Find out the VAT liability for supplying ships, aircraft and associated services in the UK.
This notice cancels and replaces Notice 744C (July 2011). Details of any changes to the previous version can be found in paragraph 1.2 of this notice.
1.1 What this notice covers
This notice explains the VAT liability for ships and aircraft and associated services, that are supplied in the UK.
It does not cover:
- supplies which are outside the scope of UK VAT - see services that have a place of supply outside the UK
- supplies of means of transport, other than ships and aircraft, (more information is available at VAT Notice 741A: place of supply of services)
- supplies of new means of transport, (more information is available at VAT Notice 728: new means of transport)
- supplies of passenger transport (more information is available at VAT Notice 744A: passenger transport)
- supplies of freight transport and associated services (more information is available at VAT Notice 744B: freight transport and associated services)
- supplies of lifeboats to charitable institutions (more information is available at VAT Notice 701/1: charities)
1.2 Changes made to this notice
The technical content has been updated to take account of developments in policy and changes in the law since the July 2011 edition.
Section 2 has been updated to reflect industry concerns about the calculation of a ship’s gross tonnage.
Section 4 has been amended to reflect revised policy on the treatment of hiring means of transport and supplies of transport services.
Section 8 has been updated to reflect our revised policy on aircraft handling services performed in the UK at places that are not customs and excise airports.
1.3 Who should read this notice
Any business that’s involved in providing:
- ships or aircraft
- goods or services for ships or aircraft
- ancillary services for ships or aircraft
1.4 The law covering this notice
Group 8 (Transport) of Schedule 8 (Zero Rate) to the VAT Act 1994.
1.5 Services that have a place of supply outside the UK
If these are in EU member states, then you may have to register for VAT in those EU member states and account for VAT at the relevant rate. If you do not have an establishment in those EU member states, you may need to appoint a local tax representative to account for the VAT there for you.
If these are countries outside the EU, then you may be liable to account for any tax in those countries where it applies on these services.
1.6 Guidance on interpretation
The guidance in this notice is not part of the law and does not override it. It reflects only the interpretation of the law and current practice by HMRC.
The lists of examples are not exhaustive. If you’re in any doubt about the VAT liability of your own supplies, you should contact the VAT: general enquiries.
2. Ships and ‘qualifying ships’
2.1 What this section covers
This section outlines what’s meant by ship and ‘qualifying ship’ for VAT purposes. It should be read in conjunction with section 4 which deals with the VAT liability of supplies of ships and ‘qualifying ships’.
2.2 What’s a ship for the purposes of this notice
For the purposes of this notice, ship includes:
- light vessels
- fire floats
- mobile floating docks or cranes
- off-shore oil or gas installations, used in the underwater exploration or exploitation of oil and gas resources which are designed to be moved from place to place
Exclusions include both:
- fixed oil and gas installations (even though they might be transported to a site as a floating structure)
- vessels which are permanently moored (for example as attractions) and not readily capable of navigation
2.3 A qualifying ship
A ‘qualifying ship’ is legally defined as any ship that has a gross tonnage of not less than 15 tons and is not designed or adapted for use for recreation or pleasure.
2.4 How to determine whether your vessel has been designed for use for recreation or pleasure
You need to consider the nature of the vessel’s design. To be a qualifying ship it must be designed for commercial purposes or to be used for permanent residential living by the owner. Your vessel is not a qualifying ship if it does not have a design suitable for permanent residential living, or have any features that indicate a commercial design, such as:
- a cargo hold
- commercial fishing equipment
- the ability to convey large numbers of passengers
See section 6 for adaptations.
2.5 Motor cruisers, powerboats and yachts
Motor cruisers, powerboats or yachts are designed or adapted for use for recreation or pleasure, so they do not qualify as ships even if they’re 15 gross tons or over, or supplied for business use.
2.6 If you intend to use your craft for residential purposes
The intended use of a vessel does not affect qualifying ship status.The only factors to be considered are the gross tonnage, the design of the ship and any future adaptations.
Where a vessel is designed to be lived in as a permanent home by the owner, it may be treated as a qualifying ship, even though it might also be used for recreation or pleasure. This treatment does not extend to similar vessels supplied for, or used as, holiday or seasonal accommodation or other private or commercial activity where the purpose is recreational.
If the ship is designed or adapted to be used for recreation or pleasure (such as cruising on rivers or canals), rather than mostly as permanent residential accommodation, it is not a qualifying ship.
For the purpose of qualifying ship and VAT liability legislation, a residential vessel is not a houseboat (see paragraph 2.7).
2.7 Houseboats not capable of self-propulsion
A houseboat that is not capable of self-propulsion, cannot be treated as a qualifying ship, but houseboats may be eligible for zero rating. You can find further information in VAT treatment of caravans and houseboats (Notice 701/20).
