MBM and VAT advice

[ari]

It's this term "smuggled" that I think is the problem. It brings with it connotations of dastardly deeds, drug runners, mysterious boats slipping quietly up backwaters in the dead of night and shady characters in trench coats. And we think "nah, that doesn't happen in reality, at least, hardly ever".

And so we get statements like (and let me say I'm not trying to single out particular posters here, these were just the first appropriate ones I came across that fit):

OK

So the issue is the very few boats that are being smuggled,

And we're also being told:

Just a point that most seem to miss.
The option of buying a VAT unpaid boat doesnt really exist.

Except for boats exported out of the EU that is.

As though exporting out of EU a mere theoretical technical possibility that hardly ever happens.

Meanwhile, we're told it's a non issue as customs never check anyway:

And it's well known they dont stop pleasure boats coming into Dover. Difference is, very few pleasure boats arriving in Dover are being smuggled from outside the EU

As I understand it, there is almost zero risk that HMRC is going to come chasing and (successfully?) charge you.

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)

So, what we have is a situation where it's actually dead easy to buy a boat ex VAT and sail it out of EU waters (be it the Channel Islands or further afield), and then bring it back in, either straight away or a little while later. Customs never ever check, we're told, so no problem there. And the gains are huge, thousands, tens of thousands, sometimes even hundreds of thousands of pounds, so the temptation is certainly there.

So in fact far from it being absolutely definitely an isolated "almost never happens" problem, the actual reality is we don't know. Could indeed be isolated, could be endemic, no way of anyone knowing.

And all this "check paperwork" advice is great, provided the boat has only just come back in to the EU, but who's to say? Could have happened a year after purchase, a month, a week, a day.

All of which may be worrying over nothing of course. Or it could be completely relevant to what's actually happening/happened.

So maybe, just maybe, could it be possible do we think, that the best advice is that when you buy a boat, make sure you get a VAT receipt?

 

[ari]

(flight to antibes this evening, leave office 4.15pm, so rushing).

Cripes.. what are we going to do til you land? Sounds like I ll have to do some work this afternoon.

Nah, he'll have wi fi on his plane, he wouldn't just leave us like that.

Would he..? :S

 

[neale]

So maybe, just maybe, could it be possible do we think, that the best advice is that when you buy a boat, make sure you get a VAT receipt?

You're only saying that cos you know that JFM is on his way to the airport

You can take out of this thread what you like. Certainly, if there is an original VAT receipt in with all the paperwork, great. Keep it cos the next buyer may want to see it.

I think what is being said though is that the absence of an original VAT receipt doesn't mean you should automatically treat the boat as Ex VAT. Do some digging, the chance are that it is VAT paid and it may be very easy to satisfy yourself that that is the case. In fact the seller, knowing he doesn't have one and accepting that the buyer will possibly ask about it, should have done his homework before and made sure all the previous bills of sale, evidence of moorings contracts, UK or EU registrations are all available instead.

Lets say that C&E in the UK, to keep it simple, ask me to prove VAT was paid on my boat. I say I bought it secondhand from another EU individual and no VAT was due on that transaction. What are they going to do next? Before they do anything they will need to have some evidence that VAT has been avoided. How will they do that? It certainly hasn't been avoided by me so they will need to look back at the paperwork. This will be the very same paperwork that you looked at when buying the boat to satisfy yourself that the boat hasn't been smuggled. The boat is over 6 years old. It will have had a few previous owners. I guess they could ask the UK manufacturer who would probably not have records going back far enough.

I think they would have to accept there is no case to answer. Now if the previous owner was based in the CI's, or the paperwork had some outside of EU evidence, they may start to dig a little deeper but a used boat between two EU individuals means NO VAT due on that transaction. In other words, I had no way of avoiding VAT therefore they have no case against me.

If they somehow find out that the boat was smuggled at some time earlier in it's life then, as JFM says, there is a potential worry for me.

The problem is that an original VAT receipt does not prove that the boat hasn't been smuggled so it doesn't help. The paperwork could be forged, the boat could have been exported and then smuggled back without VAT being paid again, which it would need to be despite being paid when new.

