VAT on self build

[tolhurstorganic]

I have just completed a 12 year long new build from scratch, a Pinky Ketch. using 90% own timber grown where I live. Have had some preliminary discussion with Vat office who seem to be confused by this. They have never heard of a boat built this way and seem to tnink that I need to pay VAT on the timber element. I have all receipts for other materials which show that vat has been paid. It looks as if I will have to keep all these on the boat!
Anybody had any experience with the Customs and Excise on this. I understand that I am OK as long as I stay within UK waters, but need to show VAT paid if I visit other EU countries. I intend to do some charter out at some point in a few years time so need to get this sorted. I am new to this forum and haven't worked out how to add pictures yet.
For further details of the boat have a look at www.traditionalboatcharter.com

 

[Tranona]

Welcome to the forum.

Firstly VAT is unconnected with chartering - unless your charter business is VAT registered and you are trying to reclaim your VAT as an input tax.

I can understand their dilemma as VAT is not a tax on an asset, but on a transaction. If you buy from a VAT registered trader you get charged VAT with a receipt - as you have. You do not get this on goods you buy from a private person, nor from yourself for your timber unless your timber business is VAT registered then you would sell it to yourself as a private person and charge VAT.

This is a roundabout way of explaining that VAT is not determined by the goods being a boat (or for a boat), but is determined by the nature of the transaction. HMRC have difficulty with this because they would like to see it as an asset tax, but it isn't and there is no mechanism, nor indeed legal requirement for any permanent record to be kept of VAT payments. The only requirement is for the vendor (VAT registered person) to keep the records of his VAT receipts and payments for 6 years. What they do say is that in the event of suspicion that a VAT offence has been committed involving transaction(s) of the boat, they will accept an original invoice showing VAT as proof that it has been paid. In fact it is not proof that an offence has not been committed - only that the purchaser has done his bit. If the purchaser is a private individual he cannot (in most cases) commit a VAT offence anyway as only a VAT registered person can do that.

The exception is when a boat is imported privately where the individual is responsible for paying VAT, but this is specifically covered in the legislation. However, personally built boats are never "chargeable events" like a sale or an import so there is no mechanism for collecting VAT - except on its constituent components. This is why the HMRC advice is to keep the receipts for the components.

Now for the practicalities. For all practical purposes you are unlikely ever to be asked for VAT evidence in another country. This is because EU law very clearly states that VAT issues are the responsibility of the state where the transaction took place. So if it was bought in the UK it is HMRC. The problem you will have is that you will not have a Bill of Sale to prove this, so your sheaf of invoices will be necessary to show officials that the boat was built in the UK. You may find it useful to try and get the boat on the Part1 register as this gives extra confirmation of ownership.

Self build boats, particularly unusual ones like yours attract attention because they don't fit the mould, so you are perhaps more likely to get "pulled in" than others, so it makes sense to have all your papers in order. As to dealing with HMRC, I doubt that they will try to collect any VAT from you because I don't think they have a case, nor unfortunately is it likely that they will give you any form of confirmation that you are not liable. Its a grey area and probably needs a court case to establish an interpretation. This would only happen if they tried it and the "victim" challenged it - but as the number of people likely to be affected, and the amounts involved, are very small, doubt it will ever happen.

You may find it helpful to consult the RYA as they may have some experience of dealing with the issue for other members.

All the above is only my reading of the VAT regulations plus reports from many sources including this forum on what happens in practice. Hope it helps.

 

[macd]

I have just completed a 12 year long new build from scratch, a Pinky Ketch. using 90% own timber grown where I live. Have had some preliminary discussion with Vat office who seem to be confused by this.

They're probably baffled by the notion that wood grows on trees. Expect news from them next year that annual growth rings are a VAT-able event, being a transaction between a tree and the soil (except they'll now be quarterly growth rings to make their book-keeping easier).

Tranona's interpretation of the VAT position is as good as you're likely to get without paying for it (and probably being none the wiser). Where's AP Herbert when you need him?

 

[electrosys]

Usually people purchase their timber or steel and get a VAT receipt for those materials in the process, and can then use such receipts to demonstrate that VAT has been duly paid on the materials that constitute the vessel.

If you've been using your own supply of timber (or second-hand, or gratis materials) then I would suggest supplying them with photographs or any other documentary evidence generated during the build (likewise receipts for any fixings, paint etc you may have purchased) as 'proof' of self-build status, and thus of VAT exemption.

 

[prv]

Usually people purchase their timber or steel and get a VAT receipt for those materials in the process, and can then use such receipts to demonstrate that VAT has been duly paid on the materials that constitute the vessel.

It does strike me as odd (though I accept it's common practice with boats) that people should have to prove that VAT has been paid on stuff they've bought. I don't have to prove to anyone that I paid VAT on my computer, my dining table or my underpants, so why on my boat?

Pete

 

[nimbusgb]

It does strike me as odd (though I accept it's common practice with boats) that people should have to prove that VAT has been paid on stuff they've bought. I don't have to prove to anyone that I paid VAT on my computer, my dining table or my underpants, so why on my boat?

Pete

Vat on a pair of underpants < £1, vat on a new boat > £20 000 with no top limit. 99.99% of people wouldn't think twice about paying the vat on their underwear. A significant portion of those well heeled enough to lay out the capital for a boat can also afford to chase any dodges to get out of paying the VAT on such a big purchase.

So which one would you chase given the job of getting income?

