MBY Feb 2012 - Legal Aid (VAT) article

[jfm]

Just when I was starting to like you ...

Scuse me grumpy! All the bits I have written are as good as they can be for the taxpayer. Eg I have taken proposed law originally drafted by parliamentary draughtsmen that would have been very harsh on the taxpayer, and rewritten it so it is less painful and fairer.

In all seriousness though I cannot understand why there is any question over this. This isn't even a particularly complicated part of the law (even I can understand it) and it's not as if there's room for discussion or opinions. The law is (literally) black and white and there's little scope for interpretation here. Given that we weren't even told the circumstances behind the article in MBY this month there was little point in using it as an example to my mind.

Yup, that's right. This isn't as tricky as stillwaters and brian legal are making it. Paul Gooch likewise has this 100% correct in his post #60, as have Hurricane and others. Common sense tells you you don't have to pay £20 to HMRC when you buy that TV, even if a week later Curry's goes bust, and common sense leads you to the same answer on a non imported boat. Simple stuff.

 

[jfm]

This is the duty that is passed on to subsequent owners, should i fail to pay it.

Paul, what follows is perhaps pedantry, but in the interests of precision I'll say it in case anyone cares.

It is not the liability to pay import duty that passes to the subsequent boat owner. That liability to pay duty to HMRC always remains a liability of the original importer, the smuggler. However, the law gives HMRC the power to seize the goods and sell them to get the tax money, if the debt remains unpaid.

For the subsequent boat owner, that might feel like the same thing of course - I fully realise that. But that boater never has any financial obligation to HMRC, can never be assessed or sued by hmrc for money, can never end up with a CCJ for an unpaid debt, can never suffer a black mark on his credit history, and so on. In some cases this can be an important distinction but in many cases it will be academic.

 

[PaulGooch]

Paul, what follows is perhaps pedantry, but in the interests of precision I'll say it in case anyone cares.

It is not the liability to pay import duty that passes to the subsequent boat owner. That liability to pay duty to HMRC always remains a liability of the original importer, the smuggler. However, the law gives HMRC the power to seize the goods and sell them to get the tax money, if the debt remains unpaid.

For the subsequent boat owner, that might feel like the same thing of course - I fully realise that. But that boater never has any financial obligation to HMRC, can never be assessed or sued by hmrc for money, can never end up with a CCJ for an unpaid debt, can never suffer a black mark on his credit history, and so on. In some cases this can be an important distinction but in many cases it will be academic.

Thanks for clarifying that John.

 

[jfm]

Yep that's it.

If I buy van through my business, for £10k plus £2k VAT, I claim back the £2k VAT. If I then sell to a private person for £6k, it is assumed that the sale price is £5k and £1k VAT, which I now pay back to HMRC. I as the VAT registered party am responsible for the VAT. If I do not pay it because I am a cheat, HMRC when they find out will seek to recover the £1k from me, not the new owner of the vehicle. It would be chaos otherwise.

That is 1000% correct, and shows just how simple this is

But let's say you had 2 vans John that you sold the same week for £6k each. A white one and a blue one, to distinguish them. Let's say you were a bit of a cheat and paid £1k in VAT to HMRC, instead of the correct £2k. I'd love to hear from stillwaters and Brian Legal which van is the vat paid one and which is the non vat paid one.

Now let's pretend John100156 is a boat dealer and he sold two boats for £600k each, ie £500k boat + £100k VAT. One white and one blue. And he fraudulently paid over £100k to HMRC, not the correct £200k. A while later, both boats are sailing along and HMRC stops them for a VAT inspection and having perfect information that day they know about John100156's misdemeanour and they know these two boats are the ones BadJohn sold. John has done a runner to Brazil though, so isn't going to pay HMRC. Which boat gets impounded - white or blue? Go on stillwaters, have a stab at it. White or Blue. You have a 50-50 chance of getting it right (er well that last sentence is a lie...)

 

[Tranona]

Thanks for your comments. I was the writer.

The theme of the article was "make sure that you have proper proof of VAT".

