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HMRC internal manual

VAT Transport

From
HM Revenue & Customs
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Parts and equipment for ships and aircraft: Supplies to Government departments

By virtue of legal Note 2(A) to Group 8, zero-rating does not apply to supplies to, or acquisitions, importations or the letting on hire of parts and equipment by a Government department unless:

  • the parts or equipment are installed or incorporated in the course of a supply which is treated as being made in the course or furtherance of a business carried on by that department; or
  • the parts and equipment are to be installed or incorporated in qualifying ships or aircraft used for the purpose of providing rescue or assistance at sea.

Under Note 2(A) it is only the actual supply to the Government department which is standard-rated. Supplies by subcontractors to main contractors or other subcontractors are zero-rated, even if the final supply will be standard-rated by Note 2(A).

The term “Government Department” includes foreign governments, however other zero-rated reliefs may also available in these cases.

Examples:

  • Supplier A supplies B with eligible parts and equipment which can be incorporated only into a qualifying military aircraft. B supplies those same parts and equipment to the Ministry of Defence (MOD), not in the course of the latter’s business or for rescue or assistance at sea. A’s supply to B is zero-rated. B’s supply to the MOD is standard-rated.
  • A supplier supplies eligible parts to a Government department for use on a qualifying ship used for fishery protection. The supply is zero-rated as the ship provides assistance at sea.
  • A supplier supplies eligible parts to the Ministry of Defence for use on a qualifying helicopter which is occasionally used for sea rescue, but is normally used for military purposes. The supply is standard-rated because the helicopter is not primarily a rescue craft.
  • A supplier supplies the Ministry of Defence with eligible parts and equipment for incorporation into a qualifying ship belonging to third party which is being repaired at an MOD dockyard. The supply is zero-rated as the MOD is conducting a business.