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HMRC internal manual

VAT Business/Non-Business Manual

HM Revenue & Customs
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Legal history: cases about boat and aircraft hire

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Coleman (KG) VTD 242

Mr Coleman bought a boat. He chartered it to a boat hire company to manage and hire out. Mr Coleman received 45% of the hire fees but took no active part in exploiting or managing the boat.

The tribunal found that Mr Coleman had bought the boat as an investment rather than with the intention of carrying on a business. The tribunal upheld Customs’ view that the simple letting on hire of a single boat by a private individual to a boat hire company (which in turn hired out the boat to the public) did not amount to a business activity for VAT purposes.

Berwick (M&C) VTD 17686

In this case a couple bought a yacht from a company. At the same time they entered into a management agreement for the company to take the yacht into its charter fleet. For the first year the couple received a monthly fixed fee (in total 10% of the purchase price). After this, for the remainder of the agreement, they got a quarter share of the net chartering income.

The tribunal found that letting the yacht to the charter company was an isolated transaction which was not part of a sequence of transactions amounting to economic activity.

This decision applies equally to anyone who lets outs two boats on hire. People who do not satisfy any of the business tests are not considered to be in business for VAT purposes.

Enkler 1996 STC 1316

A woman began a business of hiring out a motor caravan. For two years she mostly hired the caravan to her husband, a tax consultant by whom she was employed. She then told the tax authorities that she intended to take the caravan into private use.

The Court held that the hiring out of tangible property was an economic activity if it was done for the purpose of obtaining income on a continuing basis. The Court clarified that the taxable amount relating to the supply of services of renting out the caravan must include expenses incurred during the period that the goods were at the disposal of the taxable person in such a way that they could be used at any time for non-business purposes. Therefore, the proportion of the total expenses to be included must be proportionate to the ratio between the total duration of actual use of the goods and the duration of actual use for non-business purposes.

Longbow VTD 551

Longbow was a partnership that bought a boat under a contract. The contract also provided for the vendor to manage and hire it out to the public.

However, the agreement with the vendor enabled Longbow itself to secure bookings for the hire company. Longbow would get a higher consideration for the supply of the boat directly in relation to the bookings it obtained.

The tribunal concluded that this arrangement and the efforts by which Longbow obtained bookings (such as printing business cards, and advertising in the local press) amounted to a business activity for VAT purposes.

Three H Aircraft Hire 1982 STC 653

Three H Aircraft Hire was a partnership that bought an aircraft. The day-to-day control of the aircraft was allocated to an unconnected company for the purpose of arranging the hiring out of the aircraft to third parties. The partnership received hire fees related to the amount of hire. It also got certain rights of private use.

The High Court held that the activities of the partnership did not constitute a business for VAT purposes.