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VAT Transport

HM Revenue & Customs
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Ships designed or adapted for recreation or pleasure: Revenue & Customs Brief 38/09 on vessels used as residential accommodation

VAT - ‘Dutch barges‘ and similar vessels designed for and used as permanent residential accommodation by owners

Who needs to read this?

Businesses making supplies of:

  • vessels to be used for permanent residential living by the owner
  • certain goods and services to the owners of vessels used for permanent residential living by the owner

This brief also withdraws Section 4 of Business Brief 35/04 VAT - clarification of the VAT liability of ships supplied to customers who intend to use them as residential accommodation (VTRANS110550).


Qualifying ships are zero-rated for VAT purposes. A qualifying ship is defined as a ship which is not less than 15 gross tons and is neither designed nor adapted for use for recreation or pleasure. The law is set out in the Value Added Tax Act 1995, Schedule 8, Group 8, Item 1 and legal note A1(a).

Houseboats are covered by a separate zero-rate. For VAT purposes, houseboats are boats designed 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. The law is set out in the Value Added Tax Act 1994, Schedule 8, Group 9, Item 2.

HM Revenue & Customs (HMRC) policy

In the light of the High Court decision in the case of Lt Cmdr Colin Stone [2008] EWHC 1249 (Ch), HMRC are changing their long-standing policy on the liability of vessels used as residential accommodation, excluding houseboats, for VAT purposes. This case concerned the VAT liability of the supply of ‘Dutch barges‘ acquired for the purpose of being used as a permanent residence.

The High Court decided that the supply of the vessel was entitled to zero-rating under the terms of UK law, because it was designed to be lived in as a permanent home and, therefore, not designed for use as recreation or pleasure.

HMRC consider that many of these and similar vessels, although designed for use as a permanent residence, can also be designed for use as recreation or pleasure and are perfectly capable of being so used. It was never the intention that UK legislation should provide for the supply of such vessels to benefit from zero-rating but, following Tribunal and Court decisions over time, HMRC have found it increasingly difficult to apply a consistent and coherent policy around the borderlines in this area.

HMRC do not rule out a wider review of policy and legislation in this area. However, in the meantime, we have decided to treat Dutch barges and similar vessels that are designed and supplied for use as the permanent residence of the customer as qualifying ships and eligible for zero-rating. As vessels of less than 15 gross tons can never be zero-rated regardless of their design, the majority of narrow boats designed for permanent residential use will not meet this requirement and their supply will continue to be standard-rated.

As a result of this policy change some supplies of goods and services to the owners of such vessels may also be zero-rated by suppliers.

These include:

  • repairs and maintenance of the vessel itself; this does not extend to the domestic equipment and fittings on board
  • modification or conversion of the vessel itself provided that it remains a qualifying ship after modification or conversion; this does not extend to domestic equipment and fittings
  • parts and equipment ordinarily installed or incorporated in the propulsion, navigation, communications or structure of a ship; this does not extend to domestic equipment and fittings

Further details can be found in Notice 744C.

Evidence of intention

In keeping with normal rules, suppliers will have to hold evidence to satisfy HMRC that the supply is entitled to zero-rating. This may be in the form of contractual or other documentary evidence. HMRC would also advise suppliers to obtain a declaration from their customers that the vessel is to be designed for use as a permanent residence and intended for such use. We would suggest that suppliers use the format set out for the Undertaking of Use in Notice 744C, adapted as necessary where the supply is one of the vessel itself. Customers should be aware that HMRC have powers to impose penalties where false documentation is used to obtain a tax advantage.

Past supplies and claims

Customers who have been previously charged VAT on a supply that is now covered by this policy must approach the person who made the supply to them to obtain a refund of VAT. They should not contact HMRC as we have no legal powers to refund tax direct to customers. Suppliers who wish to claim a refund of VAT charged to customers on a supply covered by this policy must submit their claims in accordance with the published rules and subject to the normal repayment, unjust enrichment and capping criteria to HMRC.

Further information

For further information on houseboats please see Public Notice 701/20: VAT Caravans and Houseboats.

For further information on qualifying ships please read Public Notice 744C: VAT Ships, aircraft and associated services.

For additional information on parts and equipment please read Information Sheet 15/07 VAT: Supply of parts and equipment for qualifying ships and aircraft.

Issued 8 July 2009