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Private yacht use and benefit in kind – tax Tribunal ruling a salutary reminder of the law

The recent (March 2016) Tribunal ruling concerning the private use of a yacht provides a salutary reminder (if one were needed) of the implications of using privately a yacht owned by a company. The yacht “SPACE RACE” was purchased by a company, Blue Yearnings Ltd, whose sole director was a Mr Jonathan Blanshard. The case concerned an appeal against a HMRC decision issued in November 2014 that Blue Yearnings Ltd was liable to pay Class 1 National Insurance contributions of £9,459 for a period spanning April 2011 and April 2014 in connection with the private use of the yacht. Blue Yearnings Ltd claimed that 50% of the yacht was owned by Mr Blanshard and that, as his private use of the yacht did not exceed 50%, there was no benefit in kind to Mr Blanshard. HMRC’s case was that the whole of the yacht was owned by Blue Yearnings Ltd and therefore National Insurance contributions fell to be paid in accordance with the Income Tax (Earnings and Pensions) Act 2003.

The Tribunal found that the invoice for the purchase of “SPACE RACE” was addressed solely to Blue Yearning Ltd and, furthermore, the accounts of the company showed the whole of the value of the yacht as an asset of the company. While Mr Blanshard may have had the intention of owning half of the yacht, the Tribunal found that he had not achieved this at any time in the period in question.

Of course, this implied that there would be personal tax to be recovered from Mr Blanshard also, but this was not a matter to be decided in this particular case, but an enquiry would be opened. The Tribunal found that Blue Yearnings Ltd was liable to pay Class 1 National Insurance contributions in the amount claimed by HMRC for the relevant period and the appeal by Blue Yearnings Ltd was dismissed.

The modest sums involved in the appeal should not be allowed to disguise the significance of the Tribunal’s underscoring of a fundamental principle of tax law, that private use by a director of a company asset is potentially taxable and the HMRC will take more than a passing interest in any such arrangement. An adverse HMRC ruling on private use will have tax and National Insurance implications not just personally for the director but also for the company.

The content of this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content herein.

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