Another VAT question

[superheat6k]

This is one I have asked the RYA, but would appreciate the Forum's view. My questions to the RYA sum up the situation ...

Looking to purchase a boat based in Jersey, CI.


Boat was EU VAT paid when purchased in the EU in 2006, but has been based in Jersey since.


The owner states he has routinely sailed to the EU since owning the boat, and takes the view the boat remains VAT paid - i.e. not exported.


1 Is this an Exported vessel even if it has regularly re-entered the EU ?


2 Assuming this could still be regarded as not exported, would VAT status be reliant on possession of casual visitor mooring receipts ?

How likely is this to cause me as buyer potential problems later ?
Could I be subject to an HMRC Officer's view at some date later ?


3 The RYA guidance note states the person who took the boat out of the EU must bring her back in. The vendor is unwell and presently unable to sail the vessel himself back into the EU to then sell the boat. If I were to sail it for him then notionally complete the sale once back in the EU (UK) would / could HMRC take the view that the sale had already occurred at the port of departure (St Helier, Jersey), and therefore demand VAT.


All a bit messy. My view is that this boat would be a re-import and thus VAT would be payable.


What are the Forum's views ?

Thanks.

 

[westernman]

VAT due.

Even if sailed back by the current owner, still VAT due as he is not resident in the EU and the boat is not normally based there. I.e. it has ben exported.

 

[DAW]

Take a look at section 3.4 and 3.5 of Customs Notice 8, available from the www.gov.uk website.

It seems that if you purchase the boat in Jersey and bring it back to the UK it will almost certainly be regarded as not VAT paid. However, it may be possible for the current owner to arrange for it to be brought back to the UK, obtain confirmation from HMRC that it has regained VAT paid status on reimport and then sell the boat to you from within the EU.

 

[Hurricane]

Is the current owner an EU resident?

Have a look at this thread
http://www.ybw.com/forums/showthread.php?428139-Import-duty-on-a-EU-tax-paid-boat-a-question

If he is an EU resident, I should think that if the deal was done in an EU port, then VAT would not be due.
But I'm no expert - but there are some on here that are.

 

[Tranona]

Is the current owner an EU resident?

Have a look at this thread
http://www.ybw.com/forums/showthread.php?428139-Import-duty-on-a-EU-tax-paid-boat-a-question

If he is an EU resident, I should think that if the deal was done in an EU port, then VAT would not be due.
But I'm no expert - but there are some on here that are.

Don't think it matters whether the current owner is an EU resident, it is the location of the transaction that is important. Current owner can employ somebody to take the boat over to France or back to the UK and do the deal there. A marina receipt and a notarised Bill of Sale is enough proof that the boat was in the EU. The only question mark would be the evidence that the boat has been in the EU at some time in the last 3 years before the sale.

 

[Hurricane]

Don't think it matters whether the current owner is an EU resident, it is the location of the transaction that is important. Current owner can employ somebody to take the boat over to France or back to the UK and do the deal there. A marina receipt and a notarised Bill of Sale is enough proof that the boat was in the EU. The only question mark would be the evidence that the boat has been in the EU at some time in the last 3 years before the sale.

OK - I thought that the owner had to be EU resident in order to keep the VAT status.
But you are far more knowledgeable in these matters than me.

I would have thought that maybe the owner could prove that the boat had been back to the EU using some receipts - berthing/fuel etc during the last 3 years.
Unlikely to be fuel receipts though, as the fuel would have been cheaper in Jersey.

It is unlikely that anyone would ever check but when the new owner comes to sell, no proof of VAT might devalue his sale.

 

[Piers]

Having had a similar issue with Play d'eau (VAT paid but we're now resident in Guernsey) I engage UK solicitors to check. They confirmed the VAT paid status. However, I recommend you either get something in writing from HMRC or engage solicitors. Much cheaper than a potential VAT bill.

 

[Tranona]

Having had a similar issue with Play d'eau (VAT paid but we're now resident in Guernsey) I engage UK solicitors to check. They confirmed the VAT paid status. However, I recommend you either get something in writing from HMRC or engage solicitors. Much cheaper than a potential VAT bill.

Doubt that HMRC will give anything. They stopped giving opinions many years ago on the basis that there is no such thing as permanent VAT status only in respect of the last transaction. A solicitor will only give an opinion based on their interpretation of the law, or their guess as to how HMRC would interpret it.

