New Brexit chaos for yachts

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.

Relearning old navigation lessons

Two letters in the latest issue of the excellent Cruising Association magazine* claim it is now safe to rely entirely on electronic charts because backups to the boat’s main chartplotter are so cheaply available. You can leave your old paper charts abandoned in the bottom of a locker somewhere, the argument goes.

However, while researching updates for the yachtmaster book I mentioned last month, I’ve been re-reading intensively about old fashioned navigation techniques I learnt a long time ago, some of which were beginning to fade from memory. It has reinforced for me how important it is to avoid total reliance on electronics and have a portfolio of navigation skills including the old ones.

Traditional chart table at the end of a sail home from Scotland, and the bottle we brought back to celebrate our return .

So I think discussion of electronic charts needs to be a lot more nuanced than some of their more enthusiastic users suggest. Yes, on Spring Fever we have also relied heavily on electronics for many years, but my worry is how easy it is for phone, tablet and laptop software as well as hardware to fail, which can take a long time for the less than totally expert to sort out on passage.

It is certainly true that most well equipped offshore boats will have one or more extra chartplotters loaded on tablets, phones and laptops. Some are backups in case the main plotter system run from the boats batteries fails – that only takes a bust alternator or an engine that refuses to start. I also hear that an increasing number of people are dispensing with dedicated marine chartplotters altogether and relying on tablets etc.

Two examples of what can go wrong: my tablet’s GPS receiver failed last year. After a great deal of googling back home I found out why – I had not updated it for the GPS clock change that took place last year (little noticed, but the navigation equivalent of the millennium bug in 2000). Updated this winter using wifi at home, the GPS started working again, ready for this season. Hands up all those who knew about this and fixed it in advance. My problem was an older tablet. Recent ones would have updated for it automatically.

This was specifically a US GPS problem, and I don’t think it affected the wider GNSS, which includes the Russian, European and Chinese satellites processed by newer receivers than the one in my tablet.

More seriously, my laptop had earlier ground almost to a halt because of some unknown and untraceable software issue picked up I know not where – probably not a virus, or at least not one my Norton protection could find. I abandoned it for navigational backup and planning in favour of the tablet, well before that too showed it could let us down.

This winter, having bought a new laptop, I did a factory reset on the old one, wiping everything except the Windows 7 operating system. Miraculously, it now works like new. So I have loaded the charts, GPS driver and related software again and it is going back on the boat and staying there. I will keep it bug free by not connecting to the internet.

The laptop will be used for planning, with the cockpit chartplotter still our main instrument. But the laptop is old and has a hard disk drive rather than a solid state one, so can mechanically wear out. We may add a further backup in the shape of a small, cheap 7 inch tablet from visitmyharbour.com that’s tough and cockpit proof. (£170 loaded with 2020 raster charts for the UK, France and Atlantic Spain and Portugal).

Computer hotshots might have done fault-finding at sea or in a marina but it took me a whole day at my desk to figure out the laptop solution and sort it, using a high speed internet connection. The software fault had even disabled the DVD drive, which is now working again.

This is not the end of the list of issues. Tablet and phone navigation relies on apps and they do sometimes misbehave. Often the solution is to uninstall and download again – not an option for us at sea. That problem cropped up last year not with a chartplotter app but with one of the best tide prediction apps, though it could easily have been one of the chart apps. This all tells me – a reasonably capable but far from expert user – that the issue of electronics reliability, even with multiple backups, is complicated.

And that is without more basic questions, the first of which, GNSS reliability, I have covered in two previous posts. (On that subject, I have just read a report that GPS spoofing equipment can now be bought for only $100, and how to use it is widely discussed on line).

There is of course the more widely considered question of what happens to your backup tablets, phones and laptops in a knock down, a partial flooding of the saloon, a fire that you may put out but which causes damage or – a nightmare – a lightning strike.

I’ve had a strike on a previous boat, while it was moored on a river – I was ashore – and it destroyed all the electronics and made for a large insurance claim. High voltages nearby can induce large currents in equipment even if it is not wired into the boat’s own circuits. The advice I hear to stick your laptop, tablet and phone in the oven to shield them if lightning is near I find the complete opposite of reassuring!

So we don’t plan to chuck the paper charts, dividers, almanac and ruler in the bottom of a locker somewhere – they’ll always stay ready in the chart table, and we’ll use them from time to time so as not to forget how.

By way of contrast: now reading this 1987 book, which makes even our traditional navigation seem hi-tech. It’s about the last island outposts of Pacific Ocean navigation skills going back thousands of years, which use only knowledge of stars, waves and birds, and no instruments, achieving remarkable accuracy.

* Cruising, Spring issue.

