Allowable travel expenses - boats

capt

I have a furnished holiday let house on an island and when I need to carry out maintenance have a choice of using a massively overpriced car ferry to get there or taking my own boat and going straight to my destination faster than by ferry. I also lose the hassle of having to book miles in advance and check in times if I avoid the ferry.

Does anyone know what might be deemed reasonable as a deductible expense if I use my boat - eg equivalent to car ferry, a fixed price like the car scheme, fuel costs only, fuel costs with proportion of running costs or some element of capital allowance also since I'd be using it for business purposes?

Thanks!

chrismac1

If this is an EEA FHL and meets the tests for tax status of an FHL, then in principle you can claim the business proportion of running costs and capital allowances. Note that the definition of a business trip is one which is for business - so for example if your family happen to be there for the week with you, a week in which the property just happens not to be occupied by guests, this is not a business trip.

Tune in to the Budget on 23 March for full details on the official definition of an FHL for the 2011-12 tax year, as the number of qualifying days is likely to rise, for example.

jimmo

chrismac1 wrote: »

If this is an EEA FHL and meets the tests for tax status of an FHL, then in principle you can claim the business proportion of running costs and capital allowances. Note that the definition of a business trip is one which is for business - so for example if your family happen to be there for the week with you, a week in which the property just happens not to be occupied by guests, this is not a business trip.

Tune in to the Budget on 23 March for full details on the official definition of an FHL for the 2011-12 tax year, as the number of qualifying days is likely to rise, for example.

As far as I am aware there is no difference between Furnished Holiday Lettings and other lettings when it comes to travelling expenses.
here is the relevant Instruction on travelling expenses.
http://www.hmrc.gov.uk/manuals/pimmanual/PIM2210.htm
This is the introduction to Furnished Holiday Lettings which describes the difference between Furnished Holiday Lettings and other lettings.
http://www.hmrc.gov.uk/manuals/pimmanual/PIM4105.htm
There is no mention of travelling expenses there but paragraph 2 may be relevant.
As to the amount you can claim for travelling in your own boat the strict answer is that you need to maintain a record of exactly how much it costs you to run the boat and claim the business proportion of that. Also you should claim the business proportion of capital allowances.
As to finding something more convenient I am afraid that the days when you could pop down to your local Tax Office and thrash out some form of mutually acceptable agreement on something like this are long gone and I fear that the best you are likely to get from HMRC is something along the lines of if you think it is reasonable then you can claim it.
In many ways that is what Self Assessment is all about. You do the work and HMRC are at liberty to check up on you.
Then, quite frankly, it is all down to scale. If you sail to the island for purely business purposes 6 times a year and each trip costs you a couple of gallons of diesel nobody at HMRC is going to challenge you on travelling expenses alone, if you claim £100 a year. However if they enquire into your Return for other reasons then the travelling expenses might be looked at in more detail.
On the other hand I distinctly remember a case I had to deal with quite some years ago where a part time music teacher claimed capital allowances on a piano that cost him £40,000. It would have taken him the best part of 25 years to use up his first year's claim to capital allowances and I refused his claim entirely on the basis that it was a personal choice to buy that particular piano.
Whilst I know nothing about sailing, I do know somebody who owns a yacht that cost £1m. If you were in a similar position and making a thousand or two each year from letting the property on the island your capital allowances claim really would be jumped on by HMRC just like the piano teacher.
So, what are you looking for?
A nice, convenient way to save a few quid and a lot of hassle may be possible if you are prepared to share a lot more detail.

capt

Thanks for the replies! I didn't think that FHL necessarily made a difference to whether I could claim or not but would help explain why I need to go more often than a property on a long term let. The housekeeper doesn't notice things that are damaged etc as easily as I do in my own house and the garden needs to be kept up in the summer period. I'm basically trying to look for an arrangement that is fair and reasonable but it's very difficult to work that out... Obviously the business has to be run with the intention of making a profit so I can't spend all the income on running a motor boat over to the island (which is worth a fraction of £1m but still enough to make capital allowances significant relative the rental income). It would be great to be able to talk to someone about it if that was still possible.