VAT is very topical because there are many many disputes and debates over whether VAT has been paid or is payable and what documents constitute proper proof.

It also is not unknown for boats to be asked to prove their VAT paid status in foreign ports and if they cannot, they will be impounded.

You are correct - this is very topical, particularly for those of us who regularly cruise in European waters.

I wonder, given your expertise on the subject, if you could give some examples of boats that have been "impounded" in foreign ports. Information such as the port/country, ownership and registration of the boat, charges made and outcome would be helpful.

Such information would be really useful so that we could assess the likelihood of it happening to us and ways in which it could be avoided.

 

[John100156]

I totally agree with you JFM, and thank goodness you do not tire on this and are prepared to continue to contribute, I for one am very grateful.

But just to be clear, the boats I sold were red and white and I have now moved from Brazil to Sant Carles, but please don't tell HMRC......

 

[fireball]

Paul, what follows is perhaps pedantry, but in the interests of precision I'll say it in case anyone cares.

It is not the liability to pay import duty that passes to the subsequent boat owner. That liability to pay duty to HMRC always remains a liability of the original importer, the smuggler. However, the law gives HMRC the power to seize the goods and sell them to get the tax money, if the debt remains unpaid.

For the subsequent boat owner, that might feel like the same thing of course - I fully realise that. But that boater never has any financial obligation to HMRC, can never be assessed or sued by hmrc for money, can never end up with a CCJ for an unpaid debt, can never suffer a black mark on his credit history, and so on. In some cases this can be an important distinction but in many cases it will be academic.

Thank you ... It is exactly as I thought ... (ok I don't know the details and don't ever want to really - got enough of them in my day job!).

I suppose the significance of the "vat invoice" is that it is an indication that the vessel has been (at some point) purchased through an entity that will have accounted for the VAT and/or import duty.
Without that HMCE may get all excited at the opportunity of tracing the provenance of the vessel and treating it as though there has been no import duty paid.

I have an original bill of sale between UK boat co and UK resident individual - with VAT invoice, "loose any documentation that the boat has been taken out of the EU" and have the fortune to have a Bill of Sale between someone with the same name as that original UK resident and myself then there is nothing to suggest that it has been exported and re-imported.

My experience of document checking at foreign ports is rather limited - and has extended to checking the SSR - after which they loose interest ...

 

[Magnum]

I'm not a betting man, but I'd put money on jfm every time regarding VAT matters.

 

[stillwaters]

Stillwaters I'm sorry to be slow replying; I've been away today

I don't want to pick a fight, but for the sake of the forum I do want to say that virtually every sentence you have written is incorrect in law. I don't have time to go through it all and correct each sentence, but I assure you it is virtually all wrong in law. Just take the sentence I quote above: in the UK import VAT is a customs duty and is charged under the customs duty tax code, and so (for example) all the same smuggling penalties apply. In contrast, VAT on ordinary sales transactions is not a customs duty and is collected under a completely different section of law and the smuggling penalties do not apply. You seem to have no idea how wrong even that one sentence you wrote is.

You are just being a barrack room lawyer and you seem never to have never actually read the law. Do correct me if I'm wrong there. There are about 16,000 pages of tax legislation just in the UK and I can anorakishly admit I have read all of them many times. Several governments and Dave Hartnett have invited me round to ask for views on how to write many of those pages over many years, and I've written quite a few of them myself, yeah verbatim from my laptop to parliament to the statute books without even a comma changed. I fear neither your accountant nor Brian Legal can claim the same. I'm saying this only to illustrate that I am really not shooting from the hip here and I am saying quite forcibly that you (and Brian legal, who doesn't want to engage it seems) are wrong. I don't mind if you disagree of course.

I fear also you are exaggerating to make your point. In reply to "Has anyone ever had to provide the VAT Invoice for their vessel...? you replied "Yes,loads..." I've been boating heavily in uk, France, Italy, Spain for 10 years, pretty much every week in the season, oftentimes in the past in non-VAT paid boats (and I am a UK citizen and resident) and I have never been asked for a VAT invoice. Every serious boater knows a demand for vat papers is a very rare occurence and most on here have never experienced it. Do you want to give some specifics to back up your "loads" claim?

