclaim the revenue lost through Fleming claims somehow!) as well as interest an input VAT to be repaid.