Yachting Monthly experts help you unravel the new regulations in relation to the thorny issue of VAT following the end of the Brexit transition period

Brexit VAT. Many of you have contacted us with questions about boat VAT payments on yachts which were outside of the UK at the end of the Brexit transition period on 31 December 2020, as well as the rules around Returned Goods Relief (RGR).

RGR allows you to reimport your boat into the UK without paying Customs Duty and VAT.

Crucially this can only be claimed if the boat has been in the UK under present ownership and returns within three years.

Following Brexit, Her Majesty’s Revenue and Customs (HMRC) announced that owners of boats which have been in the UK under present ownership and were in the EU at the end of the Brexit transition period, could avoid paying a second VAT payment if the vessel returned to the UK before 30 June 2022.

This applied regardless of when the boat left the UK.

This means cruisers, who are unable to meet the three year condition of the RGR, have until 30 June 2022 to bring their boats back to the UK from Europe to avoid paying a second UK VAT payment.

Our experts answer your Brexit VAT questions.

Is there a time limit for boats to remain in UK waters to qualify for RGR?

Brexit VAT Boats moored in the harbour. (Photo by: Boat owners must remain in UK waters while claiming RGR and can’t leave until all of the paperwork is complete, and any dues have been paid

Boat owners must remain in UK waters while claiming RGR and can’t leave until all of the paperwork is complete, and any dues have been paid. Credit: Getty

My yacht is UK built and UK VAT paid and has been in the EU for years. I plan to return the boat to the UK before 30 June 2022 to qualify for Returned Goods Relief (RGR).

How long must the boat remain in UK waters to qualify for RGR before being able to leave UK waters again?

John Froggatt.

A spokesman for Her Majesty’s Revenue and Customs (HMRC) responded:
Individuals wishing to claim RGR will need to remain in the UK while they complete all the necessary paperwork, and undergo any inspections required by HMRC.

If liable, they will also need to pay any duties to HMRC before leaving.

 

What are the exceptional circumstances to avoid paying boat VAT again?

Circumnavigators run the risk of having to pay VAT on their boats again, if their voyage takes more than three years.

Circumnavigators run the risk of having to pay VAT on their boats again, if their voyage takes more than three years. Credit: Thom D’Arcy

It is clear that if a boat is exported from the UK or EU for more than 3 years then that boat will be subject to VAT upon its return, even if it is returned by the same owner to the same country as it left – except under exceptional circumstances.

What are these exceptional circumstances?

It seems that if you do a three year plus circumnavigation you are in for VAT upon return unless one can fit somehow into the exceptional circumstances!

Jeff Wrinch

Robin Baron, chair of the Cruising Association’s Regulations and Technical Services group (RATS) responds:

To date HMRC has steadfastly refused to give guidance as to when it will regard ‘exceptional circumstances’ as applicable.

Informally, it has indicated that the effect of COVID-19 restrictions may constitute exceptional circumstances.

In the EU the equivalent expression is ‘special circumstances’ and again there is currently no guidance.

Robin Baron, chair of the CA's RATS group

Robin Baron is chair of the Cruising Association’s Regulations and Technical Services group. Credit: Robin Baron

Circumnavigators do indeed run the risk of having to pay VAT again but this is not a new rule and there has always been this risk.

What is new is that the rule now applies to taking a boat out of the UK rather than the EU.

Keeping a boat in an EU country for more than 3 years now also triggers the risk.

If owners are in the fortunate position of being able to have a new boat built in the UK or the EU for the circumnavigation they can export it immediately and thus defer payment of VAT until their return.

They will then pay VAT on the second hand value of the boat.

This is no help to owners of second hand VAT paid boats.

 

Do all British registered boats qualify for Returned Goods Relief?

Boats kept in the EU, including Bourgenay, France, will not be eligible for RGR if they have never been in the UK during current ownership. Credit: Getty

Boats kept in the EU, including Bourgenay, France, will not be eligible for RGR if they have never been in the UK during current ownership. Credit: Getty

I keep my Contest 40s in Bourgenay, near La Rochelle, France.

The boat was built in Holland 25 years ago and the original owner paid VAT in Holland.

I bought the boat in France six years ago from her English owner and it has always remained there.

I believe the boat has been in England, but not since I’ve owned her.

It is a British registered vessel, and was so when I bought it.

If I bring the boat to the UK before the end of June 2022, will I have to pay VAT to HMRC?

Dave Robson

Robin Baron, chair of the Cruising Association’s Regulations and Technical Services group (RATS) responds:

If the boat returns to the UK at any time, UK VAT will become payable.

Robin Baron, chair of the CA's RATS group

Robin Baron is chair of the Cruising Association’s Regulations and Technical Services group. Credit: Robin Baron

This is because Dave cannot claim Returned Goods Relief (RGR) because the boat has never been in the UK during his ownership.

The UK registration of the vessel is irrelevant in the VAT context.

The way the UK has chosen to apply VAT rules on leisure vessels post Brexit is manifestly unfair.

