VAT THE FINAL WORD

[Gary Peacock]

Dear All,

 

After 2 months of delays C&E have finally published their clarification on zero rates for ships and house boats.

 

The following has just been received from Nigel John ( BMF Company Secretary ):

 

EXTRACT FROM HM CUSTOMS BUSINESS BRIEF 31 DECEMBER 2004

 

 

 

4. VAT - CLARIFICATION OF THE VAT LIABILITY OF SHIPS SUPPLIED TO CUSTOMERS WHO INTEND TO USE THEM AS RESIDENTIAL ACCOMMODATION

 

This Business Brief article clarifies Customs’ policy on the application of the zero rates for ships and houseboats. Those involved in the supply, repair and maintenance of ships, and their customers, should read this Business Brief article.

 

Background

 

“Qualifying ships” - are zero-rated for VAT purposes. A “qualifying ship” is defined as a ship which is over 15 gross tons and is neither designed nor adapted for use for recreation or pleasure. Such ships usually have clear features of a commercial design, such as a hold specifically designed for carrying cargo, commercial fishing equipment or the ability to carry or entertain large numbers of paying passengers. Recreational activities could include pleasure sailing or cruising on inland waterways. A ship that is either designed or adapted with the ability to be used for private recreation or pleasure cannot be a "qualifying ship" regardless of how the purchaser intends to use it.

 

“Houseboats” - are covered by a separate zero rate. For VAT purposes, “houseboats” are boats designed solely as living accommodation that do not have, and cannot be fitted with, a means of propulsion. If a boat can be fitted with a means of propulsion, it is not a “houseboat”.

 

Customs’ policy

 

Following a Tribunal case, D G Everett (LON/92/1911A), Customs accepted that the terms “recreation” and “pleasure” do not include use as a home or place of permanent habitation. However, we are aware that some have incorrectly taken this to mean that all boats used or intended to be used for residential purposes can be zero-rated.

 

Customs maintains that use or intended use does not affect qualifying status. It is the nature of the original design and any subsequent alterations that is the key to determining the VAT liability of a ship or boat. For example, a true Dutch barge with a hold specifically designed for carrying cargo would be a qualifying ship, whilst a replica Dutch barge without such a hold and that is suitable for private cruising would not. Both could be used as residential accommodation, but this does not affect qualifying status. Only ships with qualifying status at the time of manufacture can be zero-rated, regardless of whether they are now used, or are intended to be used, as places of habitation.

 

Written advice from Customs

 

Customs are aware that, when determining the VAT liability of their supplies, some ship manufacturers have relied on advice given by Customs to their customers. In some circumstances this advice has been obtained on the basis of incomplete or inaccurate information. For example, on the strength of their intended use as residential accommodation, rather than the actual design, the customer confirms to Customs that the ship is neither designed nor adapted for use for recreation or pleasure.

 

It is the responsibility of the supplier to ensure that VAT is accounted for correctly on their supplies and that, when obtaining advice or written rulings from Customs, all relevant information is supplied and is materially correct. Suppliers should not rely on their customers to determine the liability of their supplies.

 

Past Rulings

 

Customs will follow its usual policy when considering supplies that have been incorrectly zero-rated. We will look critically at both our ruling and the information that was provided to us in the request. If we have misled a registered person to their detriment with the full facts before us, we will take action in line with our current misdirection policy, outlined in Notice 700/6 VAT Rulings. However, we will not be bound by rulings if the information provided was incorrect or incomplete or if the supply changed in technical detail from the one originally proposed.

 

Further Information

 

Please contact Customs’ National Advice Service on 0845 010 9000 for advice and assistance.

 

 

 

END OF EXTRACT

 

 

So that's it no more zero rating just repaying the VAT man.

 

Gary

[Alastair]

Cheers, Gary.

 

I note that this hasn't actually changed much, just reinforces that they are going to enforce the original wording. Only bit I can see that has changed is that they now include passenger-carrying vessels - which explains why they've told my gf that the barge she is buying (charter boat) would be zero rated.

 

As my old dutch barge has been 'adapted for recreation or pleasure', I don't qualify. Ho hum

[Jon]

I would ask that this does not go the same way as the previous thread on this subject. At the first sign of trouble I will close it...

 

Thanks for the info Gary!

 

Jon

[Gary Peacock]

Sorry to keep this rolling, but I get an awful lot of mail on this and it seems the best way to keep people up to date.

 

There is a little bit more info available on the NarrowboatWorld website.

NarrowboatWorld

A certain amount of panic is now starting among many builders and rumours are ciculating the recent demise of one builder this month could be related.

C&E seem very determined to recover any duty they now deem due.

 

Gary

[Gary Peacock]

Just got a bit more from C&E.

I asked several questions relating to fair trade and if every supplier offering zero rated supply would be pursued for any lost duty.

 

Quote

 

"You will see from the Business Brief that Customs intends to revisit any supplies that were incorrectly zero-rated. I hope this therefore allays your concerns about the past and now gives you the even playing field you seek."

