Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

VAT Transport

Repair, maintenance, modification and conversion of ships and aircraft and their parts: Repair, maintenance, modifications and conversions

Repair and maintenance of ships and aircraft

The repair or maintenance of ships and aircraft which are themselves zero-rated (qualifying ships or qualifying aircraft), is zero-rated under Group 8, items 1 and 2 respectively.

Maintenance includes:

  • testing of parts and components
  • cleaning
  • fumigation
  • ship’s laundry (providing the articles are not personal to the crew or passengers).

Parts, components or materials provided by the supplier of the service to carry out repair or maintenance work are regarded as part of the zero-rated supply.

Repair and maintenance of non-qualifying ships and aircraft is standard-rated, unless relief is available under other provisions such as Group 7, item 1, (see VTRANS120400).

Note:

In some cases the supply may be only or predominantly of parts, and you may need to consider the guidance on the supply of parts in VTRANS130000. This is particularly important when looking at supplies to Government departments, which can have a different liability.

Repair and maintenance of parts and equipment of ships and aircraft

General

The conditions for the repair or maintenance of aircraft parts and equipment are more relaxed than for ships due to the greater inventory controls which generally exist in the aircraft industry.

Ships’ parts

The repair or maintenance of parts or equipment of a qualifying ship may be zero-rated provided:

  • the repair is carried out on board; or
  • the part or equipment is removed for repair, and is replaced in the same ship afterwards.

Aircraft parts

The repair or maintenance of parts or equipment of a qualifying aircraft may be zero-rated provided:

  • the repair is carried out on board; or
  • the part or component is removed for repair, and is replaced in the same aircraft afterwards; or
  • following repair or maintenance, they are returned to be held in stock for future use as spares in qualifying aircraft; or
  • if they are unserviceable parts or equipment, they are exchanged for identical parts which have themselves been reconditioned, repaired or maintained.

If the points above are not found then it maybe that the supply will be one of parts (with incidental services) and you should refer to VTRANS130000 to determine the liability.

Modifications and conversions of ships and aircraft

Modifications and conversions of qualifying ships and aircraft are zero-rated under Group 8, items 1 and 2 provided, after modification or conversion, the ship or aircraft remains a qualifying ship or aircraft.

This includes, for example:

  • rebuilding or lengthening
  • updating or improvement of serviceable equipment
  • structural alterations.

It is important to note that this provision requires the ship or aircraft to be qualifying before the modification work is started. This means that the modification or conversion of a non-qualifying ship or aircraft, is not zero-rated even if the modification or conversion results in a qualifying one. However, after conversion the craft will then be treated in the same way as any other qualifying craft for future supplies.

Example:

The conversion of a trawler (gross tonnage of 20.72 tons) to a vessel designed for commercial scientific research would be zero-rated under Group 8, item 1.

However, the services of modifying a 14 ton ship to be a 16 ton ship would not be zero-rated as the modification is not of a qualifying ship.

Cascaded modifications

Where a contract to supply modification services across a fleet of ships or aircraft is being undertaken it is permissible for parts being modified to be removed from one craft, be modified, and then installed in a sister-craft whose parts are similarly destined for another sister-craft after modification.

Supplies to non-operating owners of qualifying aircraft

This refers specifically to supplies made to leasing companies who commission the services to repair, maintain, modify or convert an aircraft that they lease by way of business to an airline, but the principles can apply in other circumstances that broadly mirror the scenario. This treatment is within the principle set out in VTRANS110640 “Direction of supply” and that of the “Supply Chain” in VTRANS110800.

Where the service is supplied during the period of a lease then whether the aircraft is qualifying will already be known by virtue of the leasing arrangements. However, if the aircraft is off-lease then whether the aircraft is qualifying or not can be determined at the time of supply by the known intention of the leasing company or whether the supply is in direct relation to a pervious supply of the aircraft as a qualifying aircraft.

For example if the service is in relation to preparing the aircraft for a new lease and it is known that that lease will be of a qualifying aircraft the supply can be zero-rated.

If the supply is in direct connection with a previous lease as a qualifying aircraft e.g. damage sustained, removing branding that may also be a zero-rated supply.

It maybe that there will be cases where the service is supplied where the aircraft is in transition between qualifying and non-qualifying and vice-versa, in these cases consideration may need to be given to apportioning the supply.