2.8 Cruise ships
Cruise ships are qualifying ships as long as they:
- have a gross tonnage of not less than 15 tons
- are unsuitable for private use
- are supplied for use in the business of providing recreation or pleasure cruises for fee-paying passengers
2.9 How gross tonnage of a ship is calculated
The gross tonnage of a ship is a volumetric measure decided under the Merchant Shipping Acts. If the gross tonnage of a ship has not been calculated under the Merchant Shipping Acts you should read paragraph 2.10. As soon as the tonnage of a vessel is confirmed under the Merchant Shipping Acts, that tonnage becomes the basis for deciding VAT liability and the tonnage arrived at by the formula in paragraph 2.10 will not apply.
Hovercrafts are not subject to the gross tonnage criteria and so are regarded as qualifying ships unless they’re designed or adapted for use for recreation or pleasure.
2.10 How to calculate the gross tonnage of unregistered ships
Where the gross tonnage of a ship has not been calculated under the Merchant Shipping Acts it must be calculated for the purposes of VAT by using the following formula:
For vessels 24 metres or greater in length:
L (m) × B (m) x D (m) × 0.235
For vessels less than 24 metres in length:
L (m) × B (m) × D (m) × 0.16
L = Length measured from foreside of the foremost fixed permanent structure to the afterside of the aftermost permanent structure. This measurement must not include appendages that do not contribute to the volume of the vessel.
B = Beam - breadth of vessel at widest part to the outside of outer planking (hull outer surface). This measurement must not include the thickness of any moulding or rubbing strake which may be fitted, in way of such measurement.
D = Depth measured vertically from the midpoint overall.
The upper calculation point will be:
For a decked vessel, either the underside of the deck on the middle line, or, if there is no deck on the middle line the underside of the deck at the side of the vessel, plus the full deck camber. Camber can be taken as a ratio of 12:300 where not known.
For an open decked vessel - the top of the upper strake or gunwale.
The lower calculation point will be:
For a wooden vessel - the upper side of the plank at the side of the keel.
For a metal vessel - the top of the plating at the side of the keelson or, if of open trough construction, either the top of the keel fitting (if fitted), or the level at which the inside breadth of the trough is 10 centimetres, whichever gives the greatest depth.
For a moulded vessel (for example one made of glass-reinforced plastic) - the inside of the hull. Where no keel member is fitted and the keel is of open trough construction, the calculation point shall be the top of the keel filling, if fitted, or the level at which the inside breadth of the trough is 10 centimetres, whichever gives the greater depth.
2.11 Calculating the gross tonnage of multi-hulls, narrowboats and similar vessels
For multi-hull vessels, each hull must be measured separately for overall length, beam and depth and the vessel as a whole must be measured.
For narrowboats and similar vessels, the measurement must be taken from the underside of the deck at the side of the vessel, (plus the full deck camber as in paragraph 2.10, rather than from the roof of the cabin. Even if the side decks are very narrow or angled such that they are not ‘walkable’, they nonetheless represent the highest point to which the hull is watertight, and therefore are still considered decks. Where there are no identifiable side decks, the measurement must be taken to a line between the exposed decks at the fore and aft of the vessel.
In cases of dispute, HMRC will accept a certificate issued by a genuine ship surveyor as decisive.
2.12 If your ship has a break in the line of the deck
A break is a raised portion of the deck that extends from one side of the ship to the other. Cabins, wheelhouses, hatches and erections above the deck are not breaks.
If the ship does have a break, the mean length, breadth and depth should be multiplied together with a factor of 0.35. This resultant figure should then be added to the gross tonnage when calculated using the formula given in paragraph 2.10.
2.13 How this formula was agreed
This formula was agreed in principle with the relevant trade associations in order to achieve a uniformity of practice. The intention is to help businesses decide the VAT liability of the supply, repair or maintenance of unregistered craft where the liability depends on the gross tonnage only. It’s based on, and is similar to, the formula used under the Merchant Shipping Acts.
2.14 Using another measurement instead of the gross tonnage calculation
There are no other measurements such as crane-weight, displacement and dead weight are all measurements of weight and not gross tonnage. These are not measurements of the same physical properties and one cannot be substituted for the other.
3. Aircraft and ‘qualifying aircraft’
3.1 What this section covers
This section outlines what’s meant by an aircraft and ‘qualifying aircraft’ for VAT purposes. It should be read in conjunction with section 4 which deals with the VAT liability of supplies of aircraft and qualifying aircraft.
3.2 An aircraft for the purposes of this notice
For the purposes of this notice, aircraft includes:
- aeroplanes (civil or military)
- space craft
3.3 A ‘qualifying aircraft’
A ‘qualifying aircraft’ is legally defined as any aircraft that’s used by either:
- an airline operating for reward chiefly on international routes
- a state institution and is of a weight of not less than 8,000kg and is neither designed nor adapted for use for recreation or pleasure
The weight is its authorised maximum take-off weight. This is specified in the:
- certificate of airworthiness in force for the aircraft for civil aircraft
- released documents issued by the Ministry of Defence for military aircraft
If there is no certificate or release document, you should contact VAT: general enquiries.