 

 

So it could be time for many suppliers to start barricading the doors!

 

Any way at least we all know where we stand.

 

Gary

Edited January 18, 2005 by Gary Peacock

[Richard Bustens]

I would answer that last comment.

But Jon does not want this getting into a free4all.

[Gary Peacock]

Hi Richard,

 

Maybe it would have been better to say " Now we know C&E's stance on this we can all make our own decisions how to react to it."

 

You have nothing to worry about being the end user C&E can't touch you, they can only investigate your suuppliers.

 

Gary

 

 

 

 

I would answer that last comment.

But Jon does not want this getting into a free4all.

<{POST_SNAPBACK}>

[Richard Bustens]

im'e not like that if my supplier gets clawed back i will foot it . but after a tribunal

[Gary Stacey]

would the supplier not sue the end user for the VAT?

[Gary Peacock]

would the supplier not sue the end user for the VAT?

<{POST_SNAPBACK}>

 

Well that really comes down to the individual supplier, we offered to refund deposits on builds not commenced if customers could not afford VAT but this wiped off over £400,000 from the order book.

Some of these went to another well known builder who was still willing to supply zero rated!

The BMF seems to feel that if their standard build contract is used then it does offer a clause to adjust the end price prior to hand over.

 

What in reality is likely to happen with some builders, is that the boat will be built by the builder financed with customers staged payments and the issue of VAT will be dealt with at handover. If the customer will not pay the VAT then the builder can then sell the boat and refund the customers initial investment. Most boats at completion are of greater value then at the time of order so the builder can actually make a greater profit!

 

I have herd of occasions where suppliers have been "bullied" into supplying zero rated supplies when customer came armed with lots of "proof of legibility or self declaration forms" (I once had a customer tell me it was illegal for me to charge VAT and that advice was given to them by quite a well known member of the barge community) in cases like this I might be tempted to sue but I wouldn't rate the chances of winning or ever recovering any money highly.

 

Gary

[Gary Peacock]

I have just had a meeting with another well known builder and C&E have hit him with a reassessment of VAT for £100,000 plus for zero rating boats!

Being that he his a sole trader and has no way of paying it looks like he his going to loose everything.

 

 

Gary

[Gary Stacey]

It would seem to be a lot fairer on builders etc if the new ruling was not retrospective. A lot of builders are going to face hard times all for the claimed mis - interpretation of the wording on 744c which IMHO does not suggest what C and E are putting forward now.

[Gary Peacock]

Just a bit of an update.

 

I had phone call today from another well known builder who just got "mugged" by the VAT man!

The press are now trying to get articles together, so keep an eye on the waterways magazines.

A few builders also seem to be planning to hit the customer with the VAT bill prior to hand over the boat using a get out clause in their contracts.

Keep an eye on Narrowboat world they seem to be taking an interest in this too.

http://www.narrowboatworld.com/NBW__emails.htm

 

And don't forget Mr Blair and his government are right behind small businesses!

 

 

Gary

[John Orentas]

I fully sympathise will people who are being hit by the retrospective element of the issue, this should never happen and I think people should concentrate their efforts on this area. But having said that I cannot quite see why a particular type of boat should be exempt from VAT.

 

I well understand that the argument is that land based houses are not subject to the tax but housebuilding and house owning have other areas of legislation all of their own so I don't believe a true comparison can be made.

 

If boats intended for residential use did go tax free, how would it all be regulated in the longer term, how many of these boats would remain purely residential and how many would become second homes, and what would be their status then, and what happens when they are sold. Will vat become payable if it is not lived on for seven days a week, or perhaps 6 or 5 days. The whole thing would become a nightmare.

[dor]

And let's be honest, anyone who bought a boat in the last few years and didn't pay vat knew they were exploiting a loophole.

 

(Sorry Richard).

[Richard Bustens]

Hi DOR

I don't think it was a loop hole, and i feel it should be vat free for liveaboards as you don't pay vat on a house.

I still think there is a loop hole for anyone who wants to try it, but ime OK now done and dusted.

I spent 2 years getting this sorted before starting and have full documentation from vat office quoting this and that and saying that the boat i was building was vat free.

Even back in November i was asking if this or that bit of kit could be classed as vat free, and the only things that was refused was some wood for lining out the hull the fridge and freezer, paint and varnish and soft furnishings.

Last week i was talking to the boat builder and he says he has only built 3 without vat and each one was cleared with vat office before commencement.

So i can not see it can be a loop hole.

The vat office has now changed the definition of what is or is not vat free, and im'e still not convinced that they can not do this, without a act of Parliament or something like that, 2 or 3 tax inspectors can not do this over a cup of coffee in there break.

But what is done is done and i don't suspect that it will get changed back again.

But i do think that there is now a loop hole in the wording for someone to try out, if they have the courage, and of course it will only work once.

[Alastair]

A house is a house and remains a house.

