VAT - possible solution ?

[Boo2]

Hi,

I know many people think it is irrelevant for boats bought within the UK from private vendors where the transaction is not in respect of trade, but there is still a perceived issue with "VAT status" in some people's eyes wrt such boats. This issue is significant because it affects the pool of potential buyers for, and hence the value of boats without full VAT documentation.

I would be grateful if people restricted themselves to the question I am about to raise and refrained from posting general views about VAT status of boats whch are available in many other threads. I especially would like to avoid a discussion along the lines that it is the transaction which attracts VAT not the boat, a view which as the MD of a VAT registered business I am in agreement with. Sorry to be so peremptory, but you know what it's like on these forums sometimes.

The issue is that there is no way to regularise the "VAT status" by paying HMCE a sum in payment of VAT because the seller is not VAT registered, and HMCE will not recognise the transaction as a VATable one and accept payment from the buyer.

It occurred to me the Broker will normally be VAT registered, and could perform this service by buying the boat from the vendor Ex-VAT then selling it on to the buyer with VAT charged on top. Their risk could be ameliorated by suitable contract wording and by insisting the buyer pays in advance. The buyer would gain secure "VAT status" at the price of paying the VAT.

Has anyone here heard of a broker doing this ? Just curious.

Boo2

 

[lenseman]

. . . . I would be grateful if people restricted themselves to the question I am about to raise and refrained from posting general views about VAT status of boats . . . .

You won't get any replies now !

 

[xxyyzz]

The issue is that there is no way to regularise the "VAT status" by paying HMCE a sum in payment of VAT because the seller is not VAT registered, and HMCE will not recognise the transaction as a VATable one and accept payment from the buyer.

There is a question of how you have lost the VAT status, as far as I can see there are only two ways (surely more to be produced?).

1. The boat was bought ex-vat by a vat registered business, to sell it on they must pay the vat on the transaction.

2. The boat is in foreign (non-eu) ownership, so import duties are due.

So there's no need for the system you describe.

 

[bbg]

It seems to me that you are trying to solve a problem that doesn't exist (see other posts). The underlying premise of your approach is that it is preferable to pay an additional (unneccessary) 17.5% in order to obtain a piece of paper that probably is not necessary. That, to me, seems crazy. Much better for the vendor to give a (probably qualified) indemnity and undertake to pay the VAT if necessary. Most people try to arrange their affairs so as to (legally) avoid or reduce their tax bill. This is the first time I have read of someone who thinks it would be a good idea to pay tax when they don't have to.

Turning directly to your question, and I'm no tax lawyer, but I don't really see how the scheme would work. I think it might fall down at the first hurdle. I don't see how it is possible for a private individual to sell a boat "ex-VAT". If the boat is "ex-VAT", it must have been held through a VAT-registered business (e.g. charter). If it is owned by an individual the assumption will have to be that VAT has been paid. The individual can't claim it back, so I don't see how the boat can be sold "ex-VAT".

As for the next step, I don't know the tax rules as to whether a trader in used goods charges VAT on the full sale price of the vehicle (or boat), and whether this depends on whether it has been bought from an individual or a VAT registered business.

 

[Boo2]

...snip ot stuff...

The individual can't claim it back, so I don't see how the boat can be sold "ex-VAT".

I am using the term "ex-VAT" loosely in that the individual seller is not trading so s/he can't charge VAT ?

As for the next step, I don't know the tax rules as to whether a trader in used goods charges VAT on the full

sale price of the vehicle (or boat), and whether this depends on whether it has been bought from an individual or a VAT

registered business.

Aiui a VAT-registered trader in used goods does not pay VAT when they buy from a non-registered seller but must generally pay VAT when they sell. Hence my solution to a problem which is real in that it affects the value of a yacht because some buyers will not buy when there is no paper trail.

(Note for the pedantic: the VAT margin schemes which apply to second had dealers are optional, and a dealer on such a scheme need not (sometimes must not) include a specific item in such a scheme)

Boo2

 

[Boo2]

...snip ot...

So there's no need for the system you describe.

I did ask that people not post more general stuff about VAT which is already available in other threads.

As for whether there is a need for such a system or not, I am merely enquiring whether my suggested method would work ? If it is possible to pay VAT in such a way (and end up with only a piece of paper to show for a substantial expenditure) it would of course be up to any individual to decide for themselves whether they wanted to.

My question stands :

Has anyone here heard of a broker doing this ?