January – satellite scares, and getting ready for Biscay

At the Royal Institute of Navigation’s small boat conference in Lymington earlier this month, I learnt a lot about  new risks of error  in satellite navigation : I did not know, for example, that it is possible with quite cheap local equipment to fool the GPS on a plane, ship or even a missile into thinking it is somewhere other than its real position.

There are now tens of thousands of reported incidents of errors, deliberate, accidental or of unknown cause, with a substantial number of them unsurprisingly in sensitive areas such as the Gulf, and the Black Sea near Ukraine, suspected to be hostile activity.

Reports of accidental errors include a couple of local failures when US naval vessels arrived in the port of San Diego, apparently forgetting to switch off unspecified electronic equipment, which interfered with satellite-derived positions for miles around.

These are serious issue in defence circles, and of course for boats and ships of any kind near a source of interference or one of the ‘spoofing’ attacks. It is easy to imagine some disruptive force deciding to get hold of the equipment and blocking position-finding in a sensitive commercial area such as near an airport or in a vital shipping lane.

Satellite positions are integral to the operation of every form of commerce, from planes and ships  through mobile phone masts and everyday driving, Amazon deliveries and Uber – you name it and somewhere in the business location finding is vital. So there is increasing pressure to redevelop  an old ground-based system called Loran as backup. Loran has not been switched off, but would now need a lot of development and investment. If you want to know more, look at the website of the Washington-based Resilient Navigation and Timing Foundation.

GPS is just one of five satellite position-finding systems in operation, all now called GNSS (Global Navigation Satellite System). GPS, like the word hoover, is a US name that is in danger of wrongly becoming the label for  a whole range of products.

Other GNSS now running include the Russian GLONASS and the EU’s GALILEO – so in one sense there’s a lot better backup against total failure. GALILEO was completely out of operation for a while last year after operational mistakes were made by its staff. It was only in the start-up phase but the fault  proved that a single system can go down.

The cover of the current 5th edition of Pass Your Yachtmaster

I was at the conference because I have been commissioned to update an excellent sailing book, David Fairhall’s Pass Your Yachtmaster, illustrated with hilarious cartoons by the late Mike Peyton.

Completely coincidentally, the cover of the current edition has a nice but anonymous photo of a Sigma 362, the same model as Spring Fever. Having done 11 seasons polishing and antifouling, I recognise the detail of that bow!

David has updated previous editions of the book, first published in 1982, but asked me to take the baton for the next.  The book is a primer for students doing the Royal Yachting Association yachtmaster exams and tests.

I have to say that re-reading  David’s book and many others on navigation has reminded me of several things I ought to remember, and certainly knew when I did the exam and practical test in the 1980s, but had forgotten, so it’s a good exercise for more than one reason.

Back at the yard, plans for sailing to Spain are firming up so we’re making a couple of small improvements to the boat and some minor repairs. We’ve also booked for the Cruising Association’s Biscay Day in London in March where we will meet others sailing that way.

One annoying issue on Spring Fever has always been the need to lift the anchor from the bow roller a couple of feet along the side of the boat when retrieving it to stow in its locker. I’m always afraid that this is going  to damage someone’s back, holding a 15 kilo weight plus chain at a very awkward angle on a potentially rolling boat.

The reason is that the drum of the Furlex reefing gear almost touches the deck, a feature from the boat’s racing days to maximise sail area, so it blocks the anchor from being lifted straight from the bow roller. We are looking for a rigger willing to shorten the forestay with the mast up, to lift the drum 8 inches so the anchor can be pulled up through the roller, and if necessary lashed and dealt with later. Our usual rigger is not keen because he works alone and it needs two experienced  people, he says.

The sail luff can be shortened at the head because it is very narrow there. Our sailmaker is taking 9 inches off but we will lose only about a square foot of sail area.

We’ve also decided to install a holding tank, so the lavatory can be used when we’re somewhere, er, sensitive to such things eg a marina or swimming bay. Nobody ever asks in the UK or France but Spanish authorities are thought to be more vigilant in checking that boats have holding tanks to store their waste on board, an EU requirement. Very few places have pump out facilities to empty tanks so the usual procedure is to empty them by opening the discharge valves a few miles out to sea.

Spring Fever is ashore this winter at Kingston, the Cowes Harbour Commission yard, rather than at Cowes Yacht Haven, whose prices have been creeping up by the addition of extras. The Haven also focuses on expensive racing boats whereas the Kingston yard, which is very friendly, is mainly full of older boats like ours, so we immediately felt more at home. It is not as conveniently sited, but it is looking like a good switch.

Hard Brexit and boat VAT – Treasury response

The Treasury has finally decided that if a yacht is in the European Union on Brexit day, it will not be liable for VAT if it is brought back to the UK later.

