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HMRC internal manual

VAT Transport

Ships designed or adapted for recreation or pleasure: yachts

We regard all yachts as excluded from the Group 8 reliefs for qualifying ships, since they are designed for recreation or pleasure, and so excluded from the definition of qualifying ships by Group 8, legal Note A(1). This policy is derived from the Tribunal case of B.R. Callison (EDN78/34).

In the case of B. R. Callison (EDN78/34) the Tribunal considered the meaning of designed for use for recreation or pleasure for the purposes of the (then) higher rate of VAT under item 1(b) of Schedule 7 of the Finance Act 1972, as applied to a two-masted ketch of 42 tons. The tribunal held that the crucial matter was not the use to which the boat was put, but whether it was designed for recreation or pleasure, looking at the actual design and not the intention of the designer or owner (in this case to promote the then novel product of asbestos). The Tribunal said the evidence in our opinion discloses that the ‘Valdora‘ was designed for use for recreation or pleasure, and not merely as a working boat. Though the craft in question was available for charter, it had no features indicative of a work function, such as a cargo hold, commercial fishing equipment, or the ability to convey large numbers of passengers, but was instead fitted out to a high standard of luxury accommodation. It was held to be designed for recreation or pleasure, and the appeal was dismissed.

Our policy is supported by an obiter comment of the European Court in the case of Knut Hamann (ECJ 51/88). In considering the status of ocean going yachts, and finding them to be means of transport, the Court commented:

This interpretation is confirmed by Article 15(2) of the Sixth Directive, according to which ‘pleasure boats‘- the category to which ocean-going sailing yachts belong - are ‘means of transport for private use‘.

Yachts are often claimed to be used for commercial purposes, and you may come across arguments that such use in particular instances implies that they are qualifying ships for the purposes of Group 8. In particular, enquirers may refer to a ‘Code of Practice for the safety of large commercial sailing and motor vessels‘ published by the Marine Safety Agency, an executive agency of the Dept of Transport. This details a voluntary code, mainly relating to safety, for yachts in commercial use for sport or pleasure which do not carry more than twelve passengers and do not carry cargo.

We consider that compliance with the code does not affect the VAT status of a yacht. This is because the exclusion from zero-rating in Note 1(A) relates to design, not to actual usage, and we consider yachts to be designed for use for recreation or pleasure whatever their actual usage at any moment in time. This gives an objective criterion and is supported by the Callison and Hamann decisions above. Many yachts, including the largest and most expensive, are in the personal ownership of individuals, who sometimes use them privately and sometimes let them out commercially under various types of charter arrangement. If there are genuine supplies by way of business, the owner can register for VAT and reclaim input tax in the normal way, but the original supply of the yacht itself remains excluded by Note 1(A) from zero-rating under Group 8, item 1. Services which may fall under other items of Group 8, such as item 6(a), 6A, 9, 10(a), where zero-rating depends on their being supplied in respect of a qualifying ship, are also standard-rated when supplied in respect of a yacht.

For guidance on the place of supply and liability of yachts supplied on charter, see VTRANS110300. For guidance to help you decide when the provision of a yacht or other boat is a supply by way of business, see VBNB - VAT Business/Non-Business Manual.