3.4 Qualifying aircraft on international routes
Qualifying aircraft do not have to be used on international routes under the test set out in paragraph 3.3 bullet point. It’s whether the airline itself operates chiefly on international routes and not what route any particular aircraft is used for. But aircraft that are used wholly or partly for purposes, other than for the supply of passenger or freight transport, cannot be considered qualifying aircraft.
3.5 An airline operating for reward chiefly on international routes
The wording reflects the wording of EU VAT Directive 2006/112 which is not defined in EU law. For the purpose of this provision HMRC interpret it as follows:
3.5.1 An ‘airline’
An airline is defined in the law as ‘an undertaking which provides services for the carriage by air of passengers or cargo’. The undertaking can be a sole proprietor, partnership, corporate body or any other entity, but is not necessarily confined to a single entity. A VAT or corporate group of companies may also be airlines, and HMRC will consider other arrangements and business structures on a case by case basis. This treatment does not affect the normal accounting arrangements between the entities or within and by VAT groups.
An airline will need to operate at least one aircraft which it may own, lease or hire for this purpose.
If the business does not have an Air Operators Certificate (AOC) it’s an indicator that it’s unlikely to be allowed to operate as an ‘airline’ for the purposes of using qualifying aircraft.
3.5.2 Operating for reward
The airline must be providing either passenger or freight transportation (or both) on scheduled or unscheduled flights (or a mixture of both) in return for a consideration for that supply. There is no need for the airline to be operating for profit, but it must be a business operation in nature.
3.5.3 An ‘international’ route
An international route is any route that is not a domestic route within UK airspace. UK airspace boundary is normally 12 nautical miles from the coast. But routes wholly within the VAT fiscal territory of the UK and Isle of Man are also to be treated as UK domestic flights.
Routes between the UK to the Channel Islands and oil rigs outside the 12 mile limit are international routes.
Routes which leave UK airspace in the course of a UK domestic route are not international routes, for example, Northern Ireland to Wales crossing the Irish Republic.
3.5.4 The meaning of ‘chiefly’
‘Chiefly’ means that the international route operations of an airline must exceed its UK domestic route operations. While turnover from the respective operations will be particularly significant, other information may also be taken into account that indicates the relative importance of the type of operations undertaken. Whatever method is adopted, the result must be fair and reasonable and capable of verification by HMRC.
But where pertinent to a method, HMRC considers that:
- non-operational use, for example, testing flights are not counted either way
- normal positioning flights should be counted by reference to the next flight that the aircraft is being positioned for, but positioning flights as a result of an emergency diversion should be counted by reference to the original routing of the diverted flight
3.6 The ‘rules’ for testing whether the conditions in paragraph 3.5 are met
Qualifying aircraft are those used by airlines that operate chiefly on international routes. So it will be necessary for an airline to be able to demonstrate that it meets this test in order to get zero-rated supplies. For an airline to know whether it operates chiefly on international routes it must conduct a test of its activities from time to time.
This test can be based, for example on the:
- value of turnover
- relative number of passengers carried
- miles flown and so on
As long as the method produces a fair and reasonable attribution of use to international routes compared to that attributable to domestic routes.
For many of the major passenger airlines this will be a formality but for others operating unscheduled services this may be more difficult to establish. In such cases HMRC will accept that the airline can base its current position on a backward look over its last financial year.
Airlines can undertake the test over a calendar year, or more frequently, looking back over a shorter or a rolling period if they wish. But HMRC will expect the period, frequency and method of the test to be consistent and not continually altered to manipulate a particular outcome.
A forward look can also be used where the business plans or projections support it and where a backward look is not practical or representative because of material changes to the operation.
If there is a significant and material change to an airline’s operation or structure, such as through a merger or demerger or change of routes, then the test will need to be checked as soon as practical after that change. If this establishes that the airline no longer has qualifying status, then it should notify any regular suppliers that rely on a declaration (see section 13) that it no longer qualifies for zero rating.
3.7 A ‘state institution’
State institution includes:
- the Crown
- central government departments and agencies
- devolved administrations
- local authorities including fire and police
- Royal Mail
- similar bodies in other countries
In most cases the customer will know whether they’re a state institution within the this list, but this list is not exhaustive. HMRC will consider claims that other emanations of the state and other bodies fulfilling state functions are state institutions.
4. The supply of ships and aircraft
4.1 What this section covers
This section deals with the VAT liability of ships and aircraft. You should read this section in conjunction with section 2 or section 3, as the VAT liability will depend on whether or not you have a qualifying ship or aircraft.
