Brexit guidance – a marine update: VAT on pleasure craft

The UK ceased to be part of the EU customs union at 23:00 GMT on 31 December 2020. The UK is now considered by the EU to be a “third country” and as such VAT treatment of UK pleasure craft in EU waters and EU pleasure craft entering UK waters will be affected.

This update seeks to outline the post-Brexit position on the payment of VAT for existing pleasure boat owners in the UK, and for those looking to dip their toes in the water this season.

Existing boat owners

• Temporarily leaving the UK

If you are a UK (that is, non-EU) resident and your vessel was in the UK on 31 December 2020, you may temporarily leave the UK to sail into EU waters, for the purposes of a holiday or competition under the Temporary Admission procedure (“TA”) without paying VAT, provided your vessel is registered outside of the EU - which now includes the UK - and owned by a person established outside of the EU. Your vessel would be allowed to remain in EU waters for up to 18 months, but may not be sold or chartered whilst in EU waters and under the TA provisions.

• Bringing an EU VAT paid pleasure craft into the UK

If you are a UK resident owner of a pleasure craft upon which EU VAT has been paid, your vessel was in the one of the remaining EU 27 countries on 31 December 2020 and you bring your vessel into UK waters, VAT and import duty will need to be paid on the current value of the vessel at the time of importation.

If you are an EU resident and your pleasure craft was in EU waters on 31 December 2020, your vessel may enter and remain in UK waters for private use by a non-UK resident for up to 18 months without incurring UK VAT under the temporary admission procedures.

• Bringing back a UK VAT paid boat into the UK (Returned Goods Relief)

If you have previously paid UK VAT on your vessel and exported it to the EU, you can bring it back to the UK without having to pay VAT again (Returned Goods Relief), provided:

• it is returned within 3 years of the date of export by you (there must have been no change of ownership) (the “three year rule”); and
• it has not undergone more than running repairs outside the UK that did not increase its value.

At the time of writing, an automatic waiver to “the three year rule” may apply if you return your vessel to the UK before 31 December 2021. The RYA are pressing for this to be extended to 31 December 2023. You will not have to give the actual date you exported your vessel from the UK, as long as you can prove that the vessel was previously in the UK and the other Returned Goods Relief criteria have been met.

HMRC advises vessel owners to carry on board at all times evidence of their vessel’s UK VAT status, such as an original invoice or receipt or evidence that VAT was paid on importation. Readers should note that a registration document does not prove the UK VAT status of a vessel as there is no link between registration of a vessel and payment of VAT. Upon arrival from outside of the UK, you must fly the yellow “Q” flag as soon as you enter UK waters.

Prospective boat owners

• Buying a pleasure craft in the UK for use in the UK

Brexit has not affected the payment of VAT in this scenario. VAT must be paid at 20% on all new vessels purchased in the UK by UK residents where the vessel is to be kept in the UK.

• Buying a pleasure craft in the UK for use in the EU

If you are a UK resident buying a vessel for use in the EU you may be able to purchase the vessel VAT free if the seller arranges for export to a destination outside of the UK and you take delivery of the vessel there.

If you are a non-UK resident and are considering buying a pleasure craft in the UK but intend to permanently keep it in the EU, you may be eligible to purchase your vessel VAT-free using the Sailaway Boat Scheme. The scheme does not apply to vessels which are for business use or which are exported as cargo and vessels must be exported within 6 months of delivery from the manufacturer or supplier. Local VAT advice should be sought as to whether VAT will need to be paid in the EU export destination.

Please join us for our next SAMBA Webinar – a panel discussion on the impact of COVID-19 and Brexit and the outlook for the marine sector on 25 February 2021.