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HMRC internal manual

VAT Transport

Ships designed or adapted for recreation or pleasure: Business Brief 35/04 (withdrawn 8 July 2009) on ships supplied for residential accommodation

VAT - clarification of the VAT liability of ships supplied to customers who intend to use them as residential accommodation

This Business Brief article clarifies Customs’ policy on the application of the zero rates for ships and houseboats. Those involved in the supply, repair and maintenance of ships, and their customers, should read this Business Brief article.


Qualifying ships - are zero-rated for VAT purposes. A qualifying ship is defined as a ship which is over 15 gross tons and is neither designed nor adapted for use for recreation or pleasure. Such ships usually have clear features of a commercial design, such as a hold specifically designed for carrying cargo, commercial fishing equipment or the ability to carry or entertain large numbers of paying passengers. Recreational activities could include pleasure sailing or cruising on inland waterways. A ship that is either designed or adapted with the ability to be used for private recreation or pleasure cannot be a qualifying ship regardless of how the purchaser intends to use it.

‘Houseboats‘ are covered by a separate zero rate. For VAT purposes, ‘houseboats‘ are boats designed solely as living accommodation that do not have, and cannot be fitted with, a means of propulsion. If a boat can be fitted with a means of propulsion, it is not a ‘houseboat‘.

Customs’ policy

Following a Tribunal case, D G Everett (LON/92/1911A), Customs accepted that the terms recreation and pleasure do not include use as a home or place of permanent habitation. However, we are aware that some have incorrectly taken this to mean that all boats used or intended to be used for residential purposes can be zero-rated.

Customs maintains that use or intended use does not affect qualifying status. It is the nature of the original design and any subsequent alterations that is the key to determining the VAT liability of a ship or boat. For example, a true Dutch barge with a hold specifically designed for carrying cargo would be a qualifying ship, whilst a replica Dutch barge without such a hold and that is suitable for private cruising would not. Both could be used as residential accommodation, but this does not affect qualifying status. Only ships with qualifying status at the time of manufacture can be zero-rated, regardless of whether they are now used, or are intended to be used, as places of habitation.

Written advice from Customs

Customs are aware that, when determining the VAT liability of their supplies, some ship manufacturers have relied on advice given by Customs to their customers. In some circumstances this advice has been obtained on the basis of incomplete or inaccurate information. For example, on the strength of their intended use as residential accommodation, rather than the actual design, the customer confirms to Customs that the ship is neither designed nor adapted for use for recreation or pleasure.

It is the responsibility of the supplier to ensure that VAT is accounted for correctly on their supplies and that, when obtaining advice or written rulings from Customs, all relevant information is supplied and is materially correct. Suppliers should not rely on their customers to determine the liability of their supplies.

Past rulings

Customs will follow its usual policy when considering supplies that have been incorrectly zero-rated. We will look critically at both our ruling and the information that was provided to us in the request. If we have misled a registered person to their detriment with the full facts before us, we will take action in line with our current misdirection policy, outlined in Notice 700/6 VAT Rulings. However, we will not be bound by rulings if the information provided was incorrect or incomplete or if the supply changed in technical detail from the one originally proposed.

Date 31 December 2004