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HMRC internal manual

VAT Transport

Ships designed or adapted for recreation or pleasure: general

Group 8, item 1 excludes from zero-rating any ship which, although 15 tons or over, is designed or adapted for use for recreation or pleasure. Therefore, private pleasure boats or yachts are not zero-rated under item 1 even if supplied for business use (for example, sail training).

However, cruise ships are zero-rated provided they are:

  • 15 tons or over; and
  • unsuitable for private use; and
  • are supplied for use in the business of providing recreational or pleasure cruises for fare-paying passengers.

In A. & P. Appledore (LON/90/972Y), a derelict tug was converted into a luxury pleasure boat to be used for entertaining in connection with the Americas Cup race. The Appellant relied on Article 15.5 of the Sixth Directive (now Article 148 of Directive 2006/112), which included the concept of modification under the exemption provisions, since UK law at this time (item 1 of Group 10 to Schedule 5 of the VAT Act 1983) did not zero-rate modification of ships. He claimed that after the modification the boat was not a ship designed for recreation or pleasure or alternatively it was to be used for commercial activities and should qualify for relief. The Tribunal found that the purposes for which the converted barge were to be used, entertaining sponsors and the media on board and providing them with a good view of the race, did amount to purposes of recreation or pleasure, and the appeal was dismissed.

Yachts are further considered in VTRANS110520, and residential boats in VTRANS110530.