After years of trying to work out what Brexit means for yachts, there are still some annoying issues yet to be cleared up, a month into the new regime.
The most vexed question is still VAT. Most of us do have an answer, though not the one we wanted: our boats lost their EU VAT status if they were not moored in a continental port when the transition period ended. That means that in future they can only be temporarily taken to EU countries.
But a minority is still in a potentially expensive limbo. These are the owners who have been away from the UK for more than three years, who may have to pay VAT for a second time if they return with a boat they bought and paid VAT on here.
Just when most yacht owners thought they had understood the impact of Brexit, the government has changed the rules on Value Added Tax, with expensive consequences for some.
Last year there were assurances that, after Brexit, a yacht that has been away from the UK on a long term cruise, typically a few years in the Mediterranean, would not have to pay VAT on returning.
Now it looks as if many will have to pay up, even if the boat was bought VAT-paid in the UK before it left – in other words, owners could find themselves paying VAT twice on the same boat. The second charge would be based on its market value at the time of its return.
Needless to say, cruising yacht forums are full of anger and anxiety, though this is not an issue that will get much sympathy anywhere else because yacht owners are not exactly an under privileged minority.
However, many are far from rich, living aboard on tight budgets for much of the year, often after retirement – ‘fulfilling their dreams’ as the yachting magazines love to put it – a far cry from the superyacht owners everybody hates (who in any case probably arrange their affairs so they do not pay European or UK VAT). And while it is very much a minority problem, how many other much more important parts of the economy are being hit by similar administrative chaos 10 weeks ahead of final departure from the EU?
Both the Royal Yachting Association and the Cruising Association are rather desperately seeking clarity from the government. The Treasury’s position seems to be that under EU rules we already charge VAT on a returning yacht after an absence of more than 3 years. It has decided this will continue to be part of the UK rulebook after Brexit.
But until now the practice has been to suspend the rule in many cases, by exempting private yachts that come back after more than 3 years, as long as they are under the same ownership and have had no substantial upgrades (eg a new engine). In these circumstances, the VAT charge has not been levied. The latest indications are that this concession may go.
Just as alarming for many people, the government has changed the point at which the clock starts on the 3 VAT-free years. Last year the RYA was told that a boat currently kept in an EU-27 country such as France or Greece would be treated as if it had left the UK at the point the UK itself finally leaves the EU ie at the end of the transition period on 31 December 2020. That would give a full 3 years to get back.
Now departure has been redefined as the point at which the boat physically left the UK. Any boat already kept abroad for more than 3 years will be liable to VAT if it returns to the UK after 1 January 2021. This led to howls of protest from the RYA and a promise that there would be an extra year – but no clarity about what that meant.
Would it allow a yacht that has already been abroad more than 3 years another year up to the end of 2021 to come home VAT free? Or would it just add one year to the 3 year grace period, so a yacht that has been away 4 years or less will not pay VAT after 1 January next year, but one that has already been away 4 years and a month will pay?
There’s another set of EU rules that make this even more onerous, if the UK imports them into its own post-Brexit system after we leave, as it seems to be doing with the 3 year rule.
Currently, as long as the importer of a yacht is not an EU resident, the yacht can be temporarily imported for up to 18 months without paying VAT. But if the importer is an EU resident, VAT becomes payable on arrival. (Nationality of the importer and registration country of the yacht are irrelevant – it is the country of tax residence of the importer that matters).
In the past, the UK has taken a tough line on this, with no grace period, though there has been at least one exception among EU countries – Greece in the past certainly allowed a month. If the rule is kept by the UK after Brexit, and applied strictly, it would be risky for a UK resident yacht owner to call in for a day at home in a yacht that has been abroad more than 3 years. The VAT would be chargeable immediately.
The rule seems to be aimed at stopping UK residents keeping their yachts VAT-free in tax havens such as the Channel Islands but using them in the UK – an obvious tax loophole if it were left open.
In fact Spring Fever was first registered in Guernsey in 1988. We have the VAT certificate to prove it was paid when the boat was imported into the UK a few years later, a vital document we guard carefully, especially in these new circumstances. With the first owner on the documentation shown as being a Guernsey resident, we may well be asked to prove VAT has been paid.
Yacht owners are a tiny and unimportant issue in the big Brexit scheme of things and I certainly did not sign the petition to Parliament – link below – because of irritations over the treatment of boats and sailors.
Signatures were over a million last time I looked, and still rising so rapidly that the website kept stalling. Persevere! [6 million was the final tally].
It has now been confirmed that we will lose our boat’s VAT-paid status in Europe on Brexit day, leaving us with only the possibility of a temporary importation licence for up to 18 months.
Only British boats actually kept in the EU on that day will be treated as if the VAT paid on them in the UK is still European VAT. If they are in the UK on Brexit day, then they lose that ‘union goods’ status and can only apply for temporary importation.
We’ve been looking into the impact of Brexit on our sailing, on the assumption that at some point we will be treated as a third country, just like US and Canadian sailors who cross the Atlantic to visit the EU. If there is a hard Brexit at the end of March, this could all be upon us next season. The result is likely to be a long term increase in paperwork and bureaucracy and a permanent annoyance for British yacht owners.
Even as EU members we have not been bureaucracy free. Because the UK is outside the Schengen zone, we have been obliged in theory to show our passports on arrival, though some Schengen countries such as France often do not bother to enforce passport checks on yachts. (That might be changing, because in July, for the first time in many years, we were boarded on a mooring by French customs officers in a RIB, whose only interest was in our passports).