A question of VAT

Bloater

Bloater

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Take a hypothetical situation (which as we all know means it's real)...

A boat is purchased for £100 + VAT (£117.50) from a main dealer and VAT is paid on it. The receipt says £17.50 of VAT has been paid.
The buyer is in fact a company and somehow are able to reclaim £17.50 of VAT back on the purchase.
They then later sell the boat to another company for £50 but no VAT is paid by this second company
This second company now wishes to sell the boat for £50 to a private buyer and is selling it with VAT due
The private buyer pays the money for the boat (£50) and also stumps up some VAT (£8.75)
All is well - or is it?

What if the second company involved was not VAT excempt and they simply sold the boat on before this fact was discovered. Would the private buyer be liable for all the VAT? Should he be paying £50 for the boat and £17.50 to the taxman?

Does anybody know the answer?
 
This is a serious question, a 'friend of mine' is thinking of buying a boat that is VAT free and knows they will be liable to pay VAT - it's just a question of how much - on the new price or the second hand sale price?
 
My understanding is that VAT is payable on the current transaction and your 'friend' is not liable for anything that might have happened in the past. It is the seller who is responsible for accounting for the VAT and presumably they will incorporate that amount into the price charged.
 
How did the middle company (would have to be VAT registered to claim back the VAT) manage to sell the boat without accounting for the VAT?

Was the 2nd company they sold it to VAT registered?
 
Not every detail is understood but we can assume that the second company was an offshore company where no tax or VAT exists.
 
Quo said:
A boat is purchased for £100 + VAT (£117.50) from a main dealer and VAT is paid on it. The receipt says £17.50 of VAT has been paid.
The buyer is in fact a company and somehow are able to reclaim £17.50 of VAT back on the purchase.
They then later sell the boat to another company for £50 but no VAT is paid by this second company
This second company now wishes to sell the boat for £50 to a private buyer and is selling it with VAT due
The private buyer pays the money for the boat (£50) and also stumps up some VAT (£8.75)
All is well - or is it?

What if the second company involved was not VAT excempt and they simply sold the boat on before this fact was discovered. Would the private buyer be liable for all the VAT? Should he be paying £50 for the boat and £17.50 to the taxman?

Does anybody know the answer?
Click to expand...

The basic thing about this tax is no-one can answer the Q unless all the relevant facts are provided.

In a later post you say co 2 is overseas. But what about the boat? Is/was it pysically overseas, and if so where? Was the boat was exported by Co 1 when it sold to Co 2, becuase that might account for no VAT on the 1-2 sale?

And then, was it re-imported by Co 2? Or is it being reimported by Co 2 as part of sale to private buyer? Or is private buyer buying it physically outside EU and then importing it? Or what?

Or has the boat always been in UK? In which case Co 1 has a problem but not Co 2 or private buyer

Tell us all the facts, else people will just assume facts (like, the boat has been in UK always) and then give you answers based on those assumed, but not necessarily correct, facts.
 
My understanding is that Company 1 was responsible for charging VAT when they sold to Company 2 and that any liability for under-recovery is therefore theirs (C1).
The boat is now being sold as a separate transaction so the VAT applicable is the VAT on that sale.
Having said that, in the interest of completeness, I'd like to have the original bill of sale from the main dealer showing VAT was paid when new.
 
Quo said:
Not every detail is understood but we can assume that the second company was an offshore company where no tax or VAT exists.
Click to expand...

On the occasions that we have brokered a boat back into the UK when it originated (vat paid) from the UK we have found that HMRC always assume VAT was claimed when it left the UK and came to the Channel Islands. This is tricky because you cannot prove that VAT was not reclaimed, so they can only assume it was.

If your friend's boat is going back to the UK from the CI then you will have to pay duty, in nearly all cases where there is a recent bill of sale then the figure on that is used to calculate the duty at 17.5%.

Do let me know if you would like any specific help, if indeed this is a CI case.

Edit: Not sure I made it clear that where the boat is being taken into the UK the importer, ie the buyer, is responsible for paying the duty. This is absolutely critical to understand and many people refuse to accept it.
 
Hi, thanks for all your replies. I can't give too much detail on this forum (because you never know I might be referring to a real case here).

The consensus of opinion seems to indicate that if 'my friend' buys a boat like the one in my example then he will not be held responsible for any VAT peculiarities that may have occurred between company 1 and company 2.

