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HMRC internal manual

VAT Transport

Pilotage, salvage, towage and surveying services: Interpretation and application

Pilotage services

Item 7 of Group 8 zero-rates pilotage services to all shipping, and is not confined to qualifying ships. It does not extend to other services e.g. the supply of crew supplied to the person who actually supplies pilotage services, although these might be zero rated as a ship’s handling service, subject to the normal conditions (VTRANS180000).

In Medical Aviation Services Ltd (VTD 15308), the Tribunal held that the phrase pilotage services did not have its ordinary meaning of the function of a pilot, including that of piloting an aircraft; rather, it had the meaning given to it in shipping law. This referred to the activities of a person who has the conduct of a ship, not being the ship’s master. In particular, the Tribunal cited the Pilotage Act 1987, which lays upon a harbour authority the obligation to provide pilotage services, meaning the supply of authorised pilots for ships, which it considers necessary to secure the safety of ships navigating in, or in the approaches to its harbour.

Salvage and towage services

Item 8 of Group 8 zero-rates salvage operations and towage services for all shipping, and is not confined to qualifying ships. It does not cover any subsequent repair work carried out (VTRANS120000 gives guidance on the zero-rating for repair and maintenance services).

Shipping in this context includes inland waterway vessels and all floating objects. The relief also covers dock gates, pier and bridge sections, and buoys. It is not limited to qualifying ships, because any blockage to a waterway must be cleared for the benefit of all shipping.

Zero-rating extends to the salvage of a ship’s cargo when supplied to the owner of that cargo even in situations where the ship is not itself salvaged.

In Medical Aviation Services Ltd, referred to above, the Tribunal held that although salvage or towage services are not defined in Group 8, they were clearly used in a shipping context.

Surveys and classification services for ships and aircraft

Item 9 of Group 8, zero-rates services provided for the surveying or classification of ships and aircraft which are themselves zero-rated under items 1 or 2 of Group 8 (qualifying ships and aircraft). Surveys in respect of other ships and aircraft are standard-rated, except when supplied to businesses belonging outside the UK (see VTRANS170000).

Such services include classification services performed for Lloyds and other registers, and survey services provided for aircraft in relation to the certificate of airworthiness. Zero-rating only applies if a physical inspection of the ship or aircraft is involved.

Zero-rating under item 9 does not include -

  • tonnage measurements or surveys of ships for registration or other purposes required by statute to be carried out by Department of Transport surveyors or other surveyors directly appointed by that Department to do the work under statutory authority: these services are outside the scope of VAT; or
  • services of arranging for the registering or re-registering of ships for the purpose of the Merchant Shipping Acts, which are standard-rated.

In Cholerton Ltd (VTD 13387), the Tribunal considered whether design work for the modification of a qualifying ship, which included detailed and continuous on-board surveys, was zero rated under item 9 of Group 8. It held that surveying services were in the nature of a snapshot of the condition of a ship at a particular time and did not extend to other services, which might or might not include surveying services as part of them. Cholerton is also discussed in VTRANS120400.

Exclusion of non-qualifying ships and aircraft

Group 8, Legal Note 7 restricts the relief under item 9 to qualifying ships and aircraft except where the provisions of Item 11(b) are in place (VTRANS170000).