4.2 What supply means for the purposes of this notice
Supply for the purposes of this notice includes the:
- sale, import or acquisition
- hire and lease
4.3 What’s treated as part of a supply of a ship or aircraft
Normal fixed and loose equipment and furnishings necessary for the operation, navigation or safety, are treated as part of the supply of a ship or aircraft if supplied with it under the same contract. An initial normal complement of on-board spares is treated in the same way.
4.4 The VAT liability of a supply of a ship or aircraft
The supply of a qualifying ship or aircraft may be zero-rated. Other ships or aircraft are standard-rated.
4.5 The VAT liability of a partly completed ship or aircraft
The supply of a partially completed ship or aircraft is always standard-rated because you are not supplying a completed ship or aircraft. A ship or aircraft is considered ‘complete’ when it’s sea or airworthy and fit to navigate the water or airways that it’s designed for. But supplies of part completed ships and aircraft, in the course of construction of a qualifying ship or aircraft may be zero-rated. See paragraph 7.2.
4.6 Qualifying ships or aircraft that are no longer sea or airworthy
As long as there’s a clear intention to return the ship or aircraft to a sea or airworthy condition, and that it will be a qualifying craft at the end of the process, it may be considered a qualifying craft during that time.
4.7 How aircraft leasing and similar companies should be treated
Many airlines do not own aircraft outright but lease or buy them through banks, or other intermediaries that are in the business of aircraft leasing. The liability of the supply by these businesses will be determined by the tests set out in section 3. If at the time of the supply to the intermediary, it’s known that the ultimate supply to the end user will be of a qualifying aircraft, the supplier may ‘look through’ the transaction (or series of transactions) and treat its own supply as zero-rated.
4.8 What charter means
For the purposes of this notice, HMRC treats the word ‘charter’ as meaning the hiring of a means of transport (ship or aircraft), rather than the supply of passenger or freight transport or some other service using a ship or aircraft. See paragraph 4.9.2. To avoid ambiguity over the word charter this notice only refers to hiring or leasing of a craft or the supply of a transport service.
So you need to look at the transaction to determine what’s being supplied. In each case, the VAT liability should be determined according to the particular nature of the service supplied and not on the basis of how it’s described.
4.9 The VAT treatment of hiring a ship or aircraft
4.9.1 Hire of a ship or aircraft without captain, pilot or crew
This is the hiring or leasing of a ship or aircraft as a means of transport and is:
- zero-rated if the ship or aircraft is a qualifying one
- standard-rated if the ship or aircraft is not a qualifying one
You can find further information on the VAT treatment of hiring means of transport in VAT Notice 741A: place of supply of services.
4.9.2 Hire of a ship or aircraft with captain, pilot or crew
In most instances HMRC will not view this as the supply of a means of transport, but rather the supply of the underlying services that are effectively being provided. In most cases that will be a transport service of some form, either passenger or freight.
In some cases, there may be a different underlying supply or activity, the nature of which will need to be examined on a case by case basis. For example, accommodation, entertainment, education, filming or crop spraying.
- passenger transport (further information on the VAT liability of this is found in VAT Notice 744A: passenger transport)
- freight transport (further information on the VAT liability of this is found in VAT Notice 744B: freight transport and associated services)
- accommodation (further information on the VAT liability of this is found in Notice 709/3 Hotels and holiday accommodation)
- entertainment (further information on the VAT liability of this is found in Notice 741A Place of supply of services)
- education (further information on the VAT liability of this is found in Notice 701/30 Education and vocational training)
In exceptional cases it maybe possible to treat the supply as that of a means of transport, for example an aircraft on stand-by where no transport supply is actually made.
4.10 How to treat the supply of vessels adapted for disabled people
Vessels that are designed or substantially and permanently adapted for the use of disabled people may be zero-rated in certain circumstances. You can find further information in Reliefs from VAT for disabled and older people (Notice 701/7).
4.11 If you’re a sub-contractor
If you’re providing services as a sub-contractor to a shipbuilder or aircraft manufacturer who’s constructing a new ship or aircraft, your supply of services will be standard-rated. This is because you, as sub-contractor, will not be making a supply of a qualifying ship or aircraft. But if your services are supplied in respect of the modification or conversion of a qualifying ship or aircraft, then your services will be zero-rated subject to the normal conditions for such supplies. To avoid doubt, you should get evidence of your customer’s entitlement to zero rating, see section 13.
4.12 Evidence that a supply is of a qualifying ship or aircraft
Normally the responsibility for determining the liability of a supply rests with the supplier. HMRC recognises, particularly in the case of aircraft, that this requires knowledge about the status of the customer, and how the craft is to be used. Section 13 details some of the steps that can be taken to get evidence for your records.
5. Supplies to sea rescue charities
How VAT affects charities (Notice 701/1) covers this area.