Thanks,

Boo2

 

[bbg]

Aiui a VAT-registered trader in used goods does not pay VAT when they buy from a non-registered seller but must generally pay VAT when they sell. Hence my solution to a problem which is real in that it affects the value of a yacht because some buyers will not buy when there is no paper trail.

But it isn't really a solution because it still affects the value of the yacht. Who is going to pay the extra 17.5%? Buyer? If so, he might have paid that much more for the boat. Seller? He has just reduced the amount he is going to receive.

I'm really struggling to think how this would work. Let's say the market price for a boat is 100 kGBP inc. VAT. Lots and lots and lots around, so there is a clear market price and alternative choices.
Vendor says "It's 100 kGBP, I don't have VAT papers but you don't need them; this is a private sale between individuals."
Purchaser: "Not good enough for me, mate, I want VAT papers."
V: "OK, here's what we do - we'll run the transaction through the broker, he'll charge you VAT and you'll have your papers."
P: "But then I'll have to pay 117.5 kGBP! No thanks mate."

Or the Vendor takes the hit and sells to purchaser at a VAT inclusive price of 100 kGBP. But then vendor has to receive less from broker.

Sorry, but under your system the value of the boat still suffers.

Personally, I have no VAT papers for my boat. I will sell it on (hopefully in 15 months' time) and I can tell you right now how much of a discount I will give to anyone who complains about VAT papers. 0€. Nada. Nothing. Zip. If they are stupid enough to walk away from a boat for that reason, it is up to them.

Edit - looking at your various posts again, I think you are confusing - at least in your posts, not necessarily in your mind - the issues of value and saleability. I think my post above shows that your scheme does nothing to improve the situation regarding value, but it might make the boat more easy to sell, to some people. If that is what you are aiming at, then I acknowledge that it might, as you say, allow someone to end up with a piece of paper that some purchasers will find essential - in exchange for "a substantial expenditure".

 

[Boo2]

Personally, I have no VAT papers for my boat. I will sell it on (hopefully in 15 months' time) and I can tell you right now how much of a discount I will give to anyone who complains about VAT papers. 0€. Nada. Nothing. Zip. If they are stupid enough to walk away from a boat for that reason, it is up to them.

And if you are stupid enough (forgive me) to pay maybe 2 years of berthing fees for a boat you can't sell because of buyer perceptions of its "VAT status" then that in turn is up to you...

I acknowledge that it might, as you say, allow someone to end up with a piece of paper that some purchasers will find essential - in exchange for "a substantial expenditure".

At last...

Boo2

 

[bbg]

And if you are stupid enough (forgive me) to pay maybe 2 years of berthing fees for a boat you can't sell because of buyer perceptions of its "VAT status" then that in turn is up to you...

Fortunately my boat is in, and likely to be sold in, France, where VAT status isn't an issue. And fortunately storage fees are low. It would take me about 6 years of fees to equate to 19% of the value of the boat.
Edit - at least you do recognise that this is about saleability, and not preserving value? If that is the case, why wouldn't the vendor just say "I'll give you a 17.5% discount, in case you ever have to pay the VAT yourself. When you come to sell the boat on you can either do the same, or take this discount I've given you and try to pay it over to HMRC if they'll take it."

 

[xxyyzz]

I don't see why it wouldn't work, you could even set up a company
purely for the transaction which would cut the broker out.

 

[bbg]

I don't see why it wouldn't work, you could even set up a company
purely for the transaction which would cut the broker out.

I'm still interested to know, under Boo2's approach, who pays (i.e. takes the hit) for the VAT?

 

[xxyyzz]

I'm still interested to know, under Boo2's approach, who pays (i.e. takes the hit) for the VAT?

Presumably the purpose of the exercise is for the owner to acquire the piece of paper saying VAT is paid.

So, owner creates company, company buys yacht, company sells yacht to owner with VAT receipt, company pays VAT on the transaction, company is folded.

Since the company is the owner it is the owner who pays.
He expects to recover the cost of the exercise by an easier sale.

Perhaps a tad expensive.

 

[Boo2]

I don't see why it wouldn't work, you could even set up a company purely for the transaction which would cut the broker out.

I think that would be excessive for most people, and most second hand boats. Also, I don't believe such a company would satisfy the requirement of being a trading entity so could not register for VAT. Also, also, it would most likely take too long.

I am in any case really much more interested in knowing whether a broker would be willing to put a boat through their books in this way at the request of the buyer and so return to my original question :

Has anyone here heard of a broker doing this ?