A VAT receipt is just a piece of paper that can help with your due diligence, but shouldn't be seen as the be all and end all. In fact put too much emphasis on the original VAT invoice and you might just miss the fact that the boat has spent 5 of the last 6 years in Jersey and the last owner bought it in Jersey from a Jersey national, meaning it should have had VAT paid on it when he brought it into the country. If it didn't, it's smuggled and the original VAT invoice from new isn't gonna help you.

 

[ari]

You're only saying that cos you know that JFM is on his way to the airport

Damn right, I'm not completely stupid!

I do agree with a lot of what you and others have said. Interestingly, so did HM Customs at one point. A while back they were stating that a Bill of Sale from a UK private individual to another UK individual, whilst not proof in itself, would mean that they had no interest in the boat. Then they revoked that statement if I recall correctly.

However what is clear is that there is a lot of inconsistency, room for error, and plain lack of official guidance. So it seems to me that right now, a VAT invoice is probably about as good as it gets, and it's something I'd want in order to add a little peace of mind to a large financial investment.

 

[gjgm]

Is it dead easy to buy a new boat ex VAT?Or rather, is it dead easy to buy a boat ex-vat, and there is so little interest that it is dead easy to move it about and back into EU without leaving a paper trail that alerts anyone? (I dont know). If so, I am bit surprised the crime isnt rampant, so there must be some control.

 

[DAKA]

. So it seems to me that right now, a VAT invoice is probably about as good as it gets, and it's something I'd want in order to add a little peace of mind to a large financial investment.

And the berthing contracts from new , and don't forget to retain you own berthing contracts for future sale value (unless of course you berth in the Channel Islands or a non EU marina when you might want to shred the evidence and keep your fingers crossed ).

 

[Deleted User YDKXO]

Or rather, is it dead easy to buy a boat ex-vat, and there is so little interest that it is dead easy to move it about and back into EU without leaving a paper trail that alerts anyone? (I dont know). If so, I am bit surprised the crime isnt rampant, so there must be some control.

Yup I've been into Italy twice from Croatia for extended periods for annual maintenance work and nobody has bothered me. The marina has asked for sight of the reg doc and insurance policy but thats it. No VAT invoice, no BoS, nothing. The first time I did it, I didn't bother checking out of Croatia because I didn't know you had to and apparently this is some kind of heinous crime punishable by death and having your boat crushed but ignorance is bliss in my case. In any case, I always think that the red ensign, a British passport and an air of owning the place gets you pretty much anywhere without hindrance

 

[DAKA]

Yup I've been into Italy twice from Croatia for extended periods for annual maintenance work

Which sort of blows the theory of checking service history as proof of EU status out as well.

 

[Tranona]

I do agree with a lot of what you and others have said. Interestingly, so did HM Customs at one point. A while back they were stating that a Bill of Sale from a UK private individual to another UK individual, whilst not proof in itself, would mean that they had no interest in the boat. Then they revoked that statement if I recall correctly.

However what is clear is that there is a lot of inconsistency, room for error, and plain lack of official guidance. So it seems to me that right now, a VAT invoice is probably about as good as it gets, and it's something I'd want in order to add a little peace of mind to a large financial investment.

That is still the case, assuming the FAQ download from the RYA site is current - and it has been updated recently.

Whilst what Mandy Peters seems to have said in MBM (I have not seen it myself) does seem to be incorerect, it is not easy to make definitive statements about VAT. Illuminating to read the HMRC advice in the download - full of ifs and maybes and "we really can't says". Part of this we know is because VAT was never intended to be a tax on yachts, but mainly because HMRC (or rather the bit that was C&E) has always been miffed about its loss of power over individuals and it suits its purpose to keep people guessing.

One can understand also why banks in particular fall in with this myth to protect their backs. After all they are taking a boat as security but could find their claim being behind HMRC - howeveer remote the chance, they are asking for evidence that there won't be a claim - and HMRC say the only evidence they will take is the original commercial imvoice. Why should the bank accept any lesser evidence.

And so the myth is not only perpetuated but as we see can have a real impact on individuals who are blameless.

