Guide to Returned Good Relief – Recreational Pleasure Craft - PKF Francis Clark
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Guide to Returned Good Relief – Recreational Pleasure Craft

The Basics

VAT Paid Status

For any vessel that is operating within EU27 or UK waters, the owners/users must be able to demonstrate that it has what is known as VAT Paid Status (VPS) i.e. that VAT has been paid or accounted for at the correct time and place and also at the appropriate rate on the correct value, or is deemed to be VAT paid by virtue of relevant EU or UK legislation. If the vessel does not have current VPS and conditions for a relevant relief have not been met (e.g. Temporary Admission – TA), an EU/UK Customs authority can assess for VAT and could also seize the vessel.

To demonstrate that a vessel has VPS, documentary evidence must be held to support whichever is the most recent:

  • VAT has been paid/accounted for as at the last chargeable event; or
  • That the vessel has deemed VAT Paid Status

 

Imports / Exports

Every time someone sails or takes their boat out of one territory and into another, they are in effect ‘exporting’ from and ‘importing’ into the other. When they return with their vessel they are then re-importing – as such the normal rules of importation apply, in that VAT (and where applicable, Customs Duty) will be payable, unless they qualify for one of the available reliefs.

It is important to understand at this point that up until the end of 2020, VAT-paid recreational craft could travel freely between the UK and the other 27 EU member states without the need for any further VAT or Duty being payable – the boats were in free circulation. Following the UK’s departure from the EU, movement between the EU27 and the UK will now fall within these import / export rules and procedures.

 

Returned Goods Relief (RGR)

Where VAT has been paid either within the UK or the EU27, any movement to a place outside of those territories is deemed to be an export. This would mean that when returning – and thus ‘re-importing’ the boat – VAT would ordinarily be due. However, Returned Goods Relief (RGR) is available when the boat returns to its respective territory, provided:

  1. The person re-importing is the same as that who exported the boat
  2. There is no material change in value (other than normal depreciation/appreciation/wear & tear)
  3. No more than 3yrs has elapsed since the last export from that territory
  4. The boat had VPS / was in ‘free circulation’ when it left the territory being returned to

The principles apply the same whether the boat has is returning after a lengthy stay away (e.g. around the world trip) or simply a day trip across the Channel.

 

RGR vs Brexit

One of the consequences of Brexit has been how the status of boats that were in free circulation before is treated afterwards and to what extent RGR is necessary or even eligible when now moving between the EU27 and the UK.

There are essentially two types of activity to look at:

 

  1. Boats returning to the UK / EU27 post-Brexit

A boat cannot technically have ‘dual status’, but it may in practice have this ability to the extent that it was in free circulation / VAT Paid within the EU28 prior to Brexit and on movement between the two territories (UK / EU27), the above basic conditions of RGR are satisfied.

Boats in the UK as @ 23:00 UTC 31/12/2020

Provided the boat was in free circulation / VAT Paid within the EU28 at that time, it will in the first instance have UK VPS, but lost its EU27 status. Owners taking the boat into the EU27 will be liable to VAT as an ‘import’ unless they satisfy Temporary Admission (TA) rules or are eligible for RGR.

The EC Commission have confirmed the view that provided the basic RGR rules above are met, then a boat returning to the EU27 will still qualify for RGR, irrespective of whether the boat has deemed UK VPS by virtue of its location at the time of Brexit. The important points here are that the boat must:

  • Have been within & left the EU27 no longer than three years before it returns to the EU27; and
  • Be returning with the same owner as that when it left the EU27

Residency, flagging and location of ownership does not impact on or dictate eligibility for RGR.

Boats in the EU27 as @ 23:00 UTC 31/12/2020

The same works in reverse for boats that were within the EU27 as at Brexit and RGR will be allowed subject to the above conditions being met.