6. Repair, maintenance, modification and conversion of ships, aircraft and their parts
6.1 What this section covers
6.2 What’s meant by maintenance
Maintenance services may include:
- testing of parts and components
- ship’s laundry, as long as the articles aren’t personal to the crew or passengers
6.3 What’s meant by modification or conversion
This includes, for example:
- rebuilding or lengthening
- structural alterations
6.4 The VAT liability of the repair, maintenance, modification and conversion of ships, aircraft and their parts
|Description of service||VAT liability|
|The repair or maintenance of a qualifying ship or aircraft||Zero-rated if certain conditions are met, see paragraphs 6.5 and 6.6
Standard-rated if the conditions are not met
|The modification or conversion of a qualifying ship as long as when so modified or converted it will remain a qualifying ship||Zero-rated|
|The modification or conversion of any ship as long as when so modified or converted it will be a non-qualifying ship||Standard-rated|
|Modification or conversion of non-qualifying ships||The modification or conversion of a non-qualifying ship is not zero-rated even if the modification or conversion results in a qualifying ship|
|The modification or conversion of a qualifying aircraft||Zero-rated|
|The modification or conversion in direct connection with preparing an aircraft to be a qualifying aircraft||Zero-rated|
|The modification or conversion of an aircraft otherwise||Standard-rated|
6.5 Repair and maintenance of parts and equipment for ships
The repair and maintenance of certain parts or equipment, see section 7 of a qualifying ship are zero-rated, as long as you meet either of the following conditions, you:
- carry out the repair on board
- remove the part or equipment for repair, and you replace in the same ship afterwards
You may also zero rate the parts, components or materials that you provide to carry out the repair or maintenance work as long as they’re regarded as part of the supply.
6.6 Repair and maintenance of parts and equipment for aircraft
The repair and maintenance of certain parts or equipment (see section 7) of a qualifying aircraft are zero-rated, as long as you meet any of the following conditions:
- you carry out the repair on board
- you remove the part or equipment for repair, and replace in the same aircraft afterwards
- following repair or maintenance, you return the parts or equipment to be held in stock for the future use as spares in qualifying aircraft
- if they’re unserviceable parts or equipment, you exchange them for identical parts which have themselves been reconditioned, repaired or maintained
You may also zero rate the parts, components or materials that you provide to carry out the repair or maintenance work as long as they’re regarded as part of the supply.
6.7 If you’re a sub-contractor or intermediary in a supply chain
Services provided by a sub-contractor in relation to the repair, maintenance, modification or conversion of a qualifying ship or aircraft are zero-rated, subject to the conditions laid out in this section. To avoid doubt, you should get evidence of your customer’s entitlement to zero rating - see section 13.
7. Parts and equipment for qualifying ships and aircraft
7.1 What’s covered in this section
7.2 The conditions for zero rating
To qualify for zero rating, both of the following conditions must be met. The parts and equipment must be:
- the sort usually installed or incorporated in the propulsion, navigation or communications systems, or the general structure of a qualifying ship or aircraft
- for the incorporation or installation in a qualifying ship or aircraft
Parts and equipment can include part-assembled ships or aircraft, for example the fuselage, wings or hull.
You may zero rate supplies of parts in a supply chain, as long as at the time of supply the part is destined for a qualifying ship or aircraft.
To avoid doubt, you should get evidence of your customer’s entitlement to zero rating, see section 13.
7.3 Supplies to government departments and the Scottish Government
Supplies of parts and equipment to government or the Scottish Government may be zero-rated only where the parts and equipment are installed or incorporated either in:
- the course or improvement of a business carried on by that government department or the Scottish Government
- qualifying ships or aircraft used for providing rescue or assistance at sea
The reference to ‘government department’ includes those of foreign governments, although other zero rating reliefs may also be available. The term ‘government department’ is not to be confused with ‘state institution’ in paragraph 3.7, which covers a wider range of organisations.
7.4 Parts and equipment that qualify for zero rating
The following are examples of parts and equipment that may be zero-rated, as long as they meet the conditions set out in paragraph 7.2. This list is not exhaustive:
- catering equipment (industrial)
- fishing nets and equipment
- laundering equipment (industrial)
- lifeboats (and equipment used therein) and life rafts
- propellers and rudders
- radar and navigation equipment
- safety equipment such as escape chutes, life jackets, smoke hoods, oxygen masks, and winches
- nuts, bolts, hoses, oil seals and rivets (referred to as ‘consumables’ by the aircraft industry)
- ‘expendable’ parts and ‘rotable’ components used by the aircraft industry
- communications equipment used for the operation of the ship or aircraft
- sanitary fixtures
7.5 Parts and equipment excluded from zero rating
Any raw or bulk materials, partly processed parts or equipment and also non-specialist goods or appliances are excluded from zero rating. This list gives examples of other parts and equipment which are not zero-rated (it is not exhaustive):
- catering equipment (domestic)
- diving equipment
- furniture (unfixed)
- laundering equipment (domestic)
- missiles, shells
- ship’s stores
- soft furnishings
- underwater cameras
- videotapes or disks, electronic games and similar entertainment equipment
- crockery and cutlery
- raw materials such as fibre board, plastics, and specialist metals
- bulk materials such as adhesives, chemicals, fabrics, inhibitors, metals, oils, paints, solvents and thinners
- aircraft ground equipment
- flight simulators or their parts
- tooling and equipment used for manufacturing parts or equipment
7.6 The evidence you need to qualify for the zero rating of a supply of parts or equipment
You should keep commercial documentation as evidence that the goods are eligible for relief. There is no need to get further documentary evidence of use from your customer as long as you’re satisfied that the parts and equipment are eligible for relief.
