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In the light of the High Court decision in CRC v Stone [2008] STC 2501, HMRC are changing their long-standing policy on the liability of vessels used as residential accommodation, excluding houseboats, for VAT purposes.
The case concerned the VAT liability of the supply of Dutch barges acquired for use as a permanent residence.
The High Court decided that the supply of the vessel was entitled to zero rating under the terms of UK law, because it was designed to be lived in as a permanent home and, therefore, not designed for use as recreation or pleasure.
HMRC consider that many of these and similar vessels, although designed for use as a permanent residence, can also be designed for use as recreation or pleasure and are perfectly capable of being so used.
It was never the intention that UK legislation should provide for the supply of such vessels to benefit from zero rating but, following tribunal and court decisions over time, HMRC have found it increasingly difficult to apply a consistent and coherent policy around the borderlines in this area.
While not ruling out a wider review of policy and legislation in this area, HMRC have decided to treat Dutch barges and similar vessels as qualifying ships and eligible for zero rating.
As vessels of less than 15 gross tons can never be zero rated regardless of their design, the majority of narrow boats designed for permanent residential use will not meet this requirement and their supply will continue to be standard rated.
As a result of this policy change, some supplies of goods and services to the owners of such vessels may also be zero rated by suppliers, for example:
- repairs and maintenance of the vessel itself, but not to domestic equipment and fittings on board;
- modification or conversion of the vessel itself provided that it remains a qualifying ship after modification or conversion;
- parts and equipment ordinarily installed or incorporated in the propulsion, navigation, communications or structure of a ship.
Suppliers will have to hold evidence to satisfy HMRC that the supply is entitled to zero rating.
They should also obtain a declaration from their customers that the vessel is to be designed for use as a permanent residence and intended for such use.
Customers who have been previously charged VAT on a supply that is now covered by this policy must approach the person who made the supply to them to obtain a refund of VAT.
Suppliers who wish to claim a refund of VAT charged to customers on a supply covered by this policy can submit claims to HMRC subject to the usual rules.