As reported before, the Commission said recently that British yachts would lose their EU VAT-paid status unless they were in the EU on the day of a hard Brexit.

If they were in the UK they would no longer have the status of union goods and would be liable for VAT on visiting the EU, so the best they could do would be to apply for temporary importation for up to 18 months.

But the UK Treasury stonewalled requests to say the reverse was not true ie that return to the UK after being in the EU on Brexit day could lead to a 20% VAT charge on the value of the boat, leading to anxiety among owners already in the EU. It made us go cool on the idea of going over to France to establish EU VAT-paid status (though only possible if there’s a big hard Brexit delay, because the engine’s still out!)

This is what the Treasury told the RYA:

“HMRC has said that it has made plans to replicate Returned Goods Relief (RGR) into domestic law in the event of a no deal Brexit. RGR allows those resident in the UK to return with their belongings (including pleasure boats) to the UK without paying customs duty or VAT as long as the items have not been changed since their departure and follow the guidance given in Notice 236: Returned Goods Relief.

The UK Government has undertaken that RGR will be available in respect of UK pleasure craft not moored in the UK on EU exit day. They may return to the UK after exit and be subject to Returned Goods Relief as long as the person responsible has evidence that the VAT was paid on the purchase of the boat in either the UK or the EU. The types of proof needed are shown in Notice 8. VAT accounted for in the UK would need to be shown in respect of vessels purchased after the date of EU exit”.

There are still loose ends. Do we have to pretend once back in the UK eg that we haven’t claimed EU-VAT status while we have been away?

Philosopher of sailing

The letter below was published in Cruising magazine this month:

If it does not prompt a few cross letters from traditionalists in the next edition, I’ll be surprised, especially after the recent finish of the Golden Globe round-the-world race using sextants and traditional navigation – just as they did on the first race 50 years ago, which was won by Sir Robin Knox Johnston in Suhaili. It was also the race in which the sad figure of Donald Crowhurst cheated in desperation and then disappeared from his yacht.

A victorious Knox-Johnston 50 years ago

Electronics were banned in the anniversary race, though I did read somewhere that they all had to sneak in a satellite phone just in case.

If the old guard don’t complain about my letter, then things have changed more than I expected….

 

PS I know I’m more than old enough to be part of the Old Guard, but I think modern electronic navigation is wonderful, and it leaves more time for actually handling the boat.

Bang goes our EU status

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.

Spring Fever in Cowes, awaiting a new engine

For summer cruise visitors, 18 months is more than enough. But anyone planning to go to the continent for several years, for example to the Med, faces an annoying obstacle. Every second season they will have to leave the EU for Turkey, Montenegro, Albania or Gibraltar (I’

Continue reading “Bang goes our EU status”

Brexit and our boat

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).

View from our mooring at Îles Chausey, where we were boarded by French customs.

The boat itself has the usual paperwork, including evidence that EU VAT has been paid, though we have never actually been asked for this in France, Ireland or the Netherlands. Only in Croatia and Greece (of the EU countries where we have sailed, in those cases on other people’s boats) has it been routine to be asked to show lots of paperwork. Arriving in Italy a few years ago, nobody seemed to care, though they are now tightening up.

We nevertheless treasure the paper customs receipt for the VAT paid when our boat, Spring Fever, was imported to the UK from the non-EU Channel Islands, where it was first owned. It is a very valuable document, and cannot be replaced.

Two EU countries, Portugal and Croatia, currently go further than asking for VAT receipts, and are reported to ask for a piece of official customs paper called a T2S, which declares the boat is Union goods in transit. It does not actually prove VAT has been paid, but we have acquired a T2S from UK customs just in case it is more widely required. (The Royal Yachting Association has a good explanation of how to do it and will supply the official form plus a marked-up copy showing how to fill it in – essential unless you are knowledgeable about goods in transit).

In a hard Brexit a T2S may well be wasted paper, but there are soft-Brexit scenarios in which it would still be useful. The best hope is that post departure negotiations lead to acceptance that boats on which UK VAT was paid while we were still members remain eligible to sail within the EU without restrictions.

If that is too much to hope, then it may at least turn out to be true during the transition period in a soft version of Brexit (including the Prime Minister’s beleaguered plan, if it were miraculously accepted by parliament).

It is safer to work on the assumption for the moment that at the end of March 2019, rather than after a transition period, we will be treated exactly as if we were from the USA or Canada, or some other country outside the EU. There would then be some basic rules to comply with. They treat people and boats very differently. The boats come off best.