When Dave bought the boat the price would be set on the basis that VAT had been paid within the EU which at that time included the UK.

Why should he be expected to pay VAT again?

The effect of this policy decision is almost certainly that Dave will not return his boat to the UK but will keep it and eventually sell it in the EU, thus depriving the UK marine leisure sector of marina, boatyard and brokerage fees and HM Treasury of the related taxes.

The Cruising Association is engaging with HMRC and HM Treasury to seek to change these arbitrary and manifestly unfair rules.

 

What’s the difference between a boat and a caravan?

In VAT terms, yachts, caravans and motorhomes are all treated the same way when it comes to importation. Credit: David Chapman/Alamy

In VAT terms, yachts, caravans and motorhomes are all treated the same way when it comes to importation. Credit: David Chapman/Alamy

As I understand it, Her Majesty’s Revenue and Customs (HMRC) classifies boats as commercial goods, which are liable to VAT, and caravans as personal possessions, which I understand are VAT free.

In my view, this is wrong.

For example, if you are a UK resident who owns a caravan, HMRC would classify it, from a tax point of view, as being a ‘personal possession’.

This means you could keep it in the EU for as long as you liked and bring it back to the UK any time you liked, free of any secondary VAT being charged.

Should HMRC not treat boats the same way as it treats caravans when it comes to VAT?

Nick Fletcher

An HMRC spokesperson responds:

In terms of the rules for charging import VAT there is no difference between a privately owned boat and a caravan.

Boats and caravans, whether commercial goods or private possessions, are subject to import VAT when imported into the UK from another customs territory unless a relief applies.

Both can be eligible for Returned Goods Relief (RGR) subject to meeting the conditions of the relief.

The Government has extended the grace period for RGR from one-year to 18 months; allowing goods located in the EU at the end of the Transition Period to return to Great Britain by 30 June 2022, regardless of the date they left the UK.

Stuart Carruthers, cruising manager of the RYA, responds:

As the RYA understands it, there is no difference between caravans and boats and our guidance says much the same thing as the HMRC response.

What is different is the way they may be used.

This gives rise to much of the misunderstanding.

For example, a boat can enter and exit at any point on the UK coastline whereas a caravan or motorhome is limited to a small number of commercial ferry ports where there are formal border controls.

Continues below…

I am sure boaters would not favour nominated ports of arrival and departure and therefore additional reporting requirements and procedures should be expected.

The RYA has long been aware that all movements of goods, including personal possessions, between the UK and the EU are treated in the same way as movements to and from the rest of the world.

RYA cruising manager Stuart Carruthers

Stuart Carruthers joined the RYA in 2005 and is their cruising manager

This means the movements are subject to customs processes, and import duties, including VAT, will be payable unless any relief applies.

In this case the relief in question is Returned Goods Relief (RGR) and is available for any goods returning to the UK, including privately owned pleasure craft, provided the conditions outlined in the legislation are met.

Until 30 June 2022, the government has in effect suspended the 3 year condition provided it can be demonstrated that it was in the UK at some point in the past under its current ownership.

We have asked the government to keep the grace period under review in light of the ongoing position with COVID-19 restrictions.

However, this does not address the fundamental point that HMRC is seeking to levy VAT on boats that have been legitimately bought either new or second hand and kept in the EU while we were all EU citizens.

We think this is unreasonable and we are lobbying hard so that UK owners can repatriate their boats to the UK, even if they have never been in the UK under their ownership and therefore have not been exported.

Under the VAT RGR rules, import VAT is only relieved if the importer and the exporter are the same person. Consequently, relief from import VAT is not available.

 

Can VAT-paid status on your boat be maintained in the UK and EU simultaneously?

A boat sailing off the coast of Spain

A yacht which was located in the EU on 31 December 2020 and retained its EU VAT-paid status and has previously been located in the UK may be eligible for both EU and UK VAT paid status. Credit: Graham Snook/Yachting Monthly

Can VAT-paid status be maintained in the UK and EU simultaneously? For those who anticipate changing domicile between EU/UK this could be very useful, and would also allow a boat to be marketed to a wider market as VAT-paid.

I understand that EU rules would allow for an EU resident (i.e. an agent) to establish VAT-paid status for a boat owned by a resident of the UK, when it is located in EU waters.

Is this true, and does the same possibility exist for EU-owned boats in UK waters (providing they were previously EU VAT-paid, and have been in the UK in current ownership)?

Angus Abrams

Robin Baron, chair of the Cruising Association’s Regulations and Technical Services group (RATS) responds:

It may be possible for some yachts to have the benefit of being eligible for both EU and UK VAT paid status.

An example of where this would be possible is a yacht which is located in the EU on 31 December 2020 (retaining EU VAT-paid status) and which has previously been located in the UK.

HMRC has made clear that if the yacht is returned to the UK before 30 June 2022 (or within the 3 year Returned Goods Relief (RGR) period if this runs until after 30 June 2022) the yacht would then be eligible to obtain UK VAT-paid status on return to the UK (provided that the RGR conditions are met (return within 3 years, no change of ownership or work to the vessel beyond running repairs)).