Total rental income is about £8,000 a year I expect after agent commission and cleaning while my share of the boat is worth about £20,000 with running costs of say £2000. Fuel costs are approx £50 return in the boat while the road/ferry journey is 50 miles round trip plus £60-120 return on the ferry (depending on time of year, how far in advance I book and whether there's any flexibility in the ticket). Business use of the boat could be maybe 20% of total use if I used it every time I went over.

chrismac1

To clarify my post, the FHL rules allow you to claim capital allowances. They make no difference to the claiming of travel costs - BUT they do make a difference in my view to how travelling costs can be perceived. It's a lot more likely that there is some potential personal use if the rental property is a swish chalet in St. Moritz (and the trip just happens to be in the skiing season) or a villa with a pool in St. Tropez (and the visit just happens to be in mid-July) than if the rental property is a student bedsit in Tower Hamlets.

jimmo

chrismac1 wrote: »

To clarify my post, the FHL rules allow you to claim capital allowances.

From that, I take the inference that you think that people who have "ordinary" lettings businesses cannot claim Capital Allowances.
Wrong again and the saying "If you are in a hole, stop digging." springs to mind.
In terms of Capital Allowances the essential difference between FHL and ordinary lettings is that the FHL business can claim plant and machinery Capital Allowances on the furniture in the let property.
Ordinary furnished lettings businesses cannot but they have the option of claiming the 10% wear and tear basis or the replacement basis.
http://www.hmrc.gov.uk/manuals/pimmanual/PIM3010.htm
http://www.hmrc.gov.uk/manuals/pimmanual/PIM3200.htm
The original poster is perfectly entitled to claim Capital Allowances for his boat in his lettings business regardless of whether it is FHL or not.

jimmo

capt,
In reading this please bear in mind that the writer claims to be a jaundiced old taxman, not an accountant who should be skilled at finding you ways to save tax.
The facts that you have a housekeeper, someone presumably who lives a lot nearer to the letting property than you, and whose wages you claim as a deduction in your accounts, and a letting agent both indicate to the taxman that there may not be much need for you to visit the property that often. That puts you at risk of an Enquiry more than a lot of people on the basis, if you like, of was your journey really necessary?
However, when it comes down to the cost of such business journeys the taxman cannot interfere with your choice of transport.
Perhaps the classic example is business travellers who go by train first class. The cost is allowable even though there was a cheaper alternative available.
In your own case, if you choose the cheaper alternative of taking your boat the taxman is not interested in how much it would have cost you otherwise so much as how much it has actually cost you.
If we look at the amount of the expenditure we have your £50.00 per return journey plus 20% of the running costs, £400.
Assuming you make 12 trips a year, all by boat, your travelling expenses claim will be in the region of £1,000 and in my personal opinion, for a lettings business, ordinary or FHL, with a turnover of £8,000, that is rather significant and reinforces my opinion about the danger of an Enquiry.
As a taxman I should say to you something along the lines of if you are doing nothing wrong, you have nothing to worry about. We all know that is not the point. An Enquiry is an Enquiry and is inconvenient to say the very least.
I would suggest you do this by the book, claiming exactly what your are entitled to, not a penny more and no estimates.
Turning now to Capital Allowances, there is not enough information to tell whether you are entitled to AIA or the old First Year Allowances. That depends on when you acquired your interest in the boat.
http://www.hmrc.gov.uk/manuals/camanual/CA23083.htm
However if you qualify and claim AIA you should bear in mind that selling your interest in the boat or closing your lettings business will trigger a balancing charge.
http://www.hmrc.gov.uk/manuals/camanual/CA23086.htm
If you just claim annual writing down allowances each year then there will be a balancing allowance or balancing charge by comparing the written down value of the boat to the sale proceeds or value when the lettings business ceases.
I am no tax planner and, wouldn’t presume to advise you how to plan this properly but I hope I have given you a few pointers.

chrismac1

I think we are saying the same thing, jimmo, albeit in different language. If you look at my website it's clear I know the difference between wear and tear allowance and capital allowances. For me, the 10% allowance is not a capital allowance, but an expense deduction, as per Revenue note PIM3200:

"But where a taxpayer lets a residential property furnished, plant and machinery capital allowances can’t be claimed on furniture, furnishings or fixtures within the property. Instead a deduction can be claimed for either:"

In practical terms, where my clients - of any rental business, but it tends to be the FHL ones who have big bills - have significant travel costs I "kick the tyres" a bit - check if anyone accompanied them, look for money being spent on the property whilst they were in the locality. 9 times out of 10 it's easy by discussion to identify the trips that were for business and claim them, and agree with the client which ones were really a personal holiday and not claim them.

