Following DBA Members Colin and Ali Stone's successful Tribunal and High Court HMRC issued a revised Business Brief  38/09.  This confirms that Dutch barges and similar vessels that are designed and supplied for use as the permanent residence of the customer are qualifying ships and eligible for zero-rating if they meet the tonnage requirement (see below).  You also need to consult  HMRC's Reference Notice 744C (Ships, aircraft and associated services)  to understand which services and equipment qualify.

 

Additionally VAT notice 701 gives advice on how to obtain a VAT exemption for vessels built with facilities for the disabled.

 

History 

The VAT Act of 1994 Schedule 8 (Zero Rate), Group 8 (Transport) contains the Law and the appropriate extracts are:

'The supply, repair or maintenance of a qualifying ship or the modification or conversion of any such ship provided that when so modified or converted it will remain a qualifying ship.'

'a “qualifying ship” is any ship of a gross tonnage of not less than 15 tons which is neither designed nor adapted for use for recreation or pleasure'.

Previous cases have established that residential use is not ‘recreation or pleasure’ The Tribunal ruled that ‘It stretches the ordinary meanings of the words recreation or pleasure well beyond their natural meaning to say that this encompasses a home or place of permanent habitation’. This allowed conversion or building of barges (of over 15 gross tons) for residential use to be zero-rated.

HMRC744C 0f 29 january 2018 has expande its guidance to read:

'The intended use of a vessel doesn’t affect qualifying ship status. The only factors to be considered are the gross tonnage, the design of the ship and any subsequent adaptations.

Where a vessel is designed to be lived in as a permanent home by the owner it may be treated as a qualifying ship even though it might also be used for recreation or pleasure. This treatment doesn’t extend to similar vessels supplied for or used as holiday or seasonal accommodation or other private or commercial activity where the purpose is recreational.

If the ship is designed or adapted to be used for recreation or pleasure (such as cruising on rivers or canals), rather than predominantly as permanent residential accommodation, it is not a qualifying ship.'

Houseboats

Houseboats – defined as ‘designed or adapted for use solely as a place of permanent habitation and which does not have the means of, and which is not capable of being readily adapted for, self propulsion’. Take out the engine and convert the engine room to a study or workshop and you should qualify! BUT HMRC go on to claim ‘It is unlikely that a vessel such as a barge or a yacht would be regarded as a houseboat for the purposes of VAT because they are likely to lend themselves to being readily adapted’. If you want to know more you need to consult HMRC Notice 701/20 (Caravans and houseboats).

Gross Tonnage

This is the clause that initially raised the issue to the notice of HMRC as narrow boat builders were claiming their craft were of 15 tons. Gross tonnage is a measure of capacity not weight. The volume is the internal volume of the hull up to the uppermost continuous deck – an indication of carrying capacity. This measurement is immured in mercantile marine history. Narrow boats were claiming that the roof was the measurable deck but to keep in line with history the side deck, or if no side decks the to a line between the exposed decks at the fore and aft of the vessel should be used as the measured deck.

For steel barges the calculation is Length x Beam x Depth x k = gross tonnage. 

L = Length in metres measured from foreside of the foremost fixed permanent structure to thhe afterside of the aftermost permanent structureoverall in metres but not including appendages not contributing to the volume of the vessel e.g. bowsprit or stern hung rudder.

B = Beam in metres at widest point but not including rubbing strake or lee-boards.

D = Depth in metres measured vertically from the midpoint overall. The upper calculation point for a decked vessel will be the underside of the deck on the middle line, or if there is no deck on the middle line the underside of the deck at the side of the vessel plus the full deck camber. The camber can be taken as 12mm in 300mm where it is not known. The lower calculation point will be the top of the plating at the side of the keelson or if of open trough construction to the top of the keel fitting or the level at which the inside breadth of the trough is 10 cm, whichever gives the greatest depth.

rom the underside of the deck on the middle line or at the side of the vessel to the top of the plating at the side of the keelson.

k = 0.16 for vessels up to 24m and 0.235 for vessels 24m or greater.

As a worked example Neeltje is 21.29m x 4.11m x 1.72m x 0.16 = 24.1 gross tons.

How to Benefit from Zero-rating

If you have a QS then you can obtain services and some materials zero-rated. Normally you cannot reclaim VAT paid already unless the owner is registered for VAT except that HMRC have accepted in 38/09 that recently built residential barges can reclaim the tax paid from their builder.

It is essential that you read Notice 744C and follow the procedures for indemnifying your supplier. Generally any service – electrician, plumber, painter, boatyard etc can zero-rate their charges for you. If you are buying things for your barge then there are clear rules in 744C 7.4 and 7.5. You can buy radar, navigation equipment, propellers, pumps, safety equipment and the loo but not bulk materials such as paint, steel and wood. In addition there is a list of attractive items that will still attract VAT – binoculars, furniture, telephones, tools, video games, etc. Please consult the lists! But also note that if your painter supplies the paint or your boat fitter supplies the wood, kitchen equipment and laminate then they can supply at zero-rate as part of their service.

Surveys are normally zero-rated except for tonnage measurement,insurance claim surveys and surveys where no physical inspectin made.

Note that if you intend to purchase your ship abroad and bring it immediatly to UK you should read HMRC Notice 728 (New means of transport).

I am happy to attempt to answer any questions by e-mail!

 

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©DBA  Andy Soper February 2018