A transaction between two private individuals within the EU is not a chargeable event so there is no VAT due on that event. In this case the question mark relates to the current owner's situation, not the potential buyer, so any liability would be with the current owner who will have to show that the boat has not been kept outside the EU for longer than 3 years.

 

[Piers]

Doubt that HMRC will give anything. They stopped giving opinions many years ago on the basis that there is no such thing as permanent VAT status only in respect of the last transaction. A solicitor will only give an opinion based on their interpretation of the law, or their guess as to how HMRC would interpret it.

A transaction between two private individuals within the EU is not a chargeable event so there is no VAT due on that event. In this case the question mark relates to the current owner's situation, not the potential buyer, so any liability would be with the current owner who will have to show that the boat has not been kept outside the EU for longer than 3 years.

So a fleeting visit to the EU would break the three year limit?

 

[superheat6k]

Thanks for the feedback.

My concern is if I buy the boat this becomes my problem and risk, and as mentioned compounded in the future when I come to sell on. Far simpler for me as the buyer is to de-value the boat by a factor of 0.83, then declare it to HMRC as a chargeable event upon my arrival in the UK.

HMRC are not stupid, and whereas the rules might nor be palatable one would assume the very reason they are worded as they are to to prevent artificial sales of CI boats. In this case the vendor is unwell and as I understand unable to bring the boat back into the EU himself, and even if he could I would still have the ongoing issue of reliance upon some fuel or visitor mooring receipts for a nine year period.

Not sure I want to do this. So VAT not paid reduced offer it is. He accepts it or I find another boat - simples.

I hope he will be sensible because the boat itself, although a bit neglected, has the makings of the boat I want.

 

[Tranona]

Why do you think HMRC are ever going to ask? There are no random checks, nor any reason why they should pick on you.

If you follow the advice (and the seller agrees) of having the transaction take place in the EU then you will have a clean Bill of Sale. Any future problems relating to VAT is the sellers, not yours. Why do you want to pay a tax when there seems to be no need?

Just to add when this exact same issue came up here a few months ago, this was jfm's view as well. Presumably he is enjoying himself somewhere on match - but worth asking his advice.

This all assumes the boat is worth buying of course.

 

[superheat6k]

Why do you think HMRC are ever going to ask? There are no random checks, nor any reason why they should pick on you.

If you follow the advice (and the seller agrees) of having the transaction take place in the EU then you will have a clean Bill of Sale. Any future problems relating to VAT is the sellers, not yours. Why do you want to pay a tax when there seems to be no need?

Just to add when this exact same issue came up here a few months ago, this was jfm's view as well. Presumably he is enjoying himself somewhere on match - but worth asking his advice.

This all assumes the boat is worth buying of course.

Because they could.

Also because they invented the rules for non EU boats e.g. those in the CI or exported there, for a very good, if not palatable, reason. I accept the risk is low of being demanded by HMRC, but the issue still exists for when I come to sell on and would need then to show my buyer the vat status anyway.

So my question is why do I want to take this legal uncertainty on ? I like the boat, and a mutually agreeable price seems achievable, but not if the VAT then has to be deducted.

I am also led to believe a further complication exists for this specific boat because a prior would be buyer asked the questions of HMRC the 'wrong way' and one broker I spoke to suggested the boat might be somehow 'marked' on HMRC system, but I am not sure HMRC do such a thing.

I just do not want the hassle. This is the Vendors problem - why should I make it mine - there does not seem to be any sure mechanism I can apply to be 100% sure her status is VAT paid other than by buying her as 'VAT not paid' and then paying it myself.

I have the greatest respect for JFM, but it won't be him and his legal expertise in the situation of having to plead my position if HMRC do cut up rough, nor will anyone be there when I come to sell on.

 

[Tranona]

Just one other question. Does it have the original VAT invoice from a UK seller? If so your paper trail would be even sounder as it would show sold in the UK and if the next transaction (you buying it) took place in the EU you will actually be better off than many buyers of secondhand boats in the UK who have no record of VAT being paid.

Appreciate your view of the "risk", but given the difficulties you have been experiencing finding a boat, maybe if everything is otherwise right this might put the risk in a different perspective. Just think about it. If the boat was actually in the UK with clean paper trail you probably would not think twice about where it had been physically located in the past.

