VFUP4000 - Fuel for use in ships, aircraft or hovercraft

Fuel for international journeys

Supplies of aviation or marine fuels for craft on a commercial flight or voyage leaving the UK are zero-rated. This relief does not include supplies to privately-owned or chartered pleasure craft. VAT Act 1994, section 30 reads:

(6) A supply of goods is zero-rated by virtue of this subsection if the Commissioners are satisfied that the person supplying the goods -

(a) …

(b) has shipped them for use as stores on a voyage or flight to an eventual destination outside the United Kingdom …

(7) Subsection (6)(b) above shall not apply in the case of goods shipped for use as stores on a voyage or flight to be made by the person to whom the goods were supplied and to be made for a purpose which is private.

You can find out more about this in VAT Notice 703: Exports and removals of goods from the United Kingdom.

Fuel for domestic journeys

Extra-statutory concession 9.2 - VAT: Marine fuel reads as follows.

“Commercial vessels engaged on voyages within UK territorial waters (or within the limits of a port), may receive certain types of marine fuel VAT free providing the conditions set out in VAT Notice 703: Exports and removals of goods from the United Kingdom are met.

This relief extends only to those supplies of fuel which were zero-rated prior to 1 July 1990 under the Value Added Tax Act 1983, Schedule 5, Group 7, item 4. It does not apply to petrol, DERV or lubricating oil”.

This concession does not include supplies to privately owned or chartered pleasure craft.

You can find out more about this in VAT Notice 703: Exports and removals of goods from the United Kingdom.

Fuel for private pleasure craft and private pleasure flying

Note 1(3) to Group 1 of Schedule 7A provides that supplies of fuel oil, gas oil or kerosene cannot be eligible for the reduced rate under item 1(d) unless the oil is one on which a duty of excise has been or is to be charged without relief from, or rebate of, the duty. However, there are two exceptions to this general rule as detailed in Note 1(3)(a) and 1(3)(b)shown below. These exceptions were introduced by The Value Added Tax (Reduced Rate) (Supplies of Domestic Fuel or Power) Order 2008 which came into effect from 1st November 2008.

  • heavy oil (mainly red diesel, which is a gas oil) declared by the customer under section 14E(3) of the Hydrocarbon Oil Duties Act 1979 as being for use as fuel for propelling private pleasure craft
  • kerosene (avtur) declared by the customer under section 13AC(3) of the Hydrocarbon Oil Duties Act 1979 as being for use as fuel for private pleasure-flying

This change to the VAT legislation was prompted by a change in the excise duty treatment of fuel for use in private pleasure craft and for private pleasure-flying. Previously such fuels had been eligible for a rebate of excise duty and were therefore eligible for the reduced rate of VAT providing that they were supplied in quantities below the de minimis level of 2,300 litres. From 1st November 2008, however, the derogation under which the excise duty was rebated expired and these fuels became subject to the full rate of duty. As the law stood, prior to its amendment, this would have meant that this fuel would no longer have been eligible for the reduced rate of VAT. In order to ensure that these supplies would not be subject to a double tax increase, the exceptions referred to above were introduced so that the reduced rate of VAT could continue to apply.

The excise duty change outlined above relates only to fuel used for propelling private pleasure craft; fuel used for purposes other than propulsion (e.g. heating, lighting, powering appliances) is still eligible for a rebated rate of excise duty and can therefore be reduced rated for VAT purposes, subject to its being supplied in de minimis quantities. When assessing whether the de minimis quantity is exceeded, fuel supplied for propulsion purposes and non-propulsion purposes should be treated as one supply.

As the VAT position is essentially unchanged by this legislation, there are unlikely to be any significant risks arising from it. Most of the changes concern the collection of excise duty - a full explanation of how the excise duty is collected can be found in VAT Notice 554: Fuel used in private pleasure craft and for private pleasure-flying, which includes relevant definitions and details of the declarations that are required to be made for excise purposes.