Though I notice you have continued to slag me off in subsequent posts,my response to everything you have so far stated will be included here.
1.Having picked up on part of my statement "duty and vat are totally different forms of taxation" which was in response to a question directed at me about import duty and vat.Having said this statement is wrong you have then proceded to point out that import duty and vat are different forms of taxation. THAT'S WHAT I SAID - WHICH BIT OF MY STATEMENT DIDN'T YOU UNDERSTAND?
Apparently,whilst UK registered boats have so far remained relatively untouched,HMRC made it clear in 2011 that they intended to up their game,maybe hype but only time will tell,I suppose. Meanwhile,apparently certain EU countries jave already been busy with the SoF and Italy having purges on non-vat paid boats.Regrettably,your own experience plus a handful of others is only anecdotal and not necessarily proof of what is happening overall.However,the real point was to recommend the prudence of carrying the correct documentation on ones boat when travelling in the EU as not all officials view such matters the same way.
2.Right from the off you seem to have misunderstood the actual facts of this case. Possibly because the original post wrongly assumed that the boat must have been imported to cause the situation outlined,you went straight in both feet first with the same assumption and also decided to needlessly introduce smuggling and TV sets into the scenario.
Clearly what you have missed is the fact that not only did the boat never actually leave EU waters,vat was never initially paid on this boat and you then appear to be taking issue with my statements based on the misbelief that I have implied vat would be payable by every subsequent purchaser of the boat (and attempted to encourage other thread readers to believe this also). However,not only do I know this is obviously not the case,I also recognised from the MBY article,let alone the writer's further explanations,that vat had never originally been paid on the boat in question.Indeed,had it been,neither the article or this thread would have seen the light of day.
What had happened was that the original buyer had acquired the boat in the UK without paying vat in the UK,probably for shipment to Gibraltar,hence the reference to Gib in the article (Gibraltar is one of those unusual territories,such as the Channel Islands and a handful of others that,whilst being within the EU is outside the EU Vat Area. Having referred to the info supplied to me I understand the vat situation was apparently covered at the time by HMRC Notice 703/2 Sailaway boats (apparently replaced by Notice 703/3 in 2011 which sought to limit its use). The trick here was that once the boat had cleared the UK minus its vat payment it could then either head for Gib and be used vat free or go to Spain either dodging the vat or going through the clearance procedure and paying the then 1.5% less vat in Spain.
In this case,the latter seems to have been the case,However,as the appointed handling agent obviously pocketed the vat money he also obviously didn't declare the boat to Spanish Customs because this would have required the vat payment. It then appears that the original owner received a forged document from his agent that he believed was proof of vat payment. However as he,probably like most of us,wouldn't have a clue what it should even look like, wrongly believed that it was genuine.So,here's the rub - Spanish Customs were never actually made aware of the boat's existence so no vat requirement was crystalised.Subsequently the boat returned to the UK where,further down the sales chain,the so-called "proof" of vat payment came to light as what it really was,forged. From here on,if the boat was to be used by anyone not vat-free qualifying then,at long last,vat would have to be paid - not against the original value but,as the EU vat system allows,against either the then sale value or approved valuation (interestingly,I am advised that Spanish valuations have traditionally been lower than HMRC ones,resulting in less vat to pay).

So,far from being a "barrackroom lawyer" I only got involved in this because not only could I have possibly found myself in a similar situation several years ago when a UK dealer,knowing that I was considering having a new boat in Spain ,suggested exactly the same thing in order to shave another 1.5% off the final price. As it happens and possibly rather fortunately,I didn't go for it. However,when considering something a little similar last year,a non-vat paid Gib registered boat that had spent its undetected life in Spain,I thought it wise to seek professional advice first. Hence,not a barrackroom lawyer,just someone who,having been close to experiencing a similar fate,didn't wish to see others fall foul by not paying attention to the documentation in as much detail as the condition of the boat when purchasing - surely,the wake up call intended by the article.

