Value Added Tax

The owner/operator of any such pleasure craft sailing in UK or EU waters must be able to demonstrate that the boat is either:

• In free circulation and has VAT status (“paid” or “accounted”) within the territory of operation.
• Considered to have “deemed” VAT status due to relevant UK / EU legislation.
• In the process of being formally imported and entered into free circulation in the relevant territory.
• Eligible for a relief on entry into UK/EU waters which will either enable a previous status to be reclaimed, temporarily suspend the requirement to pay VAT, or transfer the existing VAT status of the vessel from another territory to the current territory of operation.

When a UK VAT paid vessel is sailed from the UK to France (EU territory), and back again, by a private owner the following occurs:

1. The vessel is exported from the UK when it leaves UK waters

At the point of departure it is removed from free circulation in the UK and UK VAT paid status is lost at this time.

2.  The vessel is imported into the EU via France

On arrival in France, unless the owner and vessel are eligible for one of the following EU reliefs, French import VAT is likely to fall due on the value of the vessel.

i. Temporary admission relief [TA]

If the vessel meets the following conditions this relief will be available to the operator of the boat on arrival in the EU.

• • • Vessel owned by individual or entity habitually resident or established outside the EU.
    • Vessel must be registered outside the EU.
    • Vessel will only be used for private purposes whilst in the EU.
    • Primarily used and under the control of a person who is resident outside of the EU.

Under this relief the VAT (and any duty) normally due on importation is suspended for a maximum of 18 months.

It is possible to formalise TA in the EU via an “oral” Article 165 declaration.

ii. Returned goods relief [RGR]

If the vessel previously held VAT paid status in the EU prior to being operated in the UK it may eligible for RGR if the following applies:

• • • The person re-importing the vessel to the EU is the same person who exported it from the EU.
    • There has been no material change in value to the vessel since it was exported from the EU.
    • It is being returned to the EU within 3 years of exportation.

Under RGR the VAT paid status of the vessel is reclaimed, and it is re-entered into free circulation in the territory.

This relief is usually claimed by conduct when the owner returns the vessel to the UK.

3. The vessel is exported from France (EU)

Depending on how the vessel is being operated during its time in the EU the following occurs at the time of export.

i. Operated under EU TA

The temporary admission period will be discharged when the vessel departs EU waters.

ii. EU VAT paid or operated under EU RGR

The EU VAT paid status of the vessel will be lost at the time of departure from EU waters – this status can be reclaimed under RGR if the vessel is returned to the EU within 3 years and meets all the requirements.

4. The vessel is re-imported to the UK

Providing the vessel returns under the same ownership, in the same condition as it left (with no material change in value), for the same purpose and within the relevant time period (3 years) it will be eligible for RGR on its return to the UK.

Changes to VAT paid status

It should be noted that VAT paid status is not permanent, and care should be taken to obtain and maintain records relating to the following as evidence that this status has been retained:

• The movement and location of a vessel, particularly where there are journeys between VAT and Customs territories.
• The transactional history of a vessel – where possible bills of sale, invoices and evidence of payment and the location of the vessel at each transfer of ownership should be retained and supplied with the boat.
• Where work has been carried out on a vessel records (such as invoices) should be retained to confirm the value and location where the work was completed.

Unlike many other accountancy or direct tax planning scenarios VAT is a “here and now” tax and, particularly in the case of customs movements (exports and imports), can be very difficult and costly to administer retrospectively. Considered forward planning regarding the intended use and movement of each vessel, combined with detailed and accurate record keeping of both the transactional history and geographical movement of the yacht are critical to yacht management – if there is any intention to use the vessel in a commercial capacity, such as under charter, this will add an extra level of VAT complexity (usually requiring at least one, often multiple, VAT registration/s in the territory/s of operation) and will usually require professional advice to ensure that there are no costly errors.

Vessels are typically expensive, luxury, items and investing in expert advice in anticipation of future sailing activities to identify and mitigate potential VAT and duty risks relating to a vessel can be key to preventing far more costly errors further down the line.

If you require specific VAT advice relating to the sale, purchase, operation or work being carried out on a vessel (sailing or motor) please contact PKF Francis Clark’s team of Marine VAT experts who will be more than happy to assist.