7.7 If you are unsure about how the parts or equipment are to be used
You should get confirmation from your customer if you are unsure about how the parts or equipment are going to be used, for example if:
- you’re supplying a part capable of use on both qualifying and non-qualifying ships or aircraft
- your customer is a government department
To make sure that the parts or equipment qualify for zero rating, and to avoid doubt, you should get evidence of your customer’s entitlement to zero rating, see section 13.
7.8 How to treat cases where the customer cannot give an undertaking
In cases where the customer cannot or is unwilling to give an undertaking, you should charge VAT at the standard rate.
8. Handling of ships and aircraft
8.1 When handling services are zero-rated
Handling services are zero-rated when provided for qualifying ships and aircraft and physically carried out:
- in a port (see paragraph 8.4)
- except where the aircraft is used by an airline operating for reward chiefly on international routes (see section 3), in a customs and excise airport, see paragraph 8.4
- outside the UK
The letting on hire of goods alone is not zero-rated under these conditions.
8.2 If you provide handling services for non-qualifying ships or aircraft
Handling services provided in the UK for non-qualifying ships and aircraft are standard-rated.
8.3 Typical examples of zero-rated handling services
The following are examples of charges raised or handling services provided for supplies that are zero-rated. There may be circumstances when some of the charges listed do not represent the consideration for a supply and are outside the scope of VAT. In cases of doubt, check with the VAT helpline.
Examples of handling services for ships:
- port and harbour dues
- dock and berth charges
- conservancy charges (including provision of local lights, buoys and beacons)
- graving (or dry) dock charges
- mooring charges
- demurrage (where there is a charge for failing to load or discharge a ship within specified time)
- security and fire services
- supply of crew members
- the day-to-day management of a ship (see section 11)
Examples of handling services for aircraft:
- landing, parking or housing fees
- compass swinging fees
- apron services
- airport navigation service charges
- security and fire services
- supply of crew members
8.4 What ‘port’ and ‘customs and excise airport’ means
‘Port’ means any port appointed for customs purposes and this includes all seaports, coastline and territorial waters (normally 12 nautical miles from the coast) around the UK.
The definition does not extend beyond the water of the port onto land adjacent to a port, for example the quay or dockside area. Nor does it generally extend into non-tidal waters, the main exception being the Manchester Ship canal which is a port.
‘Customs and excise airport’ means an airport designated for the landing or departure of aircraft for the purposes of the Customs and Excise Acts by an order. A list of customs and excise airports can be found in Notice 744B: freight transport and associated services.
9. Air navigation, pilotage, salvage, towage and surveying services
9.1 What ‘air navigation services’ means
‘Air navigation services’ has the same meaning as in section 105(1) of the Civil Aviation Act 1982 and includes the provision of information and directions furnished, issued or provided with the navigation or movement of aircraft for flights to, from and within the UK.
9.2 The VAT liability of air navigation services
Air navigation services supplied in respect of qualifying aircraft are zero-rated. Services provided for non-qualifying aircraft are normally standard-rated.
9.3 How to treat pilotage services for VAT purposes
You should zero rate pilotage services to all shipping and not just pilotage services confined to qualifying ships. Pilotage in this context refers to shipping and not aircraft piloting.
9.4 How to treat salvage and towage services
You should zero rate salvage operations and towage services for all shipping (not just qualifying ships). It does not include any later repair work carried out. Shipping in this context includes inland waterway vessels and all floating objects. This also covers dock gates, pier and bridge sections, and buoys.
9.5 The VAT treatment of surveying or classification services for ships and aircraft
Services provided for the surveying or classification of qualifying ships and qualifying aircraft are normally zero-rated. This zero rate is restricted to surveys necessary to establish the seaworthiness, airworthiness or classification of a qualifying ship or aircraft to enable it to be registered and so meet the direct needs of the ship or aircraft. Such surveys by their nature require a physical inspection of the ship or aircraft.
Certain surveys carried out under statutory authority may be outside the scope of VAT (see paragraph 9.6).
Surveys for other ships and aircraft are standard-rated (see paragraph 9.6) as are surveys made for other purposes (such as insurance claims) and where a physical inspection is not made.