 

[benjenbav]

That is still the case, assuming the FAQ download from the RYA site is current - and it has been updated recently.

Whilst what Mandy Peters seems to have said in MBM (I have not seen it myself) does seem to be incorerect, it is not easy to make definitive statements about VAT. Illuminating to read the HMRC advice in the download - full of ifs and maybes and "we really can't says". Part of this we know is because VAT was never intended to be a tax on yachts, but mainly because HMRC (or rather the bit that was C&E) has always been miffed about its loss of power over individuals and it suits its purpose to keep people guessing.

One can understand also why banks in particular fall in with this myth to protect their backs. After all they are taking a boat as security but could find their claim being behind HMRC - howeveer remote the chance, they are asking for evidence that there won't be a claim - and HMRC say the only evidence they will take is the original commercial imvoice. Why should the bank accept any lesser evidence.

And so the myth is not only perpetuated but as we see can have a real impact on individuals who are blameless.

Plus, of course, if you are talking about 20% of £5million you're going to be hiring expensive suits to fight your corner against HMRC. It's a different ballgame if you are arguing over 20% of £100,000. Then it's easier to go with the myth and get hold of the unnecessary paper.

 

[Observer]

So to return to the question raised earlier and never answered, are we now saying that there should be no difference in value between a VAT paid secondhand boat, and a non VAT paid secondhand boat?

So two identical Fairline Squadrons, one with the VAT never paid (as per the ex JFM example above).

One should be £1,000,000 incl VAT, the other ex VAT boat should be £1,000,000 ex VAT.

No. The 'market value' benchmark is the price that a non-taxable private person would pay because most buyers fall into that category (at the top end it may well be that most buyers are buying for business so ex VAT price is the benchmark). In your illustration above, the VAT never paid boat is 'worth' exactly the same as the VAT paid one, all else being equal, although the VAT never paid one may transfer at a lower price that reflects the buyer's subsequent liability to pay tax.

Anyway, the question is not expressed in a way that makes sense. If the seller is a private person, the price simply can't be expressed as "incl. VAT" because the sale cannot be a taxable event. To a private buyer buying (for non-business purposes) goods that have entered free circulation in the EU, the total price is all that matters. Whether the seller is or is not liable to account for VAT on the sale is of no interest to the buyer and should have no bearing on value, excepting the effect of the myths surrounding boats and VAT.

It doesn't matter whether the buyer pays £1.2M to a private seller for what is often referred to (in the case of boats) as a "VAT paid" boat or £1.0M + 20% VAT to a business seller for what is incorrectly and misleadingly referred to as a "non-VAT paid" boat or "VAT unpaid" or (better) a "ex VAT" boat. In fact the "ex VAT" boat, if originally purchased by a business buyer who paid and subsequently recovered VAT or who bought zero rated or outside scope from another EU country and correctly declared the "acquisition" in a VAT return (but paid no net VAT) or who imported from outside the EU and correctly paid import VAT and then recovered it, is no less a "VAT paid" boat than one bought in the EU by a private buyer who paid and did not recover VAT.

Of course if the goods/boat are not "in free circulation" then the buyer will be liable for VAT if they are brought into the EU. He has an additional liability on top of the purchase price.

Another common mythconception is that there is some risk or cost (from VAT perspective) in buying a ex VAT boat from a seller who recovered VAT even if it is "in free circulation". That is simply wrong. In fact there is quite likely a positive advantage. A bona fide business seller will expect to issue a VAT invoice to the purchaser and there is no better practical evidence that a boat is not unlawfully in the EU than a VAT invoice issued to the current owner. The best any private seller can offer is the VAT invoice issued to him or to a previous owner. There may be a chain of previous owners and the boat in question may not be well identified in the invoice (quite often a second generation or worse photocopy) so the quality of evidence may be poor. If buying from a business seller, the buyer can ensure he receives a pristine VAT invoice with all the correct particulars in his own name.

The real significance of a ex VAT boat is to a business buyer who is able to recover VAT. A ex VAT boat may be more valuable to him because he can recover the VAT (either charged by the seller or chargeable through VAT return or on import). If he buys from a business seller he recovers £200k tax so has a net cost of £1M. If from a private seller his net cost is £1.2M.