Or, alternately, are there any brokers present who can see an insurmountable difficulty with doing this at the request of a client ?

@bbg: Whoever it is that pays the VAT doesn't seem to me to be relevant to the issue of whether the scheme I suggest is possible. Presumeably the price minus VAT would have to be acceptable to the seller, and the price plus VAT acceptable to the buyer. As for a new boat purchase.


Boo2

 

[johnchampion]

There are number of things in the suggested scenario which may not work very well with VAT however that is not the problem.

The type of sale which you are suggesting is a initially private sale between two individuals. If the broker bought and then resold the boat it would become a trade sale which is a wholly different animal and the broker would then be held responsible in law (not withstanding any disclaimers from the previous owner) under the sale of goods act for warranties, defects etc.

Would you then be prepared to give the broker a margin of say 30% (a reasonable trade gross margin in buying and selling) of the selling price of the boat to cover his exposure , instead of the normal negotiated broking fee which you would pay for finding you a buyer and dealing with the transaction? Answers to that one on a postcard!

So no, the idea does not fly.

 

[Ubergeekian]

There are number of things in the suggested scenario which may not work very well with VAT however that is not the problem.

The biggest issue I can see is to do with amounts. If VAT at 17.5% was due on a value of £100,000 when the boat was imported, will HMRC - if they care ata ll - be satisfied by 17.5% of £50,000 paid by someone else, years later?

For that matter, why not just sell the boat to a broker for a quid and buy it back with VAT for the same price the next day. Would HMRC be satisfied with a 17.5p payment?

 

[Bosun Higgs]

It occurred to me the Broker will normally be VAT registered, and could perform this service by buying the boat from the vendor Ex-VAT then selling it on to the buyer with VAT charged on top. Their risk could be ameliorated by suitable contract wording and by insisting the buyer pays in advance. The buyer would gain secure "VAT status" at the price of paying the VAT.

Dont know what the VAT effect would be but there are other problems. The broker would legally be buying the boat and re-selling it, and he would be doing it by way of trade. So the sale of goods act would apply and no amount of messing around with contract terms would avoid that. Thus the broker would be giving you a guarantee on the boat - something I can't imagine he would be willing to do.

 

[Bobobolinsky]

What makes you think the VAT man would not accept the money?
If you import a boat from the US on personal import, they are quite prepared to accept payment from a non VAT registered individual. It seems likely therefore that if you go offering them £20K because you believe that the VAT is not in order, personally I think that they will take it. Quite personally I think that the scheme is totally unworkable. I'm not going to add how many ways I can think of to circumvent this.

 

[Tranona]

Sorry, cannot see how it would work - even leaving aside the FACT that there is no legal requirement to have a VAT receipt.

You may not be aware, but in the early days of the VAT on boats fiasco HMRC used to issue statements saying VAT was not due if they saw a trail of paperwork that satisfied them (evidence that the boat was in the EU on the qualifying date).

They discontinued this because they realised that there is no record of VAT being accounted for after 6 years, and more importantly they have no intention of carrying out any "checks" unless they believe that an offence has been committed. As far as indivduals are concerned the only offence that can occur is related to personally imported boats. VAT registered entities can of course commit a wider range of VAT offences, so a risk exists that a corporately owned boat could be involved in an offence.

I suggest you apply your imagination to something more worthwhile that trying to find a way to pay a tax you don't have to pay - just for the sake of a worthless and unnecessary piece of paper.

 

[Tranona]

What makes you think the VAT man would not accept the money?
If you import a boat from the US on personal import, they are quite prepared to accept payment from a non VAT registered individual. It seems likely therefore that if you go offering them £20K because you believe that the VAT is not in order, personally I think that they will take it. Quite personally I think that the scheme is totally unworkable. I'm not going to add how many ways I can think of to circumvent this.

No they won't. They apply the tests in Notice no8 of VAT guidance to determine if a transaction is a chargeable event.

Importing a boat from outside the EU is a chargeable event and the person doing the importing is liable, but the unpaid tax is a charge against the boat until it is paid. That is why it is so important to check with the history of the boat that it has always been in the EU. If it has not you need to carry out further checks.

If you just walked in an said "can I pay 20% VAT on my boat so that I can have a receipt" they would tell you to go away.

 

[Quandary]

Prepared to risk the wrath by going off topic to observe-
Surely another imaginary problem troll from the same inventive mind as the earlier one about putting a hinge in a keel stepped mast so that the imaginary yacht could go under an imaginary bridge to its imaginary mooring.
Hardly worth wasting time on?