So jfm,though you may even be the greatest vat expert that ever lived,I highly recommend that you revisit the facts of this story rather than taking others down a misleading path and,along the way,slagging off people who either have a better grasp of the events or possibly actually do know their stuff.

 

[jfm]

Blimey. I don't have time to answer all that but yet again much of what you write is just 100% wrong in law. I'm not slagging you off, just strongly disagreeing with you.

With regards to your point 1 ending in your SHOUT, you might be mixed up. I was indeed disgreeing with your statement that VAT and duty are totally different, and cited that as but one example of your lack of knowledge of the actual law. I said import VAT is mostly charged under the import duty tax law, and that's why the smuggling penalties apply to import VAT. In contrast VAT on sales is indeed different from duty and is assessed under quite different law. You were lumping all VAT(whether import or on sales) together when you said VAT was different from duty, and that is just not correct. Shout away though.

I love your theory that if goods are smuggled, and you get away with it for a few years, then get caught, you only have to pay VAT on the current value of the goods and not the value when they were first imported. Let's all smuggle TVs, because by the time HMRC catch up with us they will be worth a tenner like all 3yo electronic goods and we can hand over £2 VAT on each one, legally. Genius! Seriously, do you not smell the rat in this theory?

You're right that i don't understand the facts of this MBY case. None of us does because Brian Legal (bizarrely) hasn't explained them so I suppose there is no point debating what the precise facts are as we'd both be guessing or surmising. We could have a big discussion about Sailaway Boat Scheme but neither of us knows whether that was the scheme originally used to buy Brian's/MBY's boat when new (if it was actually a Sailaway boat it would have been very handy if Brian had said so).

What do you reckon about John's vans though? Is the blue one or the white one VAT paid?

 

[fireball]

disgreeing with your statement that VAT and duty are totally different, and cited that as but one example of your lack of knowledge of the actual law. I said import VAT is mostly charged under the import duty tax law, and that's why the smuggling penalties apply to import VAT. In contrast VAT on sales is indeed different from duty and is assessed under quite different law. You were lumping all VAT(whether import or on sales) together when you said VAT was different from duty, and that is just not correct.

That was probably my fault - I said

Which VAT ... Import duty or Sales VAT ...

which is a limitation of my knowledge - said because my understanding is that Import Duty is (normally?) payable by the importer direct whilst Sales VAT is paid to a VAT registered entity who then account for it.
I'm fortunate enough not to need to worry about it all ... but it does seem to me that there is a whole industry being created around what seems to be a bit of a myth!

 

[John100156]

...as the appointed handling agent obviously pocketed the vat money he also obviously didn't declare the boat to Spanish Customs because this would have required the vat payment. It then appears that the original owner received a forged document from his agent that he believed was proof of vat payment.....

Surely the boat is VAT paid, otherwise how could the agent have absconded with the VAT money?

All that is needed is due diligence, if I am going to part with my hard earned cash to an agent, all I need to do is check that he is legitimate, VAT Registered, number and all. Not too difficult. Surely we all do that as a matter of course. I let him know I am checking this, then when he gives me a piece of paper, and that is all that an invoice is, if it contains his registered details and VAT number, and I can prove I have paid the correct amount, I have done all that can reasonably be expected of me. If he absconds, VAT HAS been paid, he owes it, I do not!

Otherwise a VAT invoice could be legitimate at the point of sale and illegitimate at the point that the agent decides to abscond. Buyer beware I'm afraid. I think I saw the agent getting off the plane in Brazil as I left, avoided him as he was the stand on vessel....whoops that's another thread.

I don't see it as any more complicated than JFM's TV analogy. If the TV costs over £100k, I would do the same checks.

 

[Nick_H]

... Possibly because the original post wrongly assumed that the boat must have been imported to cause the situation outlined ....

