Excluded activities: leasing (including letting ships on charter or other assets on hire)
The legislation excludes leasing (including letting ships on charter or other assets on hire).
The leasing of land will not normally be part of a trade at all. Activities that are covered by this exclusion include such activities as furnished letting and the letting of holiday caravans, where they amount to trading.
The leasing of other assets, and letting assets on hire, is dealt with in an article in Tax Bulletin 54 published in August 2001 (reproduced at VCM3200). As regards the exception for letting certain ships on charter, see below.
There is a waiver of the exclusion of letting ships on charter where the criteria below are met:
- The ships concerned must not be offshore installations (or, if the shares are issued before 6 April 2004 oil rigs), or pleasure craft as defined in the legislation.
- Every ship let on charter must be beneficially owned by the company (that is, not chartered in from another company), and must be registered in the UK.
- The company must be solely responsible for arranging the marketing of the services of its ships (for example, arranging charters).
- Every letting must be for a period not exceeding 12 months, with no provision for extension or renewal by the company. There is, however, no objection to a genuine subsequent arm’s length negotiation leading to a further charter with the same customer or to a charterer having an option to renew on such terms, if they can be negotiated.
- All lettings must be by way of bargains made at arm’s length. Lettings must not be to a person connected with the company, except that they may be made to another member of the same group.
- Throughout the period of the charter, the company must be responsible as principal for taking all management decisions in relation to the ship, except for decisions on matters of husbandry (which includes the supply of crew, provisions, stores and spare parts), and must be responsible for defraying all expenses in relation to the ship other than those incidental to a particular voyage or to the employment of the ship.
- No arrangements must exist whereby a person other than the company could be made responsible for the matters in (v).
It is, however, acceptable that some chartering does not meet these criteria, provided that, together with other excluded activities, it is not a ‘substantial part’ (see VCM3010) of the trade.