Her Majesty’s Revenue and Customs (HMRC) maintained that no additional UK value added tax (VAT) would be payable by owners of pleasure boats as a result of Brexit – but the position in fact depends on your circumstances.

A brief history: why VAT is related to Brexit

Before the United Kingdom joined the European Economic Community on 1 January 1973, there was a “purpose tax”, which levied tax on goods at the point of manufacture and distribution, at various rates depending on how luxurious the good.

After joining, the UK adopted the EU’s approach and applied VAT. Now, the UK continues to apply VAT.

Notice 8

Typically, VAT is due on the importation of any vessel from outside the UK.

But HMRC Notice 8 describes reliefs to ensure UK VAT is not payable twice if a vessel leaves and re-enters the UK.

These reliefs include; (i) temporarily importing a vessel into the UK: (ii) the transfer of residence relief; and (importantly); (iii) the returned goods relief (RGR), which broadly speaking relieves a good from being subject to UK VAT if returned to the UK within three years of export. (Certain other conditions apply.)

Timeframe for RGR?

The application of the three-year rule was not always clear.

• In March 2019, HMRC said that UK-owned boats will retain their UK VAT-paid status whatever their location on the day the UK exits the EU.
• But in October 2020, HMRC appeared to resile from its previous position, stating that a very strict test would be applied in respect of the years away from the UK.
• Post-Brexit, HMRC’s guidance was updated and the latest version of this guidance provides that:
  • if goods were transported from the UK to the EU prior to the end of the transition period and remain in EU after that point in time, those goods must return to the UK by 30 June 2022 notwithstanding the fact that they may have been transported from the UK to the EU more than three years ago; and
  • if goods were exported from the EU before the end of the transition period and remain outside of the EU, those goods must be imported to the UK within three years of the date of export.

Takeaways 

Both pleasure cruise owners and buyers face risks if the vessel in question has not paid VAT.  An owner faces the risk of paying VAT in addition to the expense of acquiring the vessel. A prospective buyer may have to conduct due diligence to determine whether the boat is subject to UK VAT. Sailors should think carefully about moving boats in to or out of the UK and take advice, if possible well in advance of 30 June 2022.

(In addition to the question of VAT, there are complex rules governing notification of arrival into the UK by boat and you should always check the appropriate guidance to determine whether you need to phone the National Yachtline when entering the UK’s territorial waters.)