Readers’ forum: Is there VAT on sale of company yacht?

One of my wealthy clients purchased a yacht in his limited company six years ago for £1m plus VAT but did not claim any input tax because it was linked to private use and business entertaining activities. However £80 000 input tax was apparently claimed on £400 000 of improvement costs incurred in the following two-year period on the basis that this would enhance the value of the yacht if it was sold in the future and HMRC would get output tax.

The client has now accepted an offer for £2m to sell the boat but we are unsure whether the sale will be subject to VAT. One of my colleagues said that we should only charge VAT on 50% of the proceeds because of the private use block of input tax although the block was 100%. Another colleague said that we should not charge VAT on...