9.6 Types of surveying services excluded from zero rating
The following surveying services are excluded from zero rating:
Outside the scope
Tonnage measurements or surveys of ships for registration or other purposes required by statute to be carried out by Department of Transport surveyors or other surveyors directly appointed by that Department to do the work under statutory authority: these services are outside the scope of VAT.
Surveying services that are standard-rated:
- services of arranging for the registering or re-registering of ships for the purpose of the Merchant Shipping Acts
- surveys made of insurances claims
- surveys where a physical inspection is not made
10. Intermediary services
10.1 How to determine the liability of the services of intermediaries
The liability of intermediary services depends on the place of supply. There are different place of supply rules depending on the type of supply you’re arranging. The guidance in this section only refers to supplies made in the UK.
You can find further information on the place of supply in Notice 741 A: place of supply of services.
10.2 The VAT treatment of agents making arrangements for the supply of, or space in, a ship or aircraft
If you make arrangements for the supply of, or space in, a qualifying ship or aircraft, your supply is zero-rated.
10.3 If you arrange for the supply of a non-qualifying ship or aircraft
If you make arrangements for the supply of a non-qualifying ship or aircraft, your supply is zero-rated only when you arrange for the ship or aircraft to be exported to a place outside the UK or EU. You can find further information in Notice 741A: place of supply of services.
10.4 If you arrange for the supply of parts and equipment for ships and aircraft
You may zero rate the making of arrangements for the supply of parts and equipment for ships or aircraft as long as:
- the parts and equipment are themselves zero-rated for qualifying ships or aircraft (see section 7)
- you arrange for the parts or equipment for qualifying and non-qualifying ships and aircraft to be exported to a place outside the UK or EU
You can find further information in Notice 741A: place of supply of services.
10.5 Other agency services that may be zero-rated
Your supply is also zero-rated if you make arrangements for any supply under the provisions of:
- parts and equipment for qualifying ships and aircraft section 7
- handling of ships and aircraft section 8
- air navigation, pilotage, salvage, towage and surveying services section 9
- ship managers and port agents section 11
These provisions are in themselves zero-rated.
11. Ship managers and port agents
11.1 Sorts of services a ship manager provides
A ship’s manager normally provides a number of services for the owner or operator. Some will be provided separately and some together as a single supply under a ship management agreement.
The place of supply of the service and VAT liability will be determined by the essence of the overall supply. These services will often include:
- the supervision of the maintenance, survey and repair of a ship
- engagement and provision of crews
- receiving on behalf of the owner all hire and freight monies
- arrangements for loading and discharging
- providing for victualling and storing of ships
- negotiating bunker fuel and lubricating oil contracts
- payment on behalf of the owner of all expenses incurred in provision of services or in relation to the efficient management of ships
- the entry of a ship in a protection or indemnity association
- dealing with insurance average, salvage and other claims
- arranging of insurance in connection with a ship
Where provided together under a single management agreement and the place of supply is the UK, the management service will normally be zero-rated for qualifying ships.
11.2 How ancillary services provided by a ships’ manager should be treated
Ancillary services provided by a ships’ manager for which a specific fee is charged are treated as follows:
- seeking and negotiating employment for ships, this follows the liability of the shipping service being negotiated
- provision of crews, the supply of a crew for a qualifying ship is zero-rated, this includes the supply of maintaining a sufficient reserve of crew - a charge is often raised for such a supply when a proportion of pooled management costs are attributed to a ship
- telling the owner and consulting the shipbuilder about design and specification of a new ship, a supply of these services is normally standard-rated but if you have a customer outside the UK you should refer to Notice 741A: place of supply of services
- advertising, sales promotion and public relations work in respect of ships, a supply of these services is normally standard-rated but if you have a customer outside the UK you should refer to Notice 741A: place of supply of services
11.3 How to treat the composite fee you charge for your services as a port agent
If you provide services as a port agent, which are related to the field of activities in and around a port, you will normally charge a composite fee to cover all the arrangements you make. Such fees may be zero-rated where your service directly relates to the handling of ships in a port or:
- outside the UK
- on land adjacent to a port, or in a transit shed of goods carried in a ship
You can find further information in Notice 744B: freight transport and associated services.
11.4 How to treat separate supplies
You must look at the separate supplies individually to determine their treatment. Before deciding liability, you will first need to consider all of these points:
- what’s being supplied
- whether you’re supplying it as an intermediary or a principal
- the place of supply
You can find further information in Notice 741A: place of supply of services and the other relevant notices.
12. Aircraft management
12.1 Sorts of services an aircraft manager provides
An aircraft manager normally provides a number of services for the owner or operator. Some will be provided separately and some will be provided together as a single supply under an aircraft management agreement. In most cases the managed aircraft will be a corporate jet belonging to a company for the use of its staff or a private owner.