(1) As a third country – an EU term for non-members – Britons will be restricted to staying no more than 90 days in the EU within any 180 day period. This will be a nuisance for long term cruisers, who will need to plan their time on their boats in three month sections, leaving in between (unless they apply for residence, which is a long and difficult process, with potentially serious tax implications in most EU member states, and possible requirements to acquire maritime qualifications in the language of the country).

(2) The actual boats will be allowed in much longer. There is an 18 month grace period before they either have to leave Union waters or VAT has to be paid to import the boat.

At that point, the boat would also have to have papers confirming that it conforms to EU standards of yacht construction, which is an expensive business for a yacht built outside the Union without EU certification, as some US owners have found. That would be a big incentive to arrive with a boat built in the EU, with official certification.

For UK-based sailors who cruise to France and back each season, the restriction to 90 days and a maximum of 18 months before VAT becomes payable on the boat should not be a problem, as long as they arrive armed with the correct paperwork . But that 90 day personal restriction and the 18 month temporary importation could be a real annoyance for the thousands of British boat owners who keep their boats permanently in France or other EU countries.

The 18 months temporary importation of the boat is strictly conditional.The boat has to be:

(1) Imported by someone who is not a resident of the EU.

(2) Registered outside the EU and owned by a person who is not a resident of the EU.

So for UK residents who own their boats in the UK it should be straightforward. The word resident is the important qualification, because the passport held by the importer and the owner – not necessarily the same person – is irrelevant.

So it looks as if an EU national who is legally resident in the UK can still apply to keep a boat temporarily in the EU for 18 months as long as condition (2) is also met.

Conversely, there is a trap lurking here after Brexit. A skipper resident in the EU taking a boat owned and registered in the UK across the channel may be ineligible to claim the 18 months because the two main criteria above have not been met. There is a risk of a VAT charge.

We had this problem on a cruise in a non-EU owned and registered boat in Greece a few years ago. The skipper and three crew, including me, were EU residents; the Greek authorities said the boat would be liable for VAT if it did not leave for a non-EU country within 30 days. At the end of the 30 days, an extension was requested because of bad weather but was refused, with a threat of impounding, pending payment of VAT.

On checking later with the Royal Yachting Association in the UK, I was told we were lucky, because we would have been allowed only a day or two, not 30 days, in Britain. I can now see why this matters in the UK: without this rule, half the yachts moored on the south coast would be owned in the VAT-free Channel Islands.

All very technical, but we sometimes sail with EU resident crew with British passports, and one co-owner (me) has an Irish passport as well as a British one. Using my Irish passport, I seem to be in the clear on VAT for 18 months after arriving in France as skipper and co-owner, because I am a UK resident. If I lived in Ireland and used an Irish passport, it seems I would not be able to take the UK-registered boat to France because of the risk of a VAT charge.

There are certain tightly defined circumstances in which EU residents may use a non EU boat without losing the 18 months temporary admission. They can be read in detail in Section 5.4 of the official UK guidance by HMRC, updated in November 2018. The guidance note as a whole is essential reading because it sets out the full VAT rules for boats, as they apply to to boats brought into the UK while we remain EU members.

This link is to the relevant pages at UK customs.

An issue to check further is whether other EU countries interpret the rules the same way. The French customs website pages on VAT which include a section on temporary importation, agree with the main conditions as described for the UK, but I haven’t yet found the equivalent of the UK customs notice above explaining the detailed exemptions as they see them. Still working on it.

This link is to French customs.

There’s an awful lot more to find out as the situation develops. The RYA has been doing the main lobbying of government but has been reluctant to advise members on possible scenarios and how to deal with them. On that front, the Cruising Association has been far more active through its technical committee and it’s web discussion forums for members, which have been very useful and are becoming cutting edge on this, certainly compared with the RYA. Worth the modest investment of joining the CA for that alone as we approach a possible Brexit cliff edge.

Race fleets hogging marinas

Three times on our cruise to southern Brittany we were turfed out of marinas and harbours because of race fleets: at Torquay Marina, where we arrived just before dawn, we were ejected as soon as staff arrived because the marina was fully booked for a Figaro single-handed race; at Port Tudy, on the Ile de Groix, we were turned away for the another race fleet; and at L’Aber Wrac’h we were refused a second day when we  wanted to stay, because a 120 strong race fleet was arriving that afternoon, which was going to more than fill the marina. Each of these fleets were closing a succession of ports, day by day over anything up to a week. With L’Aber Wrac’h in particular, there isn’t anywhere convenient near, and tired arrivals that day from Falmouth or Dartmouth must have been furious, since it is the standard stopover when heading to the Chenal du Four.

It would be great to find a way of broadcasting the information about closures more widely: maybe something for Reeds Almanac or the Cruising Association to pursue?