VAT question

[isabella]

Sorry for another newbie post! I'm reading up about VAT - my understanding is that if your boat has a gross tonnage of not less than 15 tons and is not designed or adapted for use for recreation or pleasure then it is exempt from VAT (20%). But most narrowboats and widebeams do not qualify for VAT exemption due to their gross tonnage (calculated by: L (m) × B (m) × D (m) × 0.16).

 

My questions is: if the boat is not exempt from VAT then presumably the buyer needs to factor an additional 20% into their offer (one way or another)? Is it standard practice to offer a net amount with an additional 20% paid separately / directly by the buyer to HMRC? Am I understanding this VAT thing correctly? 

 

Thank you

[Alan de Enfield]

34 minutes ago, isabella said:

Sorry for another newbie post! I'm reading up about VAT - my understanding is that if your boat has a gross tonnage of not less than 15 tons and is not designed or adapted for use for recreation or pleasure then it is exempt from VAT (20%). But most narrowboats and widebeams do not qualify for VAT exemption due to their gross tonnage (calculated by: L (m) × B (m) × D (m) × 0.16).

 

My questions is: if the boat is not exempt from VAT then presumably the buyer needs to factor an additional 20% into their offer (one way or another)? Is it standard practice to offer a net amount with an additional 20% paid separately / directly by the buyer to HMRC? Am I understanding this VAT thing correctly? 

 

Thank you

 

The question of VAT only applies if you are having a new-build. if you are buying a second hand boat then it is not relevant at all, and the price you offer is the price you pay.

 

Yes, very, very, very few widebeam boats meet the VAT zero rating requirement and Narrowboats get nowhere near meeting it.

 

In the UK all prices quoted to 'domestic' customers should be inclusive of VAT - you don't go into Tesco and see prices for things and they pay 20% above those prices when you get to the till. The prices for boats should be 'inclusive' (but read the quote / price list carefully.

 

For business buying from businesses the prices quoted are exclusive of VAT.

 

If you are buying a Zero VAT rated boat be very careful, manufacturers have included in their small print (to the effect) "if we have got it wrong and HRCE decide the boat should be subject to VAT at 20%, then the buyer is responsible for paying the VAT" several buyers have got into financial trouble being told by HMRCE that they have 14 days to find (say) £30,000

 

It is a totally unregulated industry and there are some very sharp practices going on.

 

Buyer Beware !!!

Edited July 10, 2020 by Alan de Enfield

[blackrose]

1 hour ago, isabella said:

 

My questions is: if the boat is not exempt from VAT then presumably the buyer needs to factor an additional 20% into their offer (one way or another)? Is it standard practice to offer a net amount with an additional 20% paid separately / directly by the buyer to HMRC? Am I understanding this VAT thing correctly? 

 

If you were buying a second hand car or sofa would you think of paying VAT separately to HMRC?

[isabella]

1 hour ago, Alan de Enfield said:

 

The question of VAT only applies if you are having a new-build. if you are buying a second hand boat then it is not relevant at all, and the price you offer is the price you pay.

 

Yes, very, very, very few widebeam boats meet the VAT zero rating requirement and Narrowboats get nowhere near meeting it.

 

In the UK all prices quoted to 'domestic' customers should be inclusive of VAT - you don't go into Tesco and see prices for things and they pay 20% above those prices when you get to the till. The prices for boats should be 'inclusive' (but read the quote / price list carefully.

 

For business buying from businesses the prices quoted are exclusive of VAT.

 

If you are buying a Zero VAT rated boat be very careful, manufacturers have included in their small print (to the effect) "if we have got it wrong and HRCE decide the boat should be subject to VAT at 20%, then the buyer is responsible for paying the VAT" several buyers have got into financial trouble being told by HMRCE that they have 14 days to find (say) £30,000

 

It is a totally unregulated industry and there are some very sharp practices going on.

 

Buyer Beware !!!

 

Thanks so much Alan! The widebeam we're considering is from a private seller so I'm guessing based on this we'd just make it clear to them that our offer (if we do make one subject to hull survey etc) is inclusive of VAT. Appreciate your reply

 

Edited: Sorry I've just reread the first part of your post. So you are saying that all second hand boats are VAT exempt? That makes sense!

Edited July 10, 2020 by isabella

[isabella]

A further thought on this. If buying a second hand boat - is it advisable then to check that the original purchaser did pay VAT (assuming the boat is not VAT exempt)? Like could a third generation owner be liable to HMRC for unpaid VAT or are you basically safe so long as you're not the original purchaser? 

 

And another somewhat related thought. Is the private seller of a second hand boat liable to pay any tax on that sale? (Just thinking about how that might affect us a few years down the line if we were to sell a widebeam that we own.) Thanks!

 

We're considering making an offer in the coming days subject to hull survey etc so just wanting to ensure we have all of the current / future costs and liabilities fully in view. 

