New queries, issue 4599

Blistering barnacles

Is the cost of repairing a charter yacht a revenue or capital expense?

A client with a ‘skippered’ yacht charter business had the yacht she uses in that business subject to a survey before it was to be sold. The survey disclosed osmosis the process by which water molecules penetrate the hull and causes blisters. The client chose to have the yacht professionally treated and repaired to make it (please excuse the pun) saleable.

Can the treatment cost be considered as a revenue expense for tax purposes?

The treatment required the yacht’s removal from the water and a period of months ‘drying out’. This significantly curtailed its use in the business and as a consequence it reduced the income that would normally have been generated.

No VAT was paid on purchase of the yacht which was kept in the client’s name but...