However, UK HMRC have added in a concession, acknowledging the fact that the rules were unclear until right up to the point of Brexit and also recognising that Covid 19 restrictions have limited boat owners ability to get their boats back to the UK within the time-limits, therefore HMRC will allow RGR for all boats returning to the UK from the EU27 where:

  • They were in free circulation within the EU28 before Brexit
  • They were in the EU27 as at Brexit
  • The same person bringing the boat back to the UK is the same as took it into the EU27
  • The boat returns to the UK by the end of June 2022

RGR will then apply irrespective of when the boat was last in the UK.

Boats Outside Both the UK & EU27 as @ 23:00 UTC 31/12/2020

Under the transition rules, both the EC Commission and UK HMRC have agreed that boats returning to either territory will be eligible for RGR in the territory they first arrive in post-Brexit:

  • Provided they had VPS when they left the EU28; and
  • The person bringing the boat back is the same as that when the boat left the EU28; and
  • There has been no material change in the boat
  • Irrespective of which ‘territory’ they left the EU28 from (the UK or what is now the EU27),
  • Provided they return to either the UK or the EU27 within three years of departing the EU28

This means that a boat returning can choose the territory in which it has VPS; as it can only have one status, it means, technically, that it will not have VPS in the other territory – but, the boat may still be eligible for RGR in the other territory on returning (and thus resuming its VPS for the duration) provided it meets the standard conditions above on a stand-alone basis.

e.g.:

  • Boat purchased and VAT paid in the UK in 2015
  • Left for and remaining in what is now the EU27 in 2016
  • Departed for the Caribbean August 2018

 

  • The boat returned to the UK in April 2021 → RGR-eligible in UK under the transition rules
  • Same owner returning
  • VPS in EU28 before departing
  • Returning to one of the two territories within 3 yrs of leaving the EU28

 

  • The boat then departs the UK for France July 2021 → RGR-eligible in EU27 normal rules
  • Same owner returning
  • VPS in EU27 before departing
  • Returning to EU 27 within three years of departure

 

  1. Boats Moving Between UK / EU27

The above deals with what for many will be a significant move, but the far more frequent scenario will be the everyday occurrence of Mr & Mrs Miggins taking their boat across to the continent for a couple of days then returning – which they may do on a fairly regular basis, or Monsieur & Madam LaFrance visiting the UK on regular day or weekend trips.

Neither would be required to have VPS in the territory they are visiting, being eligible (subject to meeting the conditions) to use TA. But what is easy to overlook is that on each and every occasion they leave and then return to their ‘home’ territory, they are effectively ‘exporting’ and then ‘re-importing’ their boat, with that return falling within the scope of RGR and with it all the conditions and provisions that then apply.

 

The Mechanics

Transported

Under normal circumstances, where a boat is being transported or shipped into the UK, the cargo will be subject to formal shipping and Customs procedures, overseen and dealt with by shipping and Customs agents.

This requires the completion of the relevant Customs document – the UK and EU document is a Standard Administrative Document (SAD), referenced in the UK as a C88. This will require the relevant Customs Procedure Code (CPC) for RGR to be entered. In most cases the shipper and/or agent may seek documentary evidence to support the conditions being met (ownership / duration of absence etc.).

Under Own Power / Hull

HMRC’s latest guidance indicates that anyone returning to the UK and claiming RGR would be required to make a declaration by completing and submitting to Customs a C88; whilst this not necessarily a significant task for boats being transported or subject to commercial ownership / movement, for ‘regular’ boat owners and those undertaking casual and/or frequent journeys in/out of the UK this would be incredibly onerous, not to mention complex and impractical.

However, the legislation allows for what is know as ‘declaration by conduct’ for certain types of transport including recreational pleasure craft; effectively this means simply by being present within the limits of a port is sufficient to act as a declaration, with no further formal declaration or notification for VAT or Customs relief purposes required.