Edited July 11, 2020 by isabella

[Alan de Enfield]

6 hours ago, isabella said:

A further thought on this. If buying a second hand boat - is it advisable then to check that the original purchaser did pay VAT (assuming the boat is not VAT exempt)? Like could a third generation owner be liable to HMRC for unpaid VAT or are you basically safe so long as you're not the original purchaser? 

 

And another somewhat related thought. Is the private seller of a second hand boat liable to pay any tax on that sale? (Just thinking about how that might affect us a few years down the line if we were to sell a widebeam that we own.) Thanks!

 

We're considering making an offer in the coming days subject to hull survey etc so just wanting to ensure we have all of the current / future costs and liabilities fully in view. 

The inland waterways in the UK are generally (shall we say) "very relaxed" about paperwork, rules and authority and it is not uncommon to buy a boat with absolutely no 'paperwork'.

 

When a boat is built and purchased new, the first owner will receive a bunch of documents that are intended to remain with it for its life, the three important ones are :

 

VAT Paid certificate

RCD compliance certification and Owners manual

Bill of sale.

 

In many cases these documents get lost or discarded by the time the boat is sold to the next buyer.

 

It is very different in Europe (or the rest of the world) where boat paperwork is as important as the deeds for your house and you cannot sell without the three documents I listed.

As many on here will have heard me say before, I was buying a boat in the EU and the VAT and RCD documents were found to be 'not available' so I offered the seller £80,000 below the asking price, he accepted, ad I bought the boat. Before I could leave Croatia I managed (by various means) to get a backdated VAT document from the Croatian Customs and Excise, and the RCD documentation from the manufacturer in France.

 

Back to your questions - 

 

No the seller will not be liable for tax unless they are a business.

 

Yes you could potentially be liable for VAT as the 2nd owner if the VAT had not been paid from new. The VAT liability is due from the owner of the boat. BUT it is very unlikely to happen that far down the line. HMRC would only find that no VAT had been paid when they did the builders accounts for that year and could then trace the 1st owner thru the sales ledgers.

 

VAT could be applied to the purchase of a secondhand boat if the original owner was a business and had claimed back the VAT, ie if they were a hire-business, or it was used by a business for relaxation for their staff, etc etc. but it should normally be made clear in the sales details that the price is exclusive of VAT

 

You don't need to make clear to your seller that your offer is either inclusive or exclusive of VAT, you offer price, if accepted is the price you pay.

 

I assume you know all about having the boat surveyed and valued by an independent surveyor, and the costs etc of doing that ?

[isabella]

2 hours ago, Alan de Enfield said:

The inland waterways in the UK are generally (shall we say) "very relaxed" about paperwork, rules and authority and it is not uncommon to buy a boat with absolutely no 'paperwork'.

 

When a boat is built and purchased new, the first owner will receive a bunch of documents that are intended to remain with it for its life, the three important ones are :

 

VAT Paid certificate

RCD compliance certification and Owners manual

Bill of sale.

 

--

 

I assume you know all about having the boat surveyed and valued by an independent surveyor, and the costs etc of doing that ?

Thanks again Alan! Yes we understand that usually you make an offer subject to a hull survey (and interior inspection?) and if that comes back with any major work being needed on the boat then the price should be adjusted accordingly. I've read that it's around £300-400 for the survey. Do you know how long it takes? The people we're keen to buy from have a small child so wondering how much of an inconvenience it will be for them (of course we're going to insist on one regardless but keen to understand how long they'll have to be off the boat for). I'm guessing it's not possible / very unusual to request a survey before making an offer? We're looking at a widebeam which I'm pretty sure has an overinflated asking price and hasn't had a recent hull survey (red flag?) so would love an independent surveyor to value her before making an offer but understand it generally works the other way around and then you haggle over any unforeseen costs when you made your offer. 

 

Another question if you don't mind. We understand that generally you can ask to see all paperwork before making (or formalising?) an offer just to check that it's in order. But if we were to ask to see the bill of sale (both the first and second - we'd be the third owners) then wouldn't that reveal some rather important info to us (how much they paid) which could inform our offer / bargaining? It does feel a little strange to be thinking about parting with so much money with relatively relaxed attitudes all around paperwork. We're of course going to be getting a full survey and would like to see a paper trail back to the start if possible. I've also read that we should be checking about marine finance / doing a credit check to ensure there's no outstanding finance due on the boat as we could become liable for that. 

[Tam & Di]

As said, VAT is not applicable if you buy from a private seller. If you buy via a broker however there could be VAT due on the brokerage fee. It would be very unusual for a Surveyor to carry out any form of interior inspection, nor (and possibly more significant) would he report on the condition of the engine. I'm not sure about demanding prior sight of all previous Bills of Sale, but it would certainly be reasonable to make the offer conditional upon inclusion of these and all other documentation as Alan says.

