MBM and VAT advice

[gjgm]

Even if the business that bought the boat reclaimed the VAT on it at an earlier stage in its life, the boat is still VAT paid in the sense (a) it has a VAT invoice which addresses the urban myth point and (b) the bona fide innocent new owner cannot in any circumstnaces whatsoever be liable or have the boat seized for any past dodgy VAT reclaim made by the previous seller

I don't want to get into another long thread but you know that TV I bought from Curry's? Well it was made in Korea by Samsung, using parts imported from US and China, then sold to Samsung Europe BV and imported into a distribution centre in Rotterdam, then sold to Samsung UK Limited who brought it to the UK, and then sold it to Curry's. So a couple of imports and a couple of VAT payments and reclaims in its history, and I'm the 4th owner or something like that. There is no way HMRC are going to be interested in contacting me about Samsung's or Curry's VAT arrangements, so the urban myth beleivers really need to chill .

So, apart from some really complex story, the risk to a private individual is down to an illegal import/smuggling? That is it,case wise?
In that circumstance, you could be liable for the VAT?
Sorry, it would be good to know just what the risk really is !!

 

[Nick_H]

So, apart from some really complex story, the risk to a private individual is down to an illegal import/smuggling? That is it,case wise?
In that circumstance, you could be liable for the VAT?
Sorry, it would be good to know just what the risk really is !!

As I understand it you couldn't ever be liable for the VAT, but the tax authority in the country in which the VAT should have been paid on import by the previous owner/smuggler, could in theory seize and sell the boat to recover the unpaid tax if they came across it in their own jurisdiction. Strangely that kind of suggests that the safest way to buy a used EU VAT paid boat is to buy one in another EU country and move it to the UK, in which case you can't even theoretically lose out VAT wise. In reality though it seems the likelihood of a boat ever being seized is so remote that it wouldn't justify the extra costs of transporting the boat.

 

[jfm]

So, apart from some really complex story, the risk to a private individual is down to an illegal import/smuggling? That is it,case wise?
In that circumstance, you could be liable for the VAT?
Sorry, it would be good to know just what the risk really is !!

Yes, as I've said a million times, the only time you could be in effect liable for "someone else's VAT" having bought a secondhand boat is if a previous owner smuggled it. (And for that reason Nick is technically right - buying in EU country A and taking to EU country B yourself, never returning to A, reduces even that risk)

If a previous person//company/business bought the boat then incorrectly reclaimed/recovered the VAT, then you innocently bought it from them or you were later owner down the chain, you can never be liable for the incorrectly reclaimed/recovered VAT. Never.

The risk is very much smaller than the urban myth that surrounds it!

 

[gjgm]

Yes, as I've said a million times, the only time you could be in effect liable for "someone else's VAT" having bought a secondhand boat is if a previous owner smuggled it. (And for that reason Nick is technically right - buying in EU country A and taking to EU country B yourself, never returning to A, reduces even that risk)

If a previous person//company/business bought the boat then incorrectly reclaimed/recovered the VAT, then you innocently bought it from them or you were later owner down the chain, you can never be liable for the incorrectly reclaimed/recovered VAT. Never.

The risk is very much smaller than the urban myth that surrounds it!

Thanks;that was my understanding after two years of your patient postings.
It is a shame the MBM article didnt focus on that point, to put the risk in perspective.
My question above was therefore aimed at an attempt to draw a line.
I think your response above should be emblazened across YBW.com, just so we we never discuss VAT again

 

[Observer]

The risk is very much smaller than the urban myth that surrounds it!

..in law. In practice, we can't predict how individual tax officials in non-UK jurisdictions in particular and even in the UK will interpret and seek to apply tax law to any given set of facts.

Very few punters have anywhere near the command of VAT law needed to argue a case that will make a zealous official, who thinks he's sniffed a big chunk of unpaid tax, back down. I suspect even you would not relish crossing swords with the tax office in non-UK jurisdictions. It would be a balls ache at best.

 

[gjgm]

..in law. In practice, we can't predict how individual tax officials in non-UK jurisdictions in particular and even in the UK will interpret and seek to apply tax law to any given set of facts.

Very few punters have anywhere near the command of VAT law needed to argue a case that will make a zealous official, who thinks he's sniffed a big chunk of unpaid tax, back down. I suspect even you would not relish crossing swords with the tax office in non-UK jurisdictions. It would be a balls ache at best.

I think that might be a fair point, but I assume boaters who have big value boats cruising around the EU are not totally blase about documentation?
Do you have cases of boats in UK being charged by HMRC, those zealous officials, bcz otherwise it is a bit of a myth, surely?
Ignorance on my part, but I thought HMRC might look where they are investigating someone or something anyway, but they dont actively hunt boats?

