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VAT Transport

HM Revenue & Customs
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Repair, maintenance, modification and conversion of ships and aircraft and their parts: Business brief 5/99 on ship design services

Business Brief 5/99: SHIP DESIGN SERVICES

This business brief gives Customs’ position regarding ship design services.

In June 1995, a Tribunal (Cholerton Ltd MAN/94/799) held that, in certain circumstances, design services were integral to the modification of a ship, despite the fact that Cholerton did not carry out the modification services. The design services were found to be zero-rated.

At the time, Customs accepted the decision and have since allowed businesses supplying design services in identical circumstances to zero-rate their supplies. However, we have now reviewed our policy. We consider that the Tribunal failed to take into account that Cholerton was contracted to supply only design services and therefore made no supply of modification services to which the design services could be integral.

Accordingly, with effect from 1 July 1999, Customs will treat design services supplied in the UK as integral to the supply, modification or conversion of a qualifying ship only where a supplier specifically contracts with a customer to design and supply, modify or convert a qualifying ship. In other circumstances, design services will be standard-rated and deductible, subject to the normal rules.

For further information businesses and their advisors should contact their local VAT Business Advice centre listed under HM Customs and Excise in the telephone book.