 

The selling price could well be more than the present owner paid for it, but values move up and down and more importantly people may have done lots of improvement work when they owned it. Your offer should be what what you feel the vessel is worth to you.

 

Tam

[Alan de Enfield]

1 hour ago, isabella said:

I've read that it's around £300-400 for the survey.

That's about 'right' but you will also need to arrange a crane to lift the boat out of the water and then back in after the survey. Being a wide beam I'd allow £1000 if the crane has to come in from off-site.

 

1 hour ago, isabella said:

Do you know how long it takes?

 

A good surveyor could take 5 or 6 hours, a bad one maybe 1/2 an hour.

1 hour ago, isabella said:

But if we were to ask to see the bill of sale (both the first and second - we'd be the third owners) then wouldn't that reveal some rather important info to us (how much they paid) which could inform our offer / bargaining?

Why would what they paid affect the offer that you make ? I have only once sold a boat for less than I paid for it. They may have bought it as a 'part-fitted boat' and spent £50,000 having it fitted out 

 

1 hour ago, isabella said:

I've also read that we should be checking about marine finance / doing a credit check to ensure there's no outstanding finance due on the boat as we could become liable for that. 

 

How do you propose to do that ? Boats are not legally registered, finance  for boats is very rare and how would you know who to ask  (there is no register), If you happened to find the right mortgage company I doubt that they could reveal the information under the GDPR (privacy) laws.

 

 

You can ask for all the paperwork but if it is not forthcoming there is not much you can do except hope they have :

 

Copies of letters from C&RT with their name and address (ask to see their driving licence - does it match ?)

Invoices for engine servicing (in their name)

Invoices from moorings provider

Receipts from fuel purchases, etc etc etc

 

Do they appear to know their way around the boat, do they know where the 'master switches' are, do they know where the emergency fuel shut-off valves are  (all that sort of thing)

If you want credit checks, proof of ownership, RCD Compliance, VAT certificates, original and subsequent bills of sale then buy a 'Lumpy Water Boat'

[Tam & Di]

14 hours ago, isabella said:

... But most narrowboats and widebeams do not qualify for VAT exemption................. Am I understanding this VAT thing correctly?

It's irrelevant when buying from a private individual as you are, but as a small matter of pedantry qualifying ships are not exempt from VAT - you pay VAT at zero%.  It comes to the same thing in the buyer's pocket but is very different in VAT law.

 

Tam

[isabella]

36 minutes ago, Alan de Enfield said:

That's about 'right' but you will also need to arrange a crane to lift the boat out of the water and then back in after the survey. Being a wide beam I'd allow £1000 if the crane has to come in from off-site.

 

 

A good surveyor could take 5 or 6 hours, a bad one maybe 1/2 an hour.

Why would what they paid affect the offer that you make ? I have only once sold a boat for less than I paid for it. They may have bought it as a 'part-fitted boat' and spent £50,000 having it fitted out 

 

 

How do you propose to do that ? Boats are not legally registered, finance  for boats is very rare and how would you know who to ask  (there is no register), If you happened to find the right mortgage company I doubt that they could reveal the information under the GDPR (privacy) laws.

 

 

You can ask for all the paperwork but if it is not forthcoming there is not much you can do except hope they have :

 

Copies of letters from C&RT with their name and address (ask to see their driving licence - does it match ?)

Invoices for engine servicing (in their name)

Invoices from moorings provider

Receipts from fuel purchases, etc etc etc

 

Do they appear to know their way around the boat, do they know where the 'master switches' are, do they know where the emergency fuel shut-off valves are  (all that sort of thing)

If you want credit checks, proof of ownership, RCD Compliance, VAT certificates, original and subsequent bills of sale then buy a 'Lumpy Water Boat'

Thanks again! Sorry I haven't figured out how to break up quotes here in a reply.

 

£1k for the crane - so presumably sensible to plan for any required work at the same time? The hull hasn't been blacked for 2 years so is probably due. But wouldn't want to undertake that until sale fully agreed. Hmm. Or find a boatyard with a suitable crane on-site? 

 

What they paid for the boat - it was fitted out to high spec and they've done no / little work on it apart from general maintenance and installing solar panels. I suppose it'd just be interesting to see how much more they're asking for today vs. what they paid. It wouldn't necessarily affect the offer we make but might inform it? I'd understood that boats generally depreciate a bit in value (after accounting for fitting out work) but happy to be corrected on that. 

 

Not sure about marine finance sorry! We'd just read this:

 

Importantly, check for outstanding finance. Marine finance is regulated in the same way as other forms of finance are, so a check for outstanding finance through a credit checking agency is a must. Remember some finance works by the finance company having ownership of the craft until the debt is repaid. Ask to see mooring, insurance & maintenance invoices to build a picture of the integrity of the seller.