Pennywise

A business journey is allowable however it is made.

But I wonder whether it is wholly a business journey?

Do you go over just for a few hours to inspect the property and do odd jobs during let periods, or do you go over for a few days/week at a time?

If the latter, I think you'd have a hard job arguing that you were only there for business purposes. The tax inspector would regard overnight stays as party pleasure/personal/holiday unless you could demonstrate that whatever work you were doing required you to be there for longer stays.

It will all depend on your circumstances. If you go over for a week and during that time, you install a new kitchen, then fair enough, but if you go over for a weekend and all you do is change a couple of lightbulbs and mow the lawn, then obviously it's not all business!

The tax inspector may also wonder why you have a letting agent and housekeeper, but do the garden and odd jobs yourself?

So, in theory, if the only reason for you visiting is to do work on the house and you aren't there for personal/pleasure reasons, then claim for the appropriate proportion of your boat costs, but if you're mixing business and pleasure, then it's a different story.

I'd echo what others have said. If you are squeaky clean then make your claim, but make sure you have enough evidence to back up if an enquiry is started. Otherwise, keep your head below the radar and don't make your claims too high - perhaps if there is private enjoyment of the house, half your claim to say that you're there half for business and half for pleasure, or claim wholly for short day trips but don't claim if you're there for weekends or weeks etc.

capt

I'm grateful for the jaundiced view as it helps trying to work out the worst case in the event of any enquiry. I do want to make sure that what I'm doing is completely within the rules and doesn't risk an enquiry or worse.

The question about why I would do odd jobs myself is all about who else I could get to do the work, how much it would cost and whether they're even aware of what needs doing to keep the house up to the standard expected for tenants. The property was bought as my own home and therefore not with low maintainence for lettings in mind (ie gardens laid to lawn and flower beds etc).

The housekeeper does nothing other than cleaning and making up beds. With families staying in the house there tends to be a lot of wear and tear and keeping things organised and up to standard is not something a housekeeper would be expected to do in my opinion and time is tight in changeovers anyway. There would be costs involved in me not going as there's a fair bit of grass and I would have to pay someone to cut it and weed flowerbeds etc...

I'd love to have an agent who could take more responsibility for keeping an eye on things and organising preventive maintenance without charging a fortune but it's not feasible. The agents currently only do anything when there's a complaint from tenants which may mean things stay broken for a while if they don't report problems.

I think I can therefore legitimately argue that these are business trips and not part pleasure, especially if they are day trips on changeover day.

What I'm confused about is if the trips were low cost it sounds like I could potentially go once a week in letting season without risking an enquiry but having higher costs because of where I am relative to the property and that it's on an island could be a problem. How can this be squared against the point that the taxman can't decide how much you spend on travel for a legitimate business trip (the first class travel example)....

Ultimately in the event of any dispute if I have proof of costs and can show that trips made were purely business, is it my decision on how many visits were made and therefore how much of my profit was spent on travel even if the taxman felt the cost was excessive?

chrismac1

It is your decision. I have a client who lives near Sunderland but makes regular trips to his Lake District FHL. The property is maintained and marketed as being a high specification place to stay, his view is that all those little finishing touches are best done by himself and his partner. The trips being claimed for coincide with the days between guest stays. In this case there are no expenses for a cleaner, though there are for cleaning products. I'm happy to argue in an enquiry - should we ever get one - that these are legitimate business trips, especially as they often drive over and back in a day. So that's 4 hours of driving and 2 hours of cleaning on a Saturday or Sunday which leaves little opportunity for a fell walk or stroll round Keswick.