 

[jfm]

..in law. In practice, we can't predict how individual tax officials in non-UK jurisdictions in particular and even in the UK will interpret and seek to apply tax law to any given set of facts.

Very few punters have anywhere near the command of VAT law needed to argue a case that will make a zealous official, who thinks he's sniffed a big chunk of unpaid tax, back down. I suspect even you would not relish crossing swords with the tax office in non-UK jurisdictions. It would be a balls ache at best.

Agreed, can't predict for sure. As I see it, and happy to hear other views, the past practice indicates almost no problem though. I think there have been threads on here asking if anyone has had a demand for a VAT invoice while boating and no-one or almost no-one has. Stillwaters on the other thread (glad you were amused! You couldn't make it up eh? ) said it happened "loads" then avoided requests to back that up. AFAIK no-one on here has ever been asked for a vat invoice in UK. I haven't in 10 years of France/Spain/Italy (during which time I have had about 6 stopnsearches by douane boats and for 5 years on first Sq58 the boat was not VAT paid becuase it was imported Jersey to France (legally!) under the FCE VAT-free program and its Jersey invoice showed nil VAT)

The statements made often by urban mythers and by Brian Solicitor on that other thread and mby to the effect (or maybe verbatim) "If you cannot prove the boat is VAT paid it will be deemd not VAT paid" are as you know completely wrong in law and do not reflect how tax officials operate based on experience

I agree it would be balls-aching to cross swords with a non English speaking tax office if it were to happen, but it does feel pretty unlikely. Against that background, the legal advice on that other thread to cash pay maybe £30k VAT to the wrong country to "buy" a piece of paper that you can wave at officials in the event this very unlikely demand for VAT-paid paperwork arises is really quite remarkable, as I know you know!

 

[ari]

first Sq58 the boat was not VAT paid becuase it was imported Jersey to France (legally!) under the FCE VAT-free program and its Jersey invoice showed nil VAT)

Ok, so this is a good example of the bit I don't quite understand.

So just as a fer instance. you say your boat was VAT not paid for five years. Lets just say you decided to sell it after year four, charge a normal VAT paid price, some chap comes along, buys the boat, asks about VAT situation, you say "oh don't worry about that, there's no liability to you, any liability legally falls to the first owner, it's his tax affair, see huge great long threads on YBW for full details, you go and enjoy the boat". So he does. You write him out a Bill of Sale and a receipt on a bit of paper, bank his cheque, don't bother paying any VAT, and think no more of it.

Now according to all the advice given, are we correct to say that from that moment forth, that boat is worth the same as any other VAT paid boat because there is no ongoing VAT liability? (The advice above from various people says they wouldn't worry about proof of VAT on a used boat as no liability to them hence makes no difference).

And, same point really I suppose, can that chap happily biff about in your old Sq58 knowing that should the issue ever arise, in this country or any other, and it's shown that you never paid the VAT when you sold it, or simply that there is no proof either way, it's of zero concern to him?

He can say "you'd better go and see that lovable old rogue JFM, it's nothing to do with me, I just bought his boat, not his VAT liabilities" and all his problems surrounding owning a boat that no VAT has ever been paid on will instantly melt away, correct?

And when he sells it, should he sell it for a normal VAT paid price cos again, not his problem what happened ref VAT in the past?

And, most importantly of all, knowing all of the above, would you (or anyone else on this forum suggesting this is a non issue) advise his buyer, if it happened to be a friend of yours, to pay a VAT paid market price knowing the above?

Or would you say "think there's a few VAT issues surrounding that boat bud, I should give it a swerve/pay a bit less in case it bites you on the posterior"?

Because that's the nub as far as I can see from a layman's point of view.

 

[gjgm]

To shorten the question and add a bit
-UK boat, Vat not paid
Sold in UK (which triggers a VAT liability at that point?)
Seller, liable to “collect” and pay over VAT, somehow doesn’t pay it
Buyer doesn’t get any VAT “invoice” from seller
Private sale, I assume?
Do we collectively think the boat has a resale value in the market the same as an identical boat with a VAT doc?

Personally, I think that would depend on the age, the value, the history of the boat.
I dont think it automatically means in all cases the boat's saleable value is 20pct less.

Does a bit of paper run off my Canon printer make that boat worth 20pct more...?

 

[ari]

Ok, so I've laid out the question, it's your mate buying JFM's old Sq58 off the second owner, you know JFM didn't pay the taxman and blew the cash on fast cars and fast women (and the rest he just wasted). What are you going to tell him?

Because right through this thread you've been saying "not any subsequent owners problem, and no chance of the issue being raised in any case".

So are you going to tell your mate to go ahead, pay normal used VAT paid boat price? It's just a myth after all, right?