Of course once the HMRC decides to go after you, you may need to reconsider paying the VAT on your underwear since you may be throwing a lot of it away

 

[macd]

It does strike me as odd (though I accept it's common practice with boats) that people should have to prove that VAT has been paid on stuff they've bought. I don't have to prove to anyone that I paid VAT on my computer, my dining table or my underpants, so why on my boat?

Couldn't agree more, Pete. You might also have mentioned your car (which somewhat addresses prv's point which popped up as I was typing). And the salient point is that even if VAT had not been paid on any of those things, no offence would have been committed by you as a private buyer (unless, perhaps, you'd conspired with the vendor to jointly avoid VAT payment). And unless the item in question is a private import from outside the EU, there is simply no mechanism by which you can pay VAT, except to a VAT-registered seller.

 

[prv]

Vat on a pair of underpants < £1, vat on a new boat > £20 000 with no top limit. 99.99% of people wouldn't think twice about paying the vat on their underwear.

But it's not up to me to decide whether or not to pay, whether I'm honest or not. I can decide not to declare income, to evade income tax, or give cash to my kids in brown envelopes to avoid impending inheritance tax, but I can't do anything to avoid VAT since it's included in the price I pay the seller and if I don't pay what he asks he's not going to give me the item. If VAT then doesn't get paid, either because it wasn't added to the price or because it was added and then not passed on, it's the seller who has done wrong, not me.

As Tranona said, there's simply no way that I as a private individual can commit a VAT offence (except by acting as an importer) so taking steps to prove that VAT was paid seems irrelevant. Proof that the boat originated in the UK seems worthwhile, to show that no import taxes (including VAT) were avoided, but even then to cause real trouble HMRC would have to prove that you imported the boat which they're going to find tricky if it was built in a wood in Oxfordshire.

Pete

 

[Monique]

I know nothing of VAT... but your vessel is STUNNING

Well done. GL and fair winds.

 

[penfold]

Perhaps as a self-builder you need to write yourself a receipt and have it notarised(is that term used in the UK?); it would detail the billable hours, the market value of the timber, a costed list of the bits you have receipts for, the fact you are not VAT registered(not that that should matter, as the build is spread over 12 years the benefit-in-kind is unlikely to have approached the VAT threshold in any year) and the fact the vessel has been built in the UK(within the EU VAT area). The VAT office can't help you because no VAT chargeable transaction has occurred(other than you buying the stuff for which you have receipts).

Out of interest, how painful/expensive did you find RCD/CE marking?

 

[Rigger Mortice]

If you had taken pictures of the trees before you cut them down perhaps you could give those to the tax man?

Lovely boat.

 

[Tranona]

as 'proof' of self-build status, and thus of VAT exemption.

Not sure there is such a thing as "self build status" that would lead to VAT exemption. VAT is not on the boat, but the transaction, so by definition cannot be "exempt" (or "not exempt" for that matter either).

Are you confusing this with exemption from compliance with the RCD which a self build may be?

 

[Bobobolinsky]

If it's your sole residence, you can reclaim te VAT paid out in the construction. The fact that you used materials that had a null value, I think has confused the VAT man, It would have been easiest to have just given them the list of materials and said nothing. Now it is a little late for that. Just wait while they come back to you, they will give you the certificate. If they don't just appeal.

 

[Tranona]

If it's your sole residence, you can reclaim te VAT paid out in the construction. The fact that you used materials that had a null value, I think has confused the VAT man, It would have been easiest to have just given them the list of materials and said nothing. Now it is a little late for that. Just wait while they come back to you, they will give you the certificate. If they don't just appeal.

From what the OP says it is not a residence, but a pleasure boat he might use as a charter boat.

Can you explain what the "certificate" is that you think HMRC will issue?

 

[prv]

Just wait while they come back to you, they will give you the certificate.

Certificate of what?

Pete

 

[fireball]

Certificate of what?

Pete

Insanity - brought about by trying to understand government department thinking - especially that of HMCE!

 

[mattnj]

cant help with the VAT, but wow, what an amazing thing to build from scratch, awesome!

 

[electrosys]

Not sure there is such a thing as "self build status" that would lead to VAT exemption. VAT is not on the boat, but the transaction, so by definition cannot be "exempt" (or "not exempt" for that matter either).

Are you confusing this with exemption from compliance with the RCD which a self build may be?

The whole point of the exercise is to provide a means of demonstrating to the Customs and Excise that the boat has been self-built, and not purchased or imported. Purchased or imported vessels are subject to VAT, and some form of proof of that VAT payment may need to be shown in order to prevent the vessel being subject to VAT for a second time (it happens) as it passes in and out of EU waters.

However, if you are able to demonstrate to the satisfaction of the Customs and Excise that the vessel has been self-built, then they will issue a VAT-exemption certificate (which takes the place within the ship's papers of a VAT-paid certificate) which can then be shown to anyone who may subsequently query the VAT-status of that vessel.

 

[macd]

...takes the place within the ship's papers of a VAT-paid certificate...

So what's a VAT-paid certificate? You might get a receipt from the Excise for VAT payment on a privately imported yacht, but otherwise I don't know anyone with such a 'certificate'.

 

[electrosys]

So what's a VAT-paid certificate? You might get a receipt from the Excise for VAT payment on a privately imported yacht, but otherwise I don't know anyone with such a 'certificate'.

Well - a bloody VAT receipt then .... which certifies that you've paid VAT ... some of you guys are so sodding pendatic.