 

I agree with John. The law hasn't been changed, they are just enforcing (more strictly) what already existed.

 

I think HMCE are sods for going retrospective on this; it is only hitting the builders.

[Gary Peacock]

Customs missed a very large loop hole with a lot of builders-

The builders didn't ever have the VAT so trying to recover it from someone who doesn't have it will probably end in recovering sweet XXXX all.

 

The only thing it will do is increase the dole cue by a few hundred more people! But that doesn't really matter does it? After all there are plenty more taxes out there so Joe Public can pay for it and if it does get noticed, well that big lump under the carpet doesn't really show too much yet does it?

 

 

Oh dear I'm starting to rant again!

 

Gary

[dor]

Wasn't there something in the C&E clarification that they would take advice from the vat office into account when trying to recover vat retrospectively?

[ChrisPy]

A house is a house and remains a house.

 

I agree with John.  The law hasn't been changed, they are just enforcing (more strictly) what already existed.

 

I think HMCE are sods for going retrospective on this; it is only hitting the builders.

<{POST_SNAPBACK}>

a house has nothing to do with it, nor does the concept of a residence.

 

the issue is

1: whether it is a ship,

2: whether it is a qualifying ship (size measured in traditional 'tonnage') and

3: whether it is NOT designed/intended for recreation or leisure.

 

I believe it is a loophole to consider a private canal boat as a 'ship'. Ships are basically commercial things, no?

 

as someone said before, if we want to avoid VAT we should order cargo-carrying barges or narrowboats and then convert to residential use.

 

I am so glad that I swallowed hard and decided to ignore the possibility of getting my liveaboard sailaway VAT free. I believe the potential for conflict/confusion has been well known to some builders for quite a while.

 

you were lucky, Richard.

[Gary Peacock]

The problem for a lot of builders is that individual customers sought advice directly from C&E and the builders followed it, however this is now deemed to be advice to a third party and not to the builder so they can't use it.

If you have specific advice relating to specific builds that is incorrect you can win.

However companies building multiple boats on the basis of one enquiry get nailed on the rest because it is the owness of the VAT registered supplier to ensure the correct amount of VAT is applied, so no written specific guidance you loose again!

You can't either claim it is a misunderstanding because notice 744c "tells" you what is a qualifying ship, if you did not "understand" what it says then or now that is your problem not C&E's.

You have the right to go to tribunal but any ruling will only apply to that case not any further ones.

 

So yes you can go through the motions of trying to get an assessment reversed but in reality even with the BMF or other legal/financial advice your chances aren't too good without the VAT man really messed up and put it in writing. (And they don't do that too often!)

 

Gary

[tomnjack]

a house has nothing to do with it, nor does the concept of a residence.

 

the issue is

1: whether it is a ship,

2: whether it is a qualifying ship (size measured in traditional 'tonnage') and

3: whether it is NOT designed/intended for recreation or leisure. 

 

I believe it is a loophole to consider a private canal boat as a 'ship'.  Ships are basically commercial things, no?

 

as someone said before, if we want to avoid VAT we should order cargo-carrying barges or narrowboats and then convert to residential use. 

 

I am so glad that I swallowed hard and decided to ignore the possibility of getting my liveaboard sailaway VAT free.  I believe the potential for conflict/confusion has been well known to some builders for quite a while.

 

you were lucky, Richard.

<{POST_SNAPBACK}>

[tomnjack]

Can I add somerthing to this discussion.

 

A person buying a boat and then adapting it to live in can claim to not pay VAT on it only if "They have an exemption certificate" I have such a certificate.

 

The reason I have it is that I am disabled and any adaption carried out to allow me to use a product can be VAT zero rated. For instance I bought a car, I had it adapted BEFORE I took posession, of it and the VAT was zero rated.

 

I had my house adapted for my use,The VAT was zero rated. Although I had my house before I had an accident. The Vat was not paid because I purchased the goods and services soley to adapt the house for my use and therefore no VAT

 

I believe that there are other reasons for having a VAT exemption certificate, however I do not know of any The the law appears to be that you must have A certificate of exemption before you purchase any goods.

 

It is interesting to note that the tax man can go back years to clain tax from us but we can not.

 

Not a lot of good to most people but anyone who is disabled and has a certificate can resty easy, as can the builders.

 

Tom

[Richard Bustens]

All houses are vat exempt, but any alterations or additions are not, but in your circumstances they obviously are, but does that include everything or just mods to make life easer for you.

For example when i bought my house it was vat free and if i had the builder to put a conservatory on it from new that also would have been vat free, but i could not afford to and bought one 7 years later , and had to pay vat on it.

 

But i can go out tomorrow and buy another house with or without a conservatory and not pay vat on it in fact i can buy several.

Edited February 4, 2005 by Richard Bustens

[ChrisPy]

But i can go out tomorrow and buy another house with or without a conservatory ,  .....  in fact i can buy several.

<{POST_SNAPBACK}>

lucky b...d !!

do you also employ a full time skipper on the boat?