If the taxman climbed aboard `Britannia' ...

Roger Trapp wonders whether the Queen's Revenue inspectors should take a closer look at one of her perks

Michael Portillo's announcement of a new royal yacht to replace Britannia has produced predictable outrage that the nation's already-stretched resources should be used in this way. But what about the effect on the Queen's finances?

Now that Her Majesty has accepted that she is liable for income tax, could not her use of the pounds 60m floating palace be a benefit in kind under Inland Revenue guidelines?

John Newman, tax partner with the accountants Smith & Williamson, playfully suggests that the key question is whether being Queen amounts to holding an office of the Crown. If it does, and the yacht is a perk that comes with the job, then she could face having to pay the Revenue 20 per cent of its market value every year. The provision of such supplies as water, oil and fuel would lead to further charges, though if she were to pay her own expenses that would reduce her tax liability.

And what about travelling expenses? That, according to Mr Newman, depends on what Her Majesty is Queen of. It is arguable that since she is basically Queen of Great Britain and Northern Ireland, plus a few colonies, only travelling between such places is covered. But that still leaves the question of the use of the vessel for trade trips and journeys outside her kingdom, which are part of the Queen's official duties, as opposed to exotic holidays.

John Whiting, a tax specialist at another accountancy firm, Price Waterhouse, agrees that this is all interesting conjecture, but is "not sure if it flies". Joining in with the light-hearted spirit of Mr Newman's musing, he believes a lot depends on whether Her Majesty is employed by the Queen, or is the employer.

But then he adds his own kicker: what if the Queen funded the yacht herself? If she were able to argue that she intended to use the craft "solely and exclusively" for her trade, she could take advantage of capital allowances on the grounds that a ship would come within the definition of plant and machinery.

Nevertheless, she would probably have to act quickly. The latest Finance Bill proposes reducing the allowance on long-life assets from 25 per cent to 6 per cent - though there is a transitional period until 2010.

So what is the true position? We may never know. While the rules on the use by the Prime Minister and Chancellor of Numbers 10 and 11 Downing Street are set out in official papers, the Inland Revenue - understandably perhaps - is keeping mum on this one

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