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HMRC internal manual

VAT Transport

HM Revenue & Customs
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The supply of ships and aircraft: interpretation of the law

The zero-rating provided by Group 8, items 1 and 2 only applies to qualifying ships and qualifying aircraft. A legal definition is provided in Group 8, legal Note (A1) - see VTRANS110100.

Group 8, Items 1 and 2 zero-rates the supply, repair or maintenance of a qualifying ship/aircraft (craft) or the modification or conversion of any such craft provided that when so modified or converted it will remain a qualifying craft.

Normal fixed and loose equipment and furnishings necessary for its operation, navigation or safety, are treated as part of the supply of a craft if they are supplied with it under the same contract. An initial normal complement of on-board spares is treated in the same way.

See VTRANS120000 for supplies of repair, maintenance, modification or conversion.

Meaning of Supply

This includes the sale, leasing, hiring and chartering of qualifying ships and aircraft; also the import or acquisition of such craft.

Group 8, Note (1) caveats the extent that zero-rating under Group 8, items 1 and 2 can apply to the charter of an ship or aircraft. Chartering can include the supply both with and without a crew or pilot but because of legal note 2 this provision is primarily relevant to the supply on charter with a crew.

Group 8, Note (2) extends zero-rating under Group 8, items 1 to 3 to the letting on hire of the ships and aircraft referred to in those items. Letting on hire in this context means a supply without crew or pilot, in which the customer takes possession of, and has the exclusive use of, the ship or aircraft to operate himself.

Chartering is covered in detail in VTRANS110300.

Supplies of part completed ship or aircraft

Tribunal QED Marine (LON/01/5) VTD 17336 considered the question of a supply of the ship’s hull and whether and when it became a qualifying ship. The Tribunal decided that Group 8, Item 8, referred to the supply of a completeship and not a part-ship. HMRC clarified its view of the impact of this decision on the supply chain during the construction of a new ship or aircraft and set this out in information sheet 15/07 (VTRANS110900). Provided at the time of supply it is known that the part completed ship or aircraft is destined to become a qualifying craft at the end of the supply chain the intermediate supply can be zero-rated. Further guidance on supply chains can be found in VTRANS110800.