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HMRC internal manual

VAT Transport

The supply of ships and aircraft: supply chains

Parts

Where it is known at the time of the supply of any ship or aircraft part (see also VTRANS130000 for guidance on qualifying parts) that the part is destined for use in a qualifying ship or aircraft the liability can be determined by looking through the intermediate supplies to the end use. The test is quite narrow and applies only where the substance of the supply is between a supplier and an airline or ship owner with the intermediary simply a stepping stone following the principle set out in VTRANS110640 ‘Direction of supply‘.

Prior to the change to the definition of a qualifying aircraft (from 1 January 2011) due to the nature of aircraft parts it was generally known quite early on in the supply chain that a part was destined for a qualifying aircraft. Where there was any doubt for both ships and aircraft HMRC accepted (as detailed in Notice 744C) that the customer could self-certify to the supplier that the use would qualify for zero-rating.

HMRC do not intend to disturb that principle but recognise that following the changes from 1 January 2011 the use of certification may become more widespread. In addition we recognise that looking through chains of two or more links can become difficult especially if commercial confidentiality means the parties to the chain are unknown beyond the immediate supplies. However, provided all the links in the chain are satisfied their immediate supply is eligible for zero-rating HMRC will accept that that fact can be transmitted up the chain.

If the parts have been pre- supplied then retrospective zero-rating will not be permitted.

HMRC will not require supplier in a supply chain to follow this procedure if they do not wish to.

Example

Supply chain of A, B, C and Airline D. D orders a part for a qualifying aircraft from C; C in turn orders some parts from B and informs B of the qualifying status; B in turn orders further parts form A and again notifies A of the qualifying status. Provided that at the time of supply from A to B and from B to C the qualifying status can be confirmed (see VTRANS110900 and Notice 744C) then HMRC will allow the respective supplies to be zero-rated.

Complete aircraft

Like parts (above) the supply of a complete aircraft through a supply chain, including through leasing companies, can be zero-rated by looking through that supply chain, following the same principles as for parts (above) and VTRANS110640. Due to the wording of the relevant legislation it is unlikely that the supply of ships will require this treatment but if it is necessary then the same principles can apply.

UK supply chain ends with a removal of the parts or aircraft from the UK

The policy outlined above is dependent on the respective supplies being of parts for ships or aircraft or of qualifying aircraft and not because the ultimate supply involves a removal from the UK. In other words any zero-rating that may apply because the part is being removed from the UK does not affect the liability within the chain which is determined only by whether the ultimate supply relates to a qualifying ship or aircraft.

State institutions and aircraft

The same principles apply as outlined above except that the test for a qualifying aircraft is different. However, in the cases where that ultimate customer is a Government Department or part of the Scottish Administration the final supply to that body may not be eligible for zero-rating (see VTRANS130300) in those cases the liability of the final supply does not necessarily affect that of the intermediate supplies as set out in information sheet 15/07 VTRANS111000.