.....What had happened was that the original buyer had acquired the boat in the UK without paying vat in the UK,probably for shipment to Gibraltar,hence the reference to Gib in the article (Gibraltar is one of those unusual territories,such as the Channel Islands and a handful of others that,whilst being within the EU is outside the EU Vat Area. .

So if Gib is outside the EU for VAT purposes, was the boat not imported into the EU for VAT purposes when the first owner decided to keep it in Spain rather than Gib? If so, wasn't Hurricane's initial assertion correct?

 

[Nick_H]

Surely the boat is VAT paid, otherwise how could the agent have absconded with the VAT money?

All that is needed is due diligence, if I am going to part with my hard earned cash to an agent, all I need to do is check that he is legitimate, VAT Registered, number and all. Not too difficult. Surely we all do that as a matter of course. I let him know I am checking this, then when he gives me a piece of paper, and that is all that an invoice is, if it contains his registered details and VAT number, and I can prove I have paid the correct amount, I have done all that can reasonably be expected of me. If he absconds, VAT HAS been paid, he owes it, I do not!

Otherwise a VAT invoice could be legitimate at the point of sale and illegitimate at the point that the agent decides to abscond. Buyer beware I'm afraid. I think I saw the agent getting off the plane in Brazil as I left, avoided him as he was the stand on vessel....whoops that's another thread.

I don't see it as any more complicated than JFM's TV analogy. If the TV costs over £100k, I would do the same checks.

The agent was not the supplier of the boat, he was only providing a service of transferring the VAT money (or not, as it happened). I guess if he charged VAT on his fee, then that VAT would be deemed as paid as per jfm's TV analogy, but small beer compared to the boat VAT.

 

[John100156]

I just see no point in bleating on about this, the issue here is simply a crook, not VAT IMHO. Just make as sure as you can, you are not dealing with one! Simplistic I know.

Thousands of boats are bought and sold every year in the EU, I would expect (and I must admit to being ignorant of the facts in this regard) that the vast majority are sold legitimately, is this not yet another case of scaremongering? Good to debate, but no more than that to me, others of course will have a different perspective I'm sure. Just like those misfortunates that have bought an expensive 'rung' car cheaply to have it snatched back. A minority.

That said, I have all my bills of sale and invoices on my boat, as I did on my Targa, I have never been asked by anyone to see them.

Hey Mike, I think it's time you jumped back in as the OP to give us your final perspective on all this.... Or should we seek a summing up from Brian Legal and JFM, then move to a poll. Ah impirical data, now as an engineer that's what I like.....

 

[stillwaters]

So if Gib is outside the EU for VAT purposes, was the boat not imported into the EU for VAT purposes when the first owner decided to keep it in Spain rather than Gib? If so, wasn't Hurricane's initial assertion correct?

Apparently this boat never went to Gib but went straight to Spain - I checked to make sure I had the actual facts involved.

 

[Hurricane]

Not going to sum up just yet, John
I'm probably going to get flamed for this but I thought I'd comment about the whole point of VAT - as I see it anyway.

Our problem is that we are dealing with a depreciating asset. In most cases, companies make money on items that they buy.

Companies buy items and (in most cases) reclaim from HMRC any VAT on their purchases. They then charge VAT on their sales which they will have to give back to HMRC. Assuming that they are profitable, and are making money, the nett effect should be that they owe HMRC more than they are owed. i.e. the difference between the purchase and sales which is often called an "added value". I'm only talking generally, but the principle is that the company looses out (pays tax) on the difference in VAT between what the company can claim back and what the company charges his customer. In other words the company pays tax on its "added value". Hint the clue is in the name - a VALUE ADDED TAX

At the end of each VAT period (generally at the end of each quarter), the company adds up all the VAT that it has paid on all its purchase and subtracts this from all the VAT that it has charged its customers. The difference is paid to HMRC.
Now, perhaps you can see how impossible it is to identify which purchase or sale actually paid or received its portion of VAT.

Now apply this procedure to the comments above and you can instantly see how ludicrous some of the above posts have been.