Now to add a little twist to my example;
Let us say company 2 claims to know nothing about any missing VAT and thought VAT was paid all along because they saw the original VAT invoice from the dealer...
Let us assume that company 2 has used the boat wholly in the UK and therefore has (by definition) imported it (without knowing it)...
Would company 2 be retrospectively liable to pay VAT (even if sold on to 'my friend')?

I just want to be sure that 'my friend' won't be liable to pay any more than £8.75 in VAT (ie the VAT due on his transaction).

Have I got it right?
 
Quo said:
I just want to be sure that 'my friend' won't be liable to pay any more than £8.75 in VAT (ie the VAT due on his transaction).
Click to expand...

You can never be sure as duty regulations are open to interpretation.

However if you have a bill of sale with a realistic value and pay the duty relative to the amount shown then you should be on the right track.

It is unlikely that you would be help responsible for previous owners VAT payments.
 
Quo said:
Hi, thanks for all your replies. I can't give too much detail on this forum (because you never know I might be referring to a real case here).

The consensus of opinion seems to indicate that if 'my friend' buys a boat like the one in my example then he will not be held responsible for any VAT peculiarities that may have occurred between company 1 and company 2.

Now to add a little twist to my example;
Let us say company 2 claims to know nothing about any missing VAT and thought VAT was paid all along because they saw the original VAT invoice from the dealer...
Let us assume that company 2 has used the boat wholly in the UK and therefore has (by definition) imported it (without knowing it)...
Would company 2 be retrospectively liable to pay VAT (even if sold on to 'my friend')?

I just want to be sure that 'my friend' won't be liable to pay any more than £8.75 in VAT (ie the VAT due on his transaction).

Have I got it right?
Click to expand...

If you really want to know, then send a PM with all the facts to JFM. He is very well qualified in this area and has been willing on more than one occaision in the past to assist Forumites with their queries. ;)

If you really don't want to know, then keep posting half of the story. That way you will continue to get half ( baked ) answers! :p
 
Malthouse said:
You can never be sure as duty regulations are open to interpretation.

However if you have a bill of sale with a realistic value and pay the duty relative to the amount shown then you should be on the right track.

It is unlikely that you would be help responsible for previous owners VAT payments.
Click to expand...

You never know with our HMRC these days. They are increasingly determined to get in the vat and not too bothered from whom.
I can see a rule being introduced where the item (rather than the seller) has the vat liability attached to it so they will come after whoever is the easiest target.

I
 
Quo said:
Let us assume that company 2 has used the boat wholly in the UK and therefore has (by definition) imported it (without knowing it)...
Click to expand...

Eh? To import something is to bring it physically over the border. You'd have to be pretty dense to do that without knowing it. And using a boat "wholly" in the UK isn't "by definition" importing it, unless the world has changed. It sounds more like not importing it!

So, has the boat been imported into the EU partway thru its life, or not? It would be pretty irritating for people to explain to you all the VAT rules on importation, only for you to turn round and say "Ah, it's been in Chichester the whole time"

Any chance of a few more facts?
 
Malthouse said:
I suspect the boat is already in the UK and has been for some time, but that it was previously registered offshore.
Click to expand...

Registered offshore? And "previously", so you reckon it switched flags and is now UK flagged? Blimey, that's a whole new set of assumptions/guesses, not mentioned by OP, and again illustrates that no-one actually knows the facts!
 
I was trying to keep this hypothetical, but as everyone is saying; without the facts it's just a guessing game. The situation has changed slightly today and now I feel more confident about disclosing some of the facts. My 'friend' is no longer pursuing this boat as he smells a rat.

Well the fact is most of what I know is either deduced by me or given to me by company 2, so actual known facts are hard to come by. Is everyone telling the truth?


Company 2 is an offshore company, I don't know where from.
The boat under ownership of company 2 has at some stage been registered in the British Virgin Islands.
Company 2 tried to sell 'my friend' the boat stating that VAT had been paid and that he had a copy of the original VAT invoice.
Company 2 has now stated that the boat is not VAT paid.
Now company 2 wants to sell the boat ex VAT and let the new owner pay some VAT.
Company 2 states that the boat has always been in the UK.
The boat was sold to company 2 by a broker who didn't complete a recognised Sale & Purchase agreement.
The representative from company 2 appears no longer to be a resident of the UK

Personally I don't think it all adds up hense my advice to my friend was to steer clear. I suppose my new question is whether my friend has narrowly escaped being conned?

