Yacht used to impress customers were legitimate expense
According to Gillian and Michael Rockall, the yacht was part of a collection of high-prestige assets acquired by the business in order to impress their prospective clients. Called the Masquerade of Sole, the USD12 million ocean-going yacht was used for business networking meetings and for customer training, as well as being chartered out for profit. It was also used to explore business opportunities in the Mediterranean.
Other prestige assets were jewellery, including diamond necklaces, worn by Mrs Rockall during need-to-impress occasions such as formal dinners fund-raising events; and some antique clocks that were kept in the firm’s offices.
The Rockalls claimed the cost of these and other items against tax during the period 2000 to 2009, on the basis that they were used wholly and exclusively for business purposes. However, HM Revenue and Customs did not agree, and issued assessments asserting that the Rockalls’ personal use of the assets made them benefits in kind, and that tax relief was not available on these benefits.
The Rockalls appealed to the First-Tier Tax Tribunal, on the grounds that the use of the assets was tax-deductible under s365 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). This requires that the item comprising the benefit in kind was used ‘wholly, exclusively and necessarily in the performance of the duties of the employment’.
The tribunal has now ruled that the yacht was bought and operated purely for business purposes and thus was fully tax-deductible for both the Rockalls.
However, the expenditure on jewellery and clocks was not ‘necessarily’ incurred in the performance of the duties of employment but rather to enable those duties to be better performed. Thus there was no entitlement to a tax deduction for these items.
The tax owing on these benefits in kind, under s205 of ITEPA, is yet to be apportioned. No costs were awarded (Rockall & Anor v Revenue & Customs, 2014 UKFTT 643 TC).
- The Rockalls’ business was hard hit by the financial crisis of 2008, which resulted it being put into administration.
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