 

[Hurricane]

I agree with Tranona here.
By all means try and reduce the price using VAT as a reason but if you get a deal done in an EU port and the paper trail shows VAT previously paid, no-one would ever know that the boat was in Jersey.
I think you are taking this one too far.
Of course get everything correctly in place but if you really do want this boat, I don't think that this VAT issue is strong enough not to deal.

 

[MapisM]

Because they could.

Yeah, but they should PROVE that the boat was actually "EXPORTED" in Jersey (as opposed to visiting), shouldn't they?
Not saying it's impossible, but I also would think that Tranona is right in saying that you'd be better off than with many other second hand boats.
Of course, if you want to avoid any potential VAT issue with a boat, you still have the choice of buying a new one...

 

[Portofino]

My accountant wife (audits other folks business a/c ) always has a chuckle reading this stuff,
This magic supposedly "get you out of jail " (excuse the pun) - initial VAT paid invoice from the first owner -assumes one thing ............ otherwise it all falls down ...........................

That the initial seller /dealer ( are they still trading ?) actually passed the VAT on !

If so where is the initial paper trail ? That's why they never ask ,
No different to buying a used car from a private add or a high street dealer . I have never known somebody walk into a car showroom and ask to see a VAT paid or any other invoice before the test drive ?

 

[JT57]

As a Jersey resident and owner of a none VAT paid boat myself, I would suggest the onus is on the vendor to provide proof of VAT paid. If he can't then deal on the basis it is not VAT paid.
Isn't the import/export out of and back into the EU a bit of a red herring? What is the boat, I may know it?

 

[Piers]

Just in case it helps the discussion, here's a letter from MBY in which the resident legal firm replied.

I am buying a second-hand boat which is VAT paid but it has been outside the EU for more than five years. I am told that because it has been outside the EU it has lost its VAT-paid status and VAT is now payable on the purchase price. Is this correct? Robert Madge.

A boat that is considered "VAT paid" within the EU can lose this status if it is sold outside the EU, or kept outside the EU for more than three years. Where a boat is exported from the EU it is possible to qualify for relief from VAT when the boat is subsequently imported back into the EU, provided that certain conditions are met, including it is brought back into the EU within three years from the date of export and it is imported by the person who exported it from the EU. In the present case, as the boat has been outside the EU for more than three years, even if the seller were to import the boat back into the EU before the sale and purchase completed, VAT would still be due on the importation of the boat into the EU. VAT will be due on the current value of the boat on the date of importation into the EU. The authorities may use the purchase price as the current value but will obtain alternative valuations if they consider it to be an under-value. The new owner must notify the relevant customs authorities on arrival into the relevant EU country. The purchaser should be aware that customs duties may also be due on the importation of the boat into the EU.

Rachel Addinall,
Keates Ferris
Maritime Lawyers

 

[Tranona]

As a Jersey resident and owner of a none VAT paid boat myself, I would suggest the onus is on the vendor to provide proof of VAT paid. If he can't then deal on the basis it is not VAT paid.
Isn't the import/export out of and back into the EU a bit of a red herring? What is the boat, I may know it?

In this case, the vendor says VAT was paid as it was purchased and use in the EU before being taken to CIs. Therefore he is entitled to bring it back within 3 years as explained in the letter Piers has posted. However, it seems to have been in CIs longer than that (2006), so it is important to establish whether it has been in and out of the EU in that time. This is a common problem in Turkey for example where people keep VAT paid boats and regularly visit Greece to ensure that the boat has never permanently left the EU for more than 3 years. The person who owned the boat before it left the EU can bring it back within 3 years of when it was last in the EU and then sell.

This line of reasoning underpins the suggestion that the vendor have the boat taken to an EU port for the actual transaction then there is no VAT liability - again common practice in Turkey/Greece.

The chances of HMRC ever knowing of this or checking the transaction are low to non existent and a good paper trail showing the conditions for relief had been met would be a good insurance.

 

[JT57]

Is there any evidence that VAT was originally paid, or are you taking the vendors word for it? I don't understand why someone either resident in Jersey or intending to keep their boat here, would have chosen to pay VAT. I wouldn't! Where is the evidence that VAT was actually paid, and if it wasn't then you know for sure that it will be due on import into the EU.