Introduction
The common misconception is that everything to do with shipping and VAT falls to be zero-rated and so is not an issue, however, there are certain VAT and customs areas that have implications for the industry and should be noted. These are set out below in broad terms, but formal advice should always be taken. Where zero rating is applicable, there are often conditions to be met and additional requirements that must be adhered to, in order to obtain and evidence that zero rating.
Note that the UK VAT territory extends to 12 nautical miles from the coastline. Beyond this is considered to be offshore and the VAT and customs treatment may differ.
Qualifying ships
The supply of most qualifying ships is zero-rated for VAT purposes.
A qualifying ship is legally defined as any ship that has a gross tonnage (per the Merchant Shipping Acts) of not less than 15 tons and is not designed or adapted for use for recreation or pleasure. To be a qualifying ship, it must be designed for commercial purposes.
Qualifying ships include cruise ships, hovercraft and offshore oil and gas installations that are not fixed. Harbour tugs may not qualify.
The repair, maintenance, modification or conversion of qualifying ships and their parts is also zero-rated. The supply of parts and equipment are zero-rated where they are installed, or incorporated, in the propulsion, navigation or communications systems, or the general structure of a qualifying ship.
Handling services and port fees are zero-rated when provided for qualifying ships and physically carried out in a port.
Ship managers normally provide a number of services for the owner or operator either separately, or together as a single supply under a ship management agreement. Where provided together under a single management agreement in the UK, the management service and most ancillary services will normally be zero-rated for qualifying ships.
Non-qualifying ships
In general, any of the abovementioned services carried out in respect of non-qualifying ships, will be standard-rated.
For purchases of boats used for private purposes, the Sailaway Boats Scheme can be used, where delivered to an overseas visitor, or their authorised skipper, within the UK and exported under its own power to a destination outside the UK, whether new or second hand, allowing zero rating.
Boats fall within the Capital Goods Scheme where there is VAT exclusive capital expenditure of £50,000 or more, which includes purchase, manufacture, refurbishment and alteration.
Ships’ stores
The supply of ships’ stores is zero-rated provided the stores are to be shipped from the UK within certain timeframes, for use on a voyage made for commercial purposes, to an eventual destination outside the UK. Re-landed ships’ stores will be subject to formal import procedures, as required.
Ferries
The supply of passenger transport is generally zero-rated. However, it might be difficult to distinguish between what is passenger transport and what is freight, particularly where the journey is UK domestic.
Supplies onboard ship
Food, drink and other items sold onboard domestic journeys are subject to VAT as applicable, however, where products are supplied onboard a ship to a destination outside the UK, the sales would be outside the scope of UK VAT.
Agency
The commercial shipping industry often uses an agent/principal arrangement, whereby local services and customers are procured by the agent and a cost recharge and/or commission charge made to the overseas principal. In terms of VAT, shipping lines should be careful with regards to which entity is the recipient of the services and is entitled to input tax deduction.
Contracts and invoicing procedures should be reviewed to ensure this is accurate, input tax recovery is maximised and not open to challenge by local tax authorities, nor gives rise to local VAT registration requirements.
Customs procedures
Duty relief can be obtained on certain goods imported from outside the UK, where used for specific purposes.
Shipwork End-Use is the specific use of imported goods for the construction, maintenance, repair, or conversion of ships or vessels, including goods used for equipping, fitting out, or modifying ships.
It must be demonstrated that the imported goods are eligible and will be put to a prescribed use within a certain timeframe.