EU VAT paid status could then be regained if the yacht is returned to the EU within 3 years of leaving the EU (provided that the RGR conditions continue to be met).

Over time, it will be a challenge for a yacht to retain the benefit of both UK and EU VAT-paid status.

Robin Baron, chair of the CA's RATS group

Robin Baron is chair of the Cruising Association’s Regulations and Technical Services group. Credit: Robin Baron

The yacht will need to visit both the EU and UK on a three-year cycle so that RGR conditions are satisfied and there may be declaration formalities associated with EU entry for non-EU established yacht owners.

When the yacht is offered for sale the owner will have the advantage of a wider market of potential buyers but upon completion of the sale there will need to be a choice made by the buyer as to the vessel’s location on sale as inevitably the eligibility for VAT-paid status in one of the territories will be lost.

Changes of domicile (as opposed to residence) are not relevant to this question.

RATS is not aware of the use of agents in the EU to obtain or retain EU VAT status.

Responding to the question: Are there cases where changing domicile from EU to UK can be considered as an exceptional circumstance allowing a one off transfer of VAT-paid assets between jurisdictions without being charged VAT?

The UK has Transfer of Residence relief from VAT when moving your permanent place of residence to the UK. This extends to pleasure craft.

To claim relief, you must satisfy all of the following criteria:

  • you’ve been resident outside the UK for at least 12 consecutive months, prior to the date of moving to the UK
  • you’re importing the goods within 12 months of coming to live in the UK
  • you intend to use the goods in the UK for the same purpose they were used for prior to moving.
  • The vessel must have been owned by you for at least 6 months prior to its importation to the UK.

You must apply in advance for the relief on form ToR1. See: https://www.gov.uk/guidance/application-for-transfer-of-residence-relief-tor1

Will my boat lose its EU VAT paid status if it leaves the EU?

Brexit VAT - if your boat leaves the EU it will technically lose its EU VAT status

EU Returned Goods Relief rules can only apply if the boat returns to the EU after no more than three years, and there has been no change of ownership or alterations to the vessel

A UK registered yacht with UK VAT Paid Status (paid in 2016) was moved to the EU before 31 Dec 2020 and has evidence of being in the EU on that date, and has now adopted EU VAT Paid Status.

The vessel is being sold by its UK owner to another UK owner, but the vessel is remaining in the EU (Greece).

If the new owners cruise only in the EU, they are fine, but they would like to cruise to Turkey, Croatia or other non-EU countries (due to the Schengnen 90-day limit) before returning to the EU (Greece), where the boat will be kept.

  • If the boat leaves the EU, will it lose its EU VAT paid status and have to pay EU VAT?
  • Does it matter to the EU or to Greek authorities where the vessel is registered (UK) in regards to VAT status?
  • Presumably, if purchased with EU VAT status, the new owners would not be eligible for Returned Goods Relief if they brought the boat to the UK, and would need to pay UK VAT?
  • The previous owner had a suit of sails made for the boat in the UK. These are being given to the new owners in the UK, who will then take the sails out to the boat. Will they need to pay EU VAT on the sails when they take them to the EU?

Simon Farmer

Robin Baron, chair of the Cruising Association’s Regulations and Technical Services group (RATS) responds:

We are still in the early days after Brexit. The EU, governments and officials are still coming to terms with how to deal with various situations.

Robin Baron, chair of the CA's RATS group

Robin Baron is chair of the Cruising Association’s Regulations and Technical Services group. Credit: Robin Baron

The answers below should be read subject to this general comment.

There is a particular difficulty in Greece where owners who have a VAT invoice in the name of a previous owner are encountering difficulties with establishing VAT paid status with local officials.

The CA is currently addressing this problem with Greek customs officials.

If the boat leaves the EU, will it lose its EU VAT paid status and have to pay EU VAT? 
Yes. Technically upon departing Greece the vessel is exported from the EU. It will have to rely on the EU Returned Goods Relief rules (RGR) upon its return (conditions: no more than three years away, no change of ownership or alterations to the vessel) in order to retain EU VAT paid status upon import.

Does it matter to the EU or to Greek authorities where the vessel is registered (UK) in regards to VAT status?
It should not. Post Brexit it is quite likely that UK flagged vessels will be subject to greater scrutiny from the authorities of EU member states.

Presumably, if purchased with EU VAT status, the new owners would not be eligible for Returned Goods Relief if they brought the boat to the UK, and would need to pay UK VAT?
Yes.

 The previous owner had a suit of sails made for the boat in the UK. These are being given to the new owners in the UK, who will then take the sails out to the boat. Will they need to pay EU VAT on the sails when they take them to the EU?
Technically they will have to pay EU VAT. This may or may not be enforced.

Have a Brexit VAT question for our experts? Email us at yachtingmonthly@futurenet.com and we will do our best to answer them.