A VAT conundrum

[snowleopard]

A charity owns a boat which it purchased 10 years ago VAT-free for use by disabled people. The boat, now used, is for sale. The charity is not registered for VAT so can't charge tax on the boat.

We have 3 scenarios:

a) the boat is bought by a British resident

b) the boat is bought by an EU resident (pre-brexit)

c) the boat is bought by an EU resident (post-brexit).

I can see that in case (c) the purchaser has to pay VAT to the local government at the point of import into the EU but what about the other cases? I'm thinking that in cases (a) and (b), the buyer would also be liable for VAT to their local government. Am I right?

p.s. Please don't turn this into a discussion of the merits of Brexit!

 

[Sticky Fingers]

What was the treatment of the VAT at the time? The goods are Vat-able, so one possibility is that it is VAT paid and the vendor gave a discount equivelent to the VAT due.

 

[lw395]

I think it's just treated as VAT paid.
How much is the boat?
Unless the charity is selling sufficient goods to force it to become a VAT registered retailer, then it's no different from unregistered small boat builder selling one boat.

Consider a small business which is intially VAT registered and buys some capital items, reclaiming the VAT.
Later the business shrinks and de-registers for VAT.
Later again, it sells the capital items. Would VAT be payable?

 

[ithet]

Is this a quiz, or is the situation real?

The purchase would have been charged at zero VAT, not VAT free. The sale will not attract VAT at the point of sale as the charity is not registered and therefore cannot collect it.

 

[[70521]]

Do you have any accountants who work for your charity or a tame and not too costly accountant who can help?

 

[lw395]

Advice from the VAT office is free, and most likely correct.

 

[PHN]

A charity owns a boat which it purchased 10 years ago VAT-free for use by disabled people. The boat, now used, is for sale. The charity is not registered for VAT so can't charge tax on the boat.

If you are not registered for VAT then normally you cannot buy VAT free either. Maybe the charity did not buy the boat (permanent loan) and is not the legal owner or is it registered in some tax haven?

For a new buyer - assuming scenario a and b are consumers and not VAT registered companies - they have to pay VAT if no VAT was (yet) paid. After all as a new owner you need proof that VAT was paid by someone at some moment.

 

[lw395]

If you are not registered for VAT then normally you cannot buy VAT free either. Maybe the charity did not buy the boat (permanent loan) and is not the legal owner or is it registered in some tax haven?

For a new buyer - assuming scenario a and b are consumers and not VAT registered companies - they have to pay VAT if no VAT was (yet) paid. After all as a new owner you need proof that VAT was paid by someone at some moment.

Nonsense.

 

[photodog]

Charities are either able to reclaim vat charged via the normal process... or for some categories of goods, including goods for use by disabled people... they can purchase them as zero rated.

If the charity is not vat registered then they cannot have reclaimed the vat, nor charge it back on... so the goods must have been purchased zero rated.

In which case the original sales invoice showing the vat status should be passed to the purchaser in the normal way and no vat should be added to the current purchase price by the vendor.

As the boat was zero rated, all vat due has been paid, even if that boat has been passed onto a third party.

It would imho be incumbent upon the purchaser to enquire with the HMRC if the change of use (not for the disabled) would now mean the vessel is not zero rated and the new chargeable event would attract vat, but the vendor is not responsible at the point of sale...

 

[Graham376]

It would imho be incumbent upon the purchaser to enquire with the HMRC if the change of use (not for the disabled) would now mean the vessel is not zero rated and the new chargeable event would attract vat, but the vendor is not responsible at the point of sale...

I've had a quick scan of some of the various VAT notices concerning VAT free supplies to charities and couldn't find any reference to rules for disposal/sale. I suspect the only stumbling block would be if the boat went foreign in the future and proof of payment demanded.

 

[PHN]

Nonsense.

Can you elaborate?

I only deal with VAT in business accounting for a couple of decades ...

A buyer - not being a VAT registered company - must have proof of VAT being paid or pay it themselves.

 

[lw395]

Can you elaborate?

I only deal with VAT in business accounting for a couple of decades ...

A buyer - not being a VAT registered company - must have proof of VAT being paid or pay it themselves.

Rubbish.
A non-VAT registered trader can sell goods without VAT being due. The limitation is keeping turnover down to avoid compulsory registration.
There is no onus on the buyer of secondhand goods to show VAT has been paid.