The place of supply of the service and VAT liability will be determined by the essence of the overall supply. These services will often include:
- advising and arranging the purchase of the aircraft
- the supervision of the maintenance, survey and repair of a aircraft
- provision of hangerage
- engagement and provision of crews
- providing for victualling and fuelling
- payment on behalf of the owner of all expenses incurred in provision of services or in relation to the efficient management of aircraft
- the entry on the manager’s AOC
- arranging of insurance in connection with an aircraft
12.2 Aircraft managers or airlines
Generally, the management and flying of an aircraft for the owner is not a supply of transport to the owner and the manager is not an airline acting as such.
Management companies who own lease or hire aircraft can make supplies of transport as principle so can be airlines for that activity.
Management arrangements often permit the manager to use the managed aircraft to make supplies of transport, as principle, when the aircraft is not needed by the owner. While such use may allow the manager to be an airline, it will not normally allow an aircraft to become ‘qualifying’. This is because aircraft that are used wholly or partly for purposes other than for the supply of passenger or freight transport cannot be considered qualifying aircraft.
13. Evidence of ‘qualifying’ ship or aircraft
13.1 Supply of ships and aircraft
This section covers the supply of ships and aircraft, and of services and parts to maintain them.
For details of the supplies, see sections:
- ships and ‘qualifying ships’ 2
- aircraft and ‘qualifying aircraft’ 3
- the supply of ships and aircraft 4
- repair, maintenance, modification and conversion of ships, aircraft and their parts 6
- parts and equipment for qualifying ships and aircraft 7
- handling of ships and aircraft 8
- air navigation, pilotage, salvage, towage and surveying services 9.
It’s the responsibility of the supplier to ensure that the conditions for zero rating are met for each supply made.
As the supplier, you should keep some form of documentary evidence. This can either consist of normal commercial documentation such as contracts or work orders or a declaration made by the buyer. There are some suggested formats set out in paragraphs 13.2 and 13.3.
The declaration may form part of the supplier’s standard commercial documentation (such as on the order form) or may be a stand alone document.
In many cases it will be self-evident to the supplier that the vessel fulfils the conditions to be ‘qualifying’. But in cases of doubt, or in the case of a vessel to be used as the permanent residence of the owner, some form of evidence of entitlement to zero rating should be kept by the supplier.
Whether an aircraft being supplied is ‘qualifying’ depends on the status and activities of the end user. In many cases (such as a major international airline or state institution) there’ll be no doubt that the end user qualifies. But in cases of doubt, some form of evidence of entitlement to zero rating should be kept by the supplier. If the end user does not have an ‘Operating Licence’ paragraph 3.5.1 then you should ask for evidence of how it’s functioning as an airline.
13.1.4 How often you should get a declaration from your customers
As explained in paragraphs 13.1.1 and 13.1.2 it is not essential to get a declaration in respect of each supply that you make. In many cases it will be apparent that the ship or aircraft is ‘qualifying’.
But it may be the case that the supplier is in doubt as to whether zero rating applies and wishes to get a declaration from the customer (for example doing business with a new customer for the first time).
In the case of supplies in respect of qualifying ships, you need only get one declaration in respect of a particular vessel. Or, in the case of a business customer that only operates qualifying ships, one declaration to cover all of the vessels operated by that business.
In the case of qualifying aircraft you need only get one declaration from each airline (see section 3) to cover all of its aircraft. In the case of supplies made to state institutions it will be necessary to ensure that each aircraft qualifies as not less than 8,000kg.
For contracts with long-standing customers, you should make sure that they renew any declaration annually, or earlier if you’ve reasonable cause to believe that either:
- the status of a qualifying ship has changed
- an airline has stopped operating chiefly on international routes
13.2 Suggested format of the declaration of status of a ship or aircraft
‘We confirm that the (ship or aircraft) being supplied is a qualifying (ship or aircraft) within the meaning of the VAT Act 1994, Schedule 8, Group 8 and the conditions set out in HMRC’s Notice 744C are fulfilled.
Details of ship or aircraft
We undertake to tell you immediately should this change before the time of supply and to pay you the VAT properly due.
The customer’s name, address and VAT registration number (where appropriate) should be quoted on all declarations.
13.3 Suggested format of the undertaking of use of parts
Referred to in paragraph 7.7.
We confirm that all the parts and equipment:
- we order, or
- in this purchase order, or
- marked with an * in this purchase order
are of a kind ordinarily installed or incorporated in, and are to be installed or incorporated in, the propulsion, navigation or communications systems or the general structure of:
- a qualifying ship as set out in Notice 744C, or*
- a qualifying aircraft as set out in Notice 744C,* and
(where the customer is a government department) the parts and equipment are to be installed or incorporated in:
- the course of a supply treated as being in the course or furtherance of a business carried on by the department, or*
- ships or aircraft used for the purpose of providing rescue or assistance at sea*
We undertake to tell you immediately should these parts be used for any other purpose and to pay you the VAT due.
*- delete which does not apply
The customer’s name, address and VAT registration number should be quoted on all undertakings.
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