 

At https://www.thefitoutpontoon.co.uk/boat-buying-guide/used-secondhand/

[ditchcrawler]

12 hours ago, isabella said:

A further thought on this. If buying a second hand boat - is it advisable then to check that the original purchaser did pay VAT (assuming the boat is not VAT exempt)? Like could a third generation owner be liable to HMRC for unpaid VAT or are you basically safe so long as you're not the original purchaser? 

 

That in my opinion is a very good question and if the original owner did buy it VAT free I would want professional advice on the situation.

 

[Alan de Enfield]

24 minutes ago, isabella said:

Not sure about marine finance sorry! We'd just read this:

 

Importantly, check for outstanding finance. Marine finance is regulated in the same way as other forms of finance are, so a check for outstanding finance through a credit checking agency is a must. Remember some finance works by the finance company having ownership of the craft until the debt is repaid. Ask to see mooring, insurance & maintenance invoices to build a picture of the integrity of the seller.

 

At https://www.thefitoutpontoon.co.uk/boat-buying-guide/used-secondhand/

 

All I can say to that is that theory is not bourne out in reality.

 

How do you describe what boat you are taking about to the 'agency' ?

 

I'd like to find out is a 57' x 12' boat has any finance outstanding on it - certainly what is its ships register number" ?

 

I wish you luck in that but I'm pretty sure you will not find anything out. 

I'd be pleased if you could prove me wrong as it'd make life a lot easier for a lot of people.

They may be thinking of the Ships register (and I do not know of any Inland waterway boats) that Part 1 list on there. - Lumpy water boats- yes !

 

Only Part 1 registration will give you the information you are looking for :

 

 

Part III registration

Register your boat on the Part III (Small Ships Register) if you want to prove the boat’s nationality when sailing outside UK waters.

It costs £35 for 5 years.

To be eligible:

• your boat must be less than 24 metres long
• you must be a private individual (not a company)
• you must live in the UK for at least 185 days of the year
• your boat must have a name

For more information, read the full guidance notes.

You can make changes to an existing registration online, for example change of ownership, address or boat details.

You’ll be sent a renewal notice when it’s time to renew.

Part I registration

Register your boat on the Part I register if you want to:

• prove you own the boat
• prove your boat’s nationality
• use the boat as security for a marine mortgage
• register a pleasure vessel
• get ‘transcripts of registry’, which show the boat’s previous owners and whether there are any outstanding mortgages

Your boat must have a unique name to be registered.

It costs £153 to register for 5 years.

 

How to apply

You’ll need to have:

• a completed application to register a British ship (MSF 4740)
• a completed declaration of eligibility (MSF 4727)
• 5 years of original title documents (for example a bill of sale (MSF 4705), builder’s certificate (MSF 4743), sales agreement or invoice)

Send the following supporting documents:

• certificate of survey for tonnage and measurement
• international tonnage certificate if the boat is over 24 metres
• certificate of incorporation if you’re registering on behalf of a company
• deletion certificate if your boat was previously on another register
• confirmation of radio call sign if you have one

Edited July 11, 2020 by Alan de Enfield

[Detling]

If the boat is under 5 years old it may be woth while checking the RCD compliance, by law you cannot sell a boat without RCD under 5 years old. And check that it is for the boat as it is now and not just the hull with no internal fit out, gas, electric system etc. As said the canals are fairly lax but if you want to sell the new buyer may hold it against you.

[Dav and Pen]

The beauty of having a zero vat boat in the UK is that certain parts and repairs are zero rated although not all boat yards will agree. A big Grand Union motor just came in a little over the 15 tons by the customs measurement. 
I was under the impression that if there is a Marine mortgage on a boat it had to be registered and the registration numbers cut in the boat. If it’s a personal loan then there’s no way of checking but it’s not your problem.

[David Mack]

3 hours ago, Detling said:

If the boat is under 5 years old it may be woth while checking the RCD compliance, by law you cannot sell a boat without RCD under 5 years old.

Not sure that is strictly true. A boat (other than a boat self built for own use and owned for at least five years) cannot be first sold on the EU market without complying with the RCD. And the obligation to comply with the RCD rests with the builder or dealer who first places the boat on the EU market. A second hand boat, which was originally sold with RCD compliance, does not have to comply at the point when it is resold (whether it is less than or more than 5 years old at that point), although the lack of RCD paperwork may put off potential buyers.

 

[Alan de Enfield]

11 minutes ago, David Mack said:

A second hand boat, which was originally sold with RCD compliance, does not have to comply at the point when it is resold (whether it is less than or more than 5 years old at that point)

Unless (since 2017) it has undergone major' changes that could affect safety or emissions (changes to gas system, new engine, changes in stability etc.

In which case it must be re-certified.

 

It appears that under the revised regs. the RCD is 'for life'