 

[gjgm]

Ah, so in this case I know that fraud has been committed and VAT has illegally not been paid?
A rather bizarre boat purchase, but ok, you set the scene.
I think any sane person might consider whether he even wants to buy the boat at all, but KNOWING it is subject to VAT fraud, I dont think I could advise anyone to pay full whack bcz it is quite possible HMRC will knock on your door, I guess, and maybe I dont have JFM's phone number
However, lets take a more conventional scene, where a 5-10 year old boat with plenty of evidence it has been in the UK, nice ownership paper trail.. all looks and smells sweet, but the owner has misplaced the VAT doc. In THIS case, I would explain my understanding of VAT and suggest it is highly unlikely there would ever be any VAT queries on the boat, and its ok to pay a market value, yes.
I would myself.

 

[jfm]

I need a bit more time to reply to Ari's Q but i sold the boat as not VAT paid, at a lower price, and the (French) guy who bought it from me is now selling it himself (it's on Yachtworld) as not VAT paid, so no-one is telling any fibs

 

[ari]

I think any sane person might consider whether he even wants to buy the boat at all, but KNOWING it is subject to VAT fraud, I dont think I could advise anyone to pay full whack bcz it is quite possible HMRC will knock on your door,

But but but, it's all a myth, no ones ever checks VAT status of existing boats ever, and anyway even if they did it's impossible for a third owner to be liable for the first owners misdemeanour's.

So how can you possibly advise not paying full whack or not buying at all? Aren't you just perpetuating a myth?

I'm playing devils advocate here of course, but this is the truth of the situation. It's easy to sit behind a keyboard saying "hurrumph, there's no issue, how can these people advise caution or selling for less!?" But the fact is, when there's a known issue, you yourself are advising caution.

So in a situation where it's not known whether there is an issue or not an issue (such as no paperwork), and thousands of pounds are at stake, perhaps it makes sense to sound a note of caution over the matter?

As I said before, I'm just a layman in all this, and I've read this thread and some of the other with interest, especially JFM's comments, which are clearly from a learned position. But if I'm buying I want that VAT receipt. Ok, it might have been claimed back subsiquently, but just as with JFM's telly from Comet, if there's a paid VAT receipt it suggests it's someone else's problem.

No VAT receipt and I'll want to protect myself, be it by paying a bit less (if only to cover me when I sell and someone else wants the VAT receipt and I can't provide it), or by not buying at all.

Obviously a bit of common sense has to come into it, I wouldn't be bothered if it were a 20 year old Fletcher as the risk is low and the likelihood of it having one small. But anything much newer/dearer, yes please.

 

[gjgm]

You buying a boat is your responsibility. You decide a price on whatever you assess, be that the engines,the hull, is it stolen, is it repaired.. is there a VAT problem if that is your concern.
You assess the risk. As I understand it, there is almost zero risk that HMRC is going to come chasing and (successfully?) charge you. That is a point that perhaps you dont assess adequately in my opinion.
There are many things we do everyday where we "live" with the risk. 3500 people a year die on the roads, yet we are not shuddering in fear each time we get into a car, because 3500 is a terrible number, but the chance of it being you today (or ever) is so remote as not to give it a thought.
If 000s of boat owners a year where being hauled up for VAT payments, then I agree, it is significant enough to give cause for concern, but -other than human nature-why fret about somethig that isnt going to happen?
I know many people do. Many people buy eurolottery tickets.Personally 1 in 100mio+ is never in my mind.
Of course I have no argument in informing people of the VAT situation; my request is that people are given a meaningful assessment of the risk. From JFMs educational posts, the situations where a private buyer down the road could be liable for VAT are far and few between, and as I recall, on here and RYA really really really struggle to find cases- to the extent HMRC are not interested in looking to change anything, as they dont see an issue/weakness that needs addressing.
It would be interesting to know how many boats are sold without full docs.
I cant complain if others worry about it though;fair enough.

 

[ari]

You buying a boat is your responsibility. You decide a price on whatever you assess, be that the engines,the hull, is it stolen, is it repaired.. is there a VAT problem if that is your concern.
You assess the risk. As I understand it, there is almost zero risk that HMRC is going to come chasing and (successfully?) charge you. That is a point that perhaps you dont assess adequately in my opinion.

So going back to the example above, today your advice to your mate buying JFM's hypothetical dodgy old Squaddie with no VAT paperwork from the second owner would be "there's almost zero risk, to worry about it is to not assess the risk adequately in your opinion".

That seems a little different.

Look, all I'm saying is, if it is the case that there is no liability to the third owner of the non VAT paid Squaddie then fair enough.

But even you, who seem to be a staunch advocate of the "it's a myth, it's not a real problem" seem to vacillate between you telling your mate to pay less/not buy, and that there is a risk but it's "almost zero".

So surely you can understand that most of us (who are not tax experts and just buy boats for a bit of fun and relaxation) are inclined to take the view that a little prudence on the matter given the sums of money involved (be that paying less or avoiding) is, in fact, in order?

