Readers’ forum: Is VAT charged on vessel used outside UK waters?

One of my clients is a Maltese based company and is not registered for UK VAT only for VAT in Malta. They have asked us about the VAT issues of a sea related vessel that will be purchased from a UK supplier. It will be used for a business purpose – research and development linked to products it sells – and its use will be wholly outside UK waters.

My client’s view is that the purchase of the vessel will be zero rated because it will be wholly used outside UK waters. However my client is taking ownership of the vessel in Dover so how can it be a zero-rated export by the UK seller? If VAT is charged at 20% presumably my client can register for UK VAT as an overseas business – non-established taxable business – and claim input tax on its first VAT...