The private buyer seeing an ex VAT price must simply add VAT at the appropriate rate to compare with VAT paid alternatives , unless his special circumstance allow a non-taxable purchase.

 

[Observer]

So maybe, just maybe, could it be possible do we think, that the best advice is that when you buy a boat, make sure you get a VAT receipt?

I would say make sure you understand the risk of the boat being undeclared by a previous owner when brought into the EU.

 

[ari]

That is still the case, assuming the FAQ download from the RYA site is current - and it has been updated recently.

Whilst what Mandy Peters seems to have said in MBM (I have not seen it myself) does seem to be incorerect, it is not easy to make definitive statements about VAT. Illuminating to read the HMRC advice in the download - full of ifs and maybes and "we really can't says". Part of this we know is because VAT was never intended to be a tax on yachts, but mainly because HMRC (or rather the bit that was C&E) has always been miffed about its loss of power over individuals and it suits its purpose to keep people guessing.

One can understand also why banks in particular fall in with this myth to protect their backs. After all they are taking a boat as security but could find their claim being behind HMRC - howeveer remote the chance, they are asking for evidence that there won't be a claim - and HMRC say the only evidence they will take is the original commercial imvoice. Why should the bank accept any lesser evidence.

And so the myth is not only perpetuated but as we see can have a real impact on individuals who are blameless.

I didn't know that (about the RYA advice), that's interesting. I wonder whether it's considered up to date?

 

[Tranona]

Although it is dated Jan 2008 it seems to have been updated - for example it shows the latest VAT rate of 20%.

It is well worth reading if only to see the kind of language used by HMRC to try and explain the "grey" areas. They do, however make it reasonably clear that they do not pursue individual owners - without actually saying so!

 

[ari]

Very reassuring, at least in the UK. Obviously they can't speak for foreign customs officials.

 

[Magnum]

That's worse than mere bolllocks Daka. It is totally rotting horseshiit with flies on it. Do some maths and work out the size of the shed HMRC would need to store 6 years worth of all b2b invoices in the UK. If you think it's smaller than Yorkshire, your maths is wrong

Not only is jfm correct, I imagined him talking in a Jeremy Clarkson voice, which made it very funny indeed

 

[jfm]

Not only is jfm correct, I imagined him talking in a Jeremy Clarkson voice, which made it very funny indeed

Tee hee! All chilled here and VAT seems a million miles away. Anchored in Garoupe doing odd jobs on the boat. First pic below is leaving Antibes port 3 hours ago, 2nd - 5th pics were taken 20mins ago (5pm local time) - the last one shows the setting sun glowing on the snow capped mountains north of Nice . I've just spotted some limes in the fruit bowl so I'm going to mix some Bombay and tonic

 

[IDAMAY]

Looks great

Nice to see somebody winter boating. We have been down in the Algarve (sans boat) since early December. The weather has been fantastic - nearly every day would have been ideal for mobos but virtually no one other than professionals and the occasional yachtsman goes out. To them it's winter - to us it looks a perfect UK summer's day. Maybe a change of boating base beckons.

 

[DAKA]

Not only is jfm correct, I imagined him talking in a Jeremy Clarkson voice, which made it very funny indeed

I might have been upset a couple of years ago , but Ive got used to it now !

Please educate me how it works then, VAT reg company claims VAT back and then sells boat along with original VAT receipt.

Original company then get VAT inspection and dont have VAT receipt which they claimed back £200 000 VAT .

They phone the bloke they sold the boat to and ask to borrow the VAT receipt back quick............



clarkson/Victor meldew impersonations welcome assuming the actual reply is included

 

[PaulGooch]

I might have been upset a couple of years ago , but Ive got used to it now !

Please educate me how it works then, VAT reg company claims VAT back and then sells boat along with original VAT receipt.

Original company then get VAT inspection and dont have VAT receipt which they claimed back £200 000 VAT .

They phone the bloke they sold the boat to and ask to borrow the VAT receipt back quick............



clarkson/Victor meldew impersonations welcome assuming the actual reply is included

Company keeps a copy of the original VAT invoice.