For those in the fishing industry, the investment in a new boat is significant regardless of the size and scale of the fishing enterprise. The Capital Allowances (CA’s) regime on boats over the years has been generous, particularly as certain reliefs exist only for this class of asset that aren’t available to other capital intensive industries such as farming.
Coupled with the current increase in the Annual Investment Allowance (AIA) to £1million (although only temporary until 31 December 2020), the tax relief can be substantial; particularly for those subject to higher and additional rates of Income Tax. There are also sizeable tax savings to be made on the construction of a boat provided that the terms of the contract are correctly drafted. If so, it is possible to benefit from multiples of the AIA over more than one tax year.
However, HM Revenue & Customs have recently taken a renewed interest in the CA claims being made by those in the fishing industry. In our experience they are refusing to accept claims for CA, writing down allowances at the standard rate of 18% on the basis that a boat is a long-life asset and therefore allowances should be restricted to 8% per annum. This lower rate of allowances apply where the expected useful economic life of an asset is at least 25 years from new and HMRC are unwilling to concede that the level and type of usage of a fishing vessel compared with, for example a platform supply vessel, could affect its useful life. This comes at a time when the fishing industry has undertaken a significant build programme and there may be a nasty shock for some who were relying on significantly reduced tax bills once the build was complete.
The restriction in allowances will likely affect tax computations going back a number of years and the resulting tax liabilities can be considerable. It is therefore important to give this careful consideration before claiming allowances at the higher rate as this may well be subject to HMRC challenge.
By Jill Walker, Private Client Tax Director at Anderson Anderson & Brown LLP