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HMRC internal manual

VAT Input Tax

HM Revenue & Customs
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Specific issues: reasons for making purchases in connection with sponsorship

HMRC will examine all claims to input tax when a business has bought an item for use by the staff.

These types of claim are frequently made in relation to yachts. Sometimes yachting is the chosen recreation of the proprietor, partner or director. The staff act as crew. Also it is possible that the yacht can only be used when the proprietor, partner or director is aboard.

HMRC will want to look at the insurance certificate for the yacht. We will also look at the vessel’s log, which lists all trips, destinations and the people on board, to check if the business use claim is valid.

If the yacht is used for staff recreation you must think about whether the employers also use the yacht. If they do you should follow the guidance about mixed private/non-business use at VIT25000.

Sometimes the reason for buying an expensive item such as a boat is to test equipment that is being developed by the business. If the main business is not connected with this type of research it is likely that HMRC will ask these questions:

  • do the proprietors, partners or directors sail frequently?
  • has the business been commissioned to research and produce the equipment?
  • can the equipment be used generally and not just in boats?
  • how long have the trials been going on?; and
  • have arrangements been made to manufacture the equipment?

The answers should help you decide whether the item was bought for a business purpose.

A business may have registered because it expects to hire out or charter out a vessel. You need to work out whether or not the planned activities amount to a business for VAT purposes. This is covered by VAT Business/Non-Business VBNB46000.

A business that is already trading in other goods may buy a boat for trading stock. HMRC will check any claim to input tax when this happens. We will want to know more if the boat is berthed away from the trading premises and is used by the business pending its sale. We will want to see any documents the business holds to show that the vessel is actively being marketed for sale. We will decide whether input tax can be claimed on the basis of the relevant facts.

The business test for sporting and recreational activities at VIT44300 contains suggested questions which help you to work out whether, or to what extent:

  • spending of this kind relates to a business purpose; and
  • input tax can be claimed.

HMRC will want to discuss the position with the individuals who decide to take part in the activity if there is a chance that the proprietor, partner or director has a personal motivation for the purchase. Information provided by third parties like employees or accountants often does not help HMRC reach a decision.