As I have said many times I'm no expert but having run a successful company, I like to think that I understand the basics.

 

[jfm]

Apparently this boat never went to Gib but went straight to Spain - I checked to make sure I had the actual facts involved.

Thanks for that - it's good to get the facts clear. It follows then that this cannot possibly (on the other facts stated by Brian Legal) have been a Sailaway Boat Scheme job as you suggested in #69. It has to be something else.

I suspect it was NMT (New Means of Transport shipment), and posts #3 and #5 above sort of hint it might have been, though why Brian Legal won't say yes or no to that is beyond me

There's not much point describing in detail what happens if it was an NMT unless we get some confirmation it was NMT. But if it was an NMT, I'd love to hear from Brian Legal why he thinks paying VAT to HMRC in the UK extinguishes the Spanish IVA liability on the boat. Prima facie in this scenario he would have paid tax to the wrong country! For some reason I bet he will not defend himself on that and will just keep quiet but I'd love to be proved wrong. Of course it might not be an NMT at all, but Brian is keeping that a secret.

 

[stillwaters]

Blimey. I don't have time to answer all that but yet again much of what you write is just 100% wrong in law. I'm not slagging you off, just strongly disagreeing with you.

With regards to your point 1 ending in your SHOUT, you might be mixed up. I was indeed disgreeing with your statement that VAT and duty are totally different, and cited that as but one example of your lack of knowledge of the actual law. I said import VAT is mostly charged under the import duty tax law, and that's why the smuggling penalties apply to import VAT. In contrast VAT on sales is indeed different from duty and is assessed under quite different law. You were lumping all VAT(whether import or on sales) together when you said VAT was different from duty, and that is just not correct. Shout away though.

I love your theory that if goods are smuggled, and you get away with it for a few years, then get caught, you only have to pay VAT on the current value of the goods and not the value when they were first imported. Let's all smuggle TVs, because by the time HMRC catch up with us they will be worth a tenner like all 3yo electronic goods and we can hand over £2 VAT on each one, legally. Genius! Seriously, do you not smell the rat in this theory?

You're right that i don't understand the facts of this MBY case. None of us does because Brian Legal (bizarrely) hasn't explained them so I suppose there is no point debating what the precise facts are as we'd both be guessing or surmising. We could have a big discussion about Sailaway Boat Scheme but neither of us knows whether that was the scheme originally used to buy Brian's/MBY's boat when new (if it was actually a Sailaway boat it would have been very handy if Brian had said so).

What do you reckon about John's vans though? Is the blue one or the white one VAT paid?

Blimey doesn't even come close. Whilst yet again pointing out that there are different forms of taxation you are saying that my cursory earlier statement that import duty and the vat due on this boat were different seems to prove that I don't know anything. My comment was not wrong,it was just a summary point because,unlike you,I understand that,as the boat never left the EU Vat Area,the question of import duty is a needless irrelevance and I therefore had no desire to get sucked into it. Maybe a clue to why you have kept banging on about it is in your statement in the above quoted post where you admit that you don't understand the facts of the MBY case. Really? Well,to quote a word you have used that is bizarre .You seem to have made an awful lot of judgements not only on it but also on other people's abilities,on a matter that you admit to not understanding.

However,maybe you might actually offer us a bottom line to this so we can all get on with something more productive. Perhaps you will answer two questions,where should the vat have eventually been paid by the boat's latest owner when the fraud came to light and against what value should this vat have been paid?
Look forward to finding out.

 

[John100156]

Mike,
We pay £60 for materials and claim back £10 VAT paid on them and then we do £100 worth of work on them and invoice £120 for it, we take our £100 and buy diesel for our boat, enough if we're lucky to fill a filter. Then give HMRC their £20. They gain £10. Our nett gain is £50. If we are not VAT registered we pay £60 for materials but can still only charge £100 (unless we're a crooked agent) nett gain £40. There's £10 value added to both us and HMRC.

JFM,
If you had gone ten rounds with Mike Tyson, would you get back in the ring?