 

[Deleted User YDKXO]

And, most importantly of all, knowing all of the above, would you (or anyone else on this forum suggesting this is a non issue) advise his buyer, if it happened to be a friend of yours, to pay a VAT paid market price knowing the above?

Or would you say "think there's a few VAT issues surrounding that boat bud, I should give it a swerve/pay a bit less in case it bites you on the posterior"?

Because that's the nub as far as I can see from a layman's point of view.

Thats exactly the point I was going to make. Irrespective of whether subsequent owners of a boat are liable for the non payment of VAT (and I accept what jfm has said), a boat sold as VAT paid is by definition worth more than a boat sold as non VAT paid and therefore sellers need documentation to confirm the VAT status. In this sense secondhand boats are not like secondhand cars, TVs or watches in that the market for used boats contains both VAT paid and non VAT paid products so buyers need to be able to differentiate between both types with some degree of certainty. In addition, as far as I know, marine mortgage companies usually ask for documentation to 'prove' the VAT status of a boat because it goes to determine it's value and hence how much they are willing to lend on it.
As for how often boats are checked by officials for VAT status, I agree that it doesn't seem to happen although I was asked for VAT documents in Holland on a MBM cruise about 20yrs ago. Since then I've had my 'papers' checked twice, once in the SoF and once in Mallorca when I was caught for matriculation tax and in neither case was I asked to prove the VAT status of my boat. However IMHO that doesn't mean that boat owners should not expect checks in the future. With the current austerity measures in Europe and boats being targeted for special taxes in Spain and Italy, it's a fair bet that tax authorities will be looking at whether VAT offers another means of extracting money from boat owners. Italian tax authorities have already targeted what they see as VAT evasion on marine fuel; some of you may remember Flavio Briatore's boat being seized for this reason in 2010.
So for me as a regular buyer of used boats within the EU, I am relieved that it seems that there is no legal obligation on my part to prove the VAT status of my used boat but I will still be asking sellers for proof of VAT paid documents on any boats that I buy for all of the reasons above

 

[gjgm]

We can agree to differ, or not, or maybe..
I cant give you a blanket answer for all conditions- I think I have said that. I am sure you can create a theoretical situation where I would be concerned enough. Again I will try to say, that being informed about VAT is no different in my mind to being informed about any other aspect of boat buying- but at least lets be informed enough to make a wise judgement.
JFM mentioned selling a boat as VAT not paid- it is known by all that it is VAT not paid, and has a liability, and so the sale price is lower. Not having a VAT doc does NOT automatically make you liable for VAT on a boat.Back to JFM and his telly.
There will be instances,situations,boats,values,locations that give people concern over a VAT doc; there will be instances where others dont give a damn. Everyone makes their own assessment. I have tried, unsuccessfully it seems, to suggest that the issue is not properly understood and that misunderstanding gives rise to false worries. Can those worries effect a boat price- well, yes, quite possibly, but you want to discuss the cause or the symptom? I suggest addressing the former might help the latter.
Not sure we can go much further forward,Ari.

 

[jfm]

and has a liability,

Well, actually no. I bought the boat new without paying VAT, 100% legally under the FCE program in France as it then was. I sold it as "not vat paid" simply to tell the truth rahter than warn buyer of a liability. The guy who bought it from me in 2008 has continued to use it under FCE and has not had to pay the VAT. No future owner need pay VAT either under FCE. So there isn't actually a liability. The boat's papers were checked 4 or so times by French officials in the 6 years/800 hours of cruising that I did in the boat, with no problems

 

[gjgm]

Well, actually no. I bought the boat new without paying VAT, 100% legally under the FCE program in France as it then was. I sold it as "not vat paid" simply to tell the truth rahter than warn buyer of a liability. The guy who bought it from me in 2008 has continued to use it under FCE and has not had to pay the VAT. No future owner need pay VAT either under FCE. So there isn't actually a liability. The boat's papers were checked 4 or so times by French officials in the 6 years/800 hours of cruising that I did in the boat, with no problems

Ok, in this instance..!I didnt know he continued with the scheme of course...
Anyway, that's quite enough stories of "no problems" !Gunboats,fast black ribs, months in some filthy cell eating nothing but stale baguette

 

[PaulGooch]

After reading all of the recent threads about VAT, in particular, the posts from JFM, it's my belief that the biggest problem with VAT "status" is the myth itself.

Very simply, it's a common belief that without adequate proof of VAT payment the new owner could be liable for a previous owners VAT (whether smuggling related or otherwise, that's the myth). Therefore, lack of said "proof" will make a boat harder, or impossible to sell to some buyers. Other buyers will want to pay less, in case they have a VAT problem.

Even those of us who are now aware of the true nature of the issue might well consider the boat to be worth less, as we may be faced with problems selling it in the future to buyers falling into the above categories.