ETASSUM52120 - Enterprise Management Incentives (EMI): Excluded activities: Leasing of certain ships

Paragraphs 16(d) & 18, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

Leasing, including letting ships on charter or other assets on hire, is an excluded trade for EMI, with the exception of the leasing of certain ships.

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

This is defined in the statute as including letting ships on charter (though this exclusion is subject to an exception, which is set out in (paragraph 18 Schedule 5 ITEPA,) and letting other assets on hire. It thus covers any trading activity which consists in allowing the customer the use of the trader’s property. Examples are television rental, video hire and the provision of self-storage warehousing facilities. It applies where, subject to reasonable conditions imposed by the trader, the customer is free to use the property for the purpose for which it is intended.

One area which has been found to give rise to difficulty is what is, and what is not, car hire. The question to be considered here is whether the person using the car is the company or the company’s customer. On the one hand the company may itself use the car to provide a transportation service for customers. On the other hand the company may provide the car to the customer as a transportation facility, for use by the customer. The latter activity constitutes hire of an asset. A taxi service is likely to be a transportation service. By contrast, what is offered by a company providing chauffeured car hire is likely to be a transportation facility; the fact that the customer is not personally driving the car does not mean that that person is not the person using the car. But what is important is not the label “taxi service” or “chauffeured car hire” but the true nature of the contract between the parties.

The leasing or chartering of ships is a qualifying trade if all the following conditions are satisfied:

  • 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 of ships by the company is for a period of 12 months or less and there is no provision to extend this other than by the choice of the person chartering the ship,
  • 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 listed at the above bullet.

For these purposes, ships do not include offshore installations (such as oil rigs) or pleasure craft. Pleasure craft means any ship of a kind primarily used for sport or recreation.