Thanks again for all your replies.
 
Quo said:
I was trying to keep this hypothetical, but as everyone is saying; without the facts it's just a guessing game. The situation has changed slightly today and now I feel more confident about disclosing some of the facts. My 'friend' is no longer pursuing this boat as he smells a rat.

Well the fact is most of what I know is either deduced by me or given to me by company 2, so actual known facts are hard to come by. Is everyone telling the truth?


Company 2 is an offshore company, I don't know where from.
The boat under ownership of company 2 has at some stage been registered in the British Virgin Islands.
Company 2 tried to sell 'my friend' the boat stating that VAT had been paid and that he had a copy of the original VAT invoice.
Company 2 has now stated that the boat is not VAT paid.
Now company 2 wants to sell the boat ex VAT and let the new owner pay some VAT.
Company 2 states that the boat has always been in the UK.
The boat was sold to company 2 by a broker who didn't complete a recognised Sale & Purchase agreement.
The representative from company 2 appears no longer to be a resident of the UK

Personally I don't think it all adds up hense my advice to my friend was to steer clear. I suppose my new question is whether my friend has narrowly escaped being conned?

Thanks again for all your replies.
Click to expand...

OK, so the working assumption now is that the boat has always been in UK. Co 1 should have accounted for VAT on its sale to Co 2 (or prior to then, in a take-into-private use transaction). This would have required Co 1 to pay the tax to the exchequer, not Co 2. It seems this didn't happen, which is strange, but so long as Co 2 didn't collude in any wrongdoing then Co 2 is in the clear on that point

When Co 2 sells to your friend it will have to account for VAT on the sale and issue a new VAT invoice if it is or should be VAT registered, and not otherwise (actually, it's more complex than that, but that's a close summary. Other alternatives are possible, eg Co 2 may not have owned the boat for business purposes and hence not recovered input VAT when buying it, and hence isn't required to account for output VAT when it sells it)

So, if the facts started are correct then if your friend buys the boat and gets the original dealer-Co 1 VAT invoice, he is in the clear so long as there is nothing else dodgy going on in which he is colluding. He will only pay what he pays to Co 2, not an extra 8.75 or 17.5

So all straightforward. But there must be more to it than this becuase you now tell us your friend reckons there is a scam going on hence he has walked away! If Co2 is being untruthful when it says boat has always been in UK and never imported, that changes everything as your friend could become liable to a previous owner's unpaid import VAT

But why worry? It was £50 VAT paid. They now say it's not VAT paid so pay them £40 ish and take the boat including the original invoice. Job done
 
jfm said:
OK, so the working assumption now is that the boat has always been in UK. Co 1 should have accounted for VAT on its sale to Co 2 (or prior to then, in a take-into-private use transaction). This would have required Co 1 to pay the tax to the exchequer, not Co 2. It seems this didn't happen, which is strange, but so long as Co 2 didn't collude in any wrongdoing then Co 2 is in the clear on that point

When Co 2 sells to your friend it will have to account for VAT on the sale and issue a new VAT invoice if it is or should be VAT registered, and not otherwise (actually, it's more complex than that, but that's a close summary. Other alternatives are possible, eg Co 2 may not have owned the boat for business purposes and hence not recovered input VAT when buying it, and hence isn't required to account for output VAT when it sells it)

So, if the facts started are correct then if your friend buys the boat and gets the original dealer-Co 1 VAT invoice, he is in the clear so long as there is nothing else dodgy going on in which he is colluding. He will only pay what he pays to Co 2, not an extra 8.75 or 17.5

So all straightforward. But there must be more to it than this becuase you now tell us your friend reckons there is a scam going on hence he has walked away! If Co2 is being untruthful when it says boat has always been in UK and never imported, that changes everything as your friend could become liable to a previous owner's unpaid import VAT

But why worry? It was £50 VAT paid. They now say it's not VAT paid so pay them £40 ish and take the boat including the original invoice. Job done
Click to expand...

FAB post jfm!!

You are a rare bird indeed - an accountant that can explain issues such that mere mortals can comprehend......:D
 
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