VAT rules for yacht owners: Addressing common misconceptions

Understanding how value added tax (VAT) works is a significant issue for yacht owners – especially if you plan to sail in the European Union (EU).

We frequently receive queries from owners / potential owners who have received (often well-meaning) advice from contacts within the sailing community on this subject. Below we look at some of the suggestions we have heard relating to VAT and yachts and provide an initial commentary on these queries.

His boat is VAT paid in the UK and EU

False. A boat cannot be in free circulation in two territories at the same time. However, there are specific circumstances where owners may be eligible to alternate the VAT paid status (VPS) between these territories via the use of reliefs – but it should be noted that this ability will not be bestowed on the subsequent owner of the vessel if the boat is sold.

Her boat is VAT paid – she’s got the original VAT invoice from 1998

It depends… (but is not absolute). A 1998 VAT invoice is a good starting point but, due to the transient nature of boats, their VAT paid status is not permanent and can be lost. Events that can cause a vessel to lose its VPS, or cast doubt on the VAT status, include;

• • Exportation of the boat
  • Lack of records to fully evidence the VAT status
  • The location of the vessel when it is sold
  • Corporate ownership / commercial operation in the yacht’s history
  • Purchase via a lease scheme
  • Refit work completed under a customs procedure

If I buy the boat through my company, can I save the VAT and get a tax break for my business?

It depends… It is possible BUT (and we must stress that it is a very big but) there are a LOT of caveats to this. Specific conditions, including how the boat is used in the business and its availability for private use, that should be thoroughly considered before proceeding with a corporate yacht purchase.

Failure to comply with HMRC requirements could result in;

• VAT recovery on the purchase and ongoing operating costs being blocked
• Capital allowances being refused
• The company falling liable to additional national insurance contributions
• Directors (potentially also employees) subjected to an additional income tax charge related to deemed personal use of the vessel (annually, based on the value of the boat).

Detailed planning and expert guidance is advisable when purchasing a boat as a corporate asset.

If I charter my boat, can I recover the VAT and cover the running costs

It depends… BUT (see point three!) as with corporate ownership, while it is possible to legitimately run a yacht under charter as a business detailed planning should be undertaken before proceeding. Clear evidence of taxable activities should be available to justify VAT recovery, and to provide to HMRC should the commercial intention be challenged.

In both above cases (three and four) if the boat is going to be used in territories other than the UK (E.g., the EU) this will add to the complexity. Further business / tax planning will be required to ensure compliance in all territories of activity.

If I’m only bringing my boat to the UK for a couple of days do I need to worry about the VAT?

Yes. The entry of a yacht into UK waters is an importation for customs purposes. At this time it will be subject to relevant import taxes and duties unless an eligible relief is being claimed. Reliefs may be claimed by “conduct” in certain situations but if VAT and / or duties are due on the vessel it must be declared and paid in advance of arrival. There is no minimum time during which a vessel is exempt from these payments.

Misinformation can obviously cause confusion and in some cases lead to significant and potentially costly mistakes in how yachts are purchased, sold and operated. Ensuring that your yacht’s VAT status is clear and compliant can save you from unexpected costs, stress and legal complications.

For further assistance please contact our expert marine team at [email protected]