There are, though, other requirements and recommendations for pleasure craft entering UK territory:

  • Fly the Q flag
  • Contact the National Yachtline
  • Complete a C1331 (if requested)
  • Maintain detailed logbook recording arrivals / departures

EU27

The EU operates under exactly the same rules as the UK, although the interpretation and application may vary across the different members states, with some having more administrative requirements on entry and with certain countries perhaps adopting a more rigid approach to the detail requirements.

 

Legislation

Although the UK left the EU at the end of 2020, the UK has effectively adopted en-bloc the EU legislation, with only the reference to ‘EU’ and ‘UK’ changed as necessary. Unfortunately the references applying to the relevant VAT and Customs reliefs for pleasure craft is not contained in a single, easily accessible part of the UK and EU legislation – that which applies to RGR in particular and specifically declarations is located by a tortuous route and a combination of several different elements, which even the respective authorities struggle to follow and understand!

A little light reading:

  • Import Duty Regulations Regs. 24, 25. 26B, 26C
  • SI 1995 Value Added Tax General Regulations Part XVI Reg. 121D
  • SI 2020/1545 Regs. 31 & 67
  • EU Transitional Provisions
  • SI 2020/1431 Customs (reliefs from a Liability to Import Duty…)
  • SI 1996/1406 Pleasure Craft (Arrival and Report) Regulations Reg. 6
  • Notice 8

The above contains the legislation that applies to the conditions, making a claim, granting approval, method of declaration (and to note – ‘declaration by conduct’) and the general provisions relating to RGR and Pleasure Craft; BUT care must be taken, as the all the relevant parts must be read AND in conjunction with each other before full sense can be made.

The EU Legislation is likewise contained in several different inter-relating places, but the primary law can be found in:

  • Council Directive 2006/112/EC (The VAT central Directive)
  • The Union Customs Code

 

Slipping Through The Cracks…?

As the title indicates, the relief is available for boats returning to a territory and only then, when they meet the conditions. Brexit has thrown up some scenarios that have highlighted a significant potential inequity and shortfall in the system:

UK owners that have purchased their boats within or imported directly into what is now the EU27, either explicitly paying VAT or purchasing a boat with EU VPS, would have been able to use their boats under free circulation throughout all 28 member states pre-Brexit. However, post-Brexit, unless they had at some stage previously had the boat themselves in the UK, those same owners will only be able to bring those boats to the UK in very limited circumstances:

X RGR Not eligible as not returning to the UK

X TA Not eligible as UK resident

✓ ToR Transfer of Residence – but only ex-pats returning to the UK to live

✓ IPR Inward Processing Relief – if using a UK boatyard to import for works, then re-export

The UK’s two largest pleasure craft membership organisations, the RYA and British Marine, have been lobbying UK HMRC for some considerable time to introduce what has become tagged as ‘Repatriation Relief’ that would allow UK residents and owners that had previously paid VAT within the EU, but who are not eligible for RGR, to bring their boats to the UK under the same or similar type of arrangements, to allow a degree of parity and avoid what has clearly become an unintended double-taxation issue as a consequence of Brexit.

As at the current time, UK HMRC remain unmoved, but the fight goes on…

FEATURING: Simon Anslow
Simon heads up our VAT, Customs & Indirect Tax Team. A broad experience of industry sectors and working with businesses from start-ups through to multi-nationals… read more
FEATURING: Jim Suswain
Jim is a member of PKF Francis Clark’s respected VAT team offering indirect tax guidance and support to both clients and colleagues. Having completed his… read more
FEATURING: Mike Campbell
Mike is a Manager in the VAT & Indirect Tax Team, advising individuals and businesses from start-ups through to multi-nationals. He brings a no-nonsense approach… read more
FEATURING: Mike Frost
Mike is an Indirect Tax Consultant specialising in Customs Duty and International Trade. He assists clients with solutions to all manner of customs queries and… read more
FEATURING: Richard Phillips
Richard joined PKF Francis Clark as an indirect tax consultant in 2018. Following a career as a Higher VAT Officer in HMRC and previously a… read more
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