 

[duncan99210]

I’m secretary of a CIO, our turnover is such that we are not registered for VAT and we cannot therefore claim back the VAT on goods and services we purchase for the CIO. If our turnover was greater, then we would have to register and therefore be able claim back the VAT we pay out.
In addition, as far as I’m aware, unless equipment is designed to support disabled people, it will not be zero rated for VAT purposes. So if a charity owns a boat which it is convinced didn’t have VAT paid on it, then it must have a high enough turnover to be VAT registered and claimed the VAT back in that manner. It may have only been registered for a single year, as the money to purchase a boat would probably have taken their turnover above the threshold for that year.
That being the case, the purchaser will need to pay VAT on the event. However, as is ever the case my understanding of this topic is limited and the OP should seek advice from HMRC who will be only too happy to help.

 

[lw395]

I’m secretary of a CIO, our turnover is such that we are not registered for VAT and we cannot therefore claim back the VAT on goods and services we purchase for the CIO. If our turnover was greater, then we would have to register and therefore be able claim back the VAT we pay out.
In addition, as far as I’m aware, unless equipment is designed to support disabled people, it will not be zero rated for VAT purposes. So if a charity owns a boat which it is convinced didn’t have VAT paid on it, then it must have a high enough turnover to be VAT registered and claimed the VAT back in that manner. It may have only been registered for a single year, as the money to purchase a boat would probably have taken their turnover above the threshold for that year.
That being the case, the purchaser will need to pay VAT on the event. However, as is ever the case my understanding of this topic is limited and the OP should seek advice from HMRC who will be only too happy to help.

ISTM there are several routes to the boat having been acquired free of VAT, yet the charity never being VAT registered.
Also if the charity was VAT registered, but later became de-registered, it's possible no VAT is due on the sale.
If the charity acquired the boat as a donation it may have been outside the scope of VAT.

If the charity is now not registered for VAT, then there is no mechanism for it to charge VAT for anything it sells and no requirement for the buyer to pay it. Possibly if the charity is flogging >£85k of VATable goods in a short period it may be required to register and charge VAT.
Are we talking about a superyacht or a little rowing boat?

 

[AntarcticPilot]

I’m secretary of a CIO, our turnover is such that we are not registered for VAT and we cannot therefore claim back the VAT on goods and services we purchase for the CIO. If our turnover was greater, then we would have to register and therefore be able claim back the VAT we pay out.
In addition, as far as I’m aware, unless equipment is designed to support disabled people, it will not be zero rated for VAT purposes. So if a charity owns a boat which it is convinced didn’t have VAT paid on it, then it must have a high enough turnover to be VAT registered and claimed the VAT back in that manner. It may have only been registered for a single year, as the money to purchase a boat would probably have taken their turnover above the threshold for that year.
That being the case, the purchaser will need to pay VAT on the event. However, as is ever the case my understanding of this topic is limited and the OP should seek advice from HMRC who will be only too happy to help.

Churches, as charities, don't pay VAT on building works that meet certain criteria. We certainly aren't VAT-registered, so it is a zero-rating that is applied (though I think the VAT is reclaimed from HMRC; the builders apply VAT as normal).

 

[snowleopard]

What was the treatment of the VAT at the time? The goods are Vat-able, so one possibility is that it is VAT paid and the vendor gave a discount equivelent to the VAT due.

The charity made a declaration of VAT exemption and the vendor sold it at full ex-VAT price.

 

[snowleopard]

I've had a quick scan of some of the various VAT notices concerning VAT free supplies to charities and couldn't find any reference to rules for disposal/sale. I suspect the only stumbling block would be if the boat went foreign in the future and proof of payment demanded.

That's the main reason for asking: one interested party is Dutch.

 

[snowleopard]

I checked back with the builder who replied:

"I can confirm that NO VAT was paid on the purchase of the ******boat, as it was sold with a declaration of eligibility for VAT relief."

It was adapted for disabled use and has only been used for that purpose so, I think, legitimately exempt.

 

[snowleopard]

For info, It's a dayboat, new cost 17k, now asking 5k.

 

[lw395]

Isn't this what a T2L is for?
To show that it's legitimately circulating union goods, whether or not VAT was ever paid?
But at £5k it might be below the radar anyway.