VTRANS110340 - Chartering: Liability
The first test to apply is whether the ship or aircraft in question is a qualifying craft within the meaning of the VAT Act 1994, Schedule 8, Group 8- see VTRANS110100.
Qualifying craft with crew
The supply in the UK of a qualifying ship or aircraft with a crew under a written charter is normally zero rated under Group 8, items 1 and 2 and Note A1.
This test is subject to the proviso of legal note (1)
…except where the services supplied under such a charter consist wholly of any one or more of the following:
- passenger transport;
- accommodation;
- entertainment; or
- education,
being services wholly performed in the United Kingdom.
These exclusions were introduced by the VAT (Transport) Order 1990, SI 1990/752 primarily to prevent domestic cruises comprising elements of passenger transport, accommodation, entertainment etc being wholly zero rated by effectively restricting relief to the domestic passenger transport element under Group 8, items 4(a)-(d). This has been largely superseded by the Tribunal’s decision in P&O, where it was found that holiday cruises were a single supply of passenger transport (see VTRANS021360).
This also needs to be read in conjunction with the policy outlined in VTRANS110310.
The exclusions referred to apply to the immediate supply being made and not looking through a chain of supplies to the end user.
Example
A ship-owner “charters” a qualifying ship with crew to a company supplying entertainment services. The “charter” (with crew) is a supply of the hire of a means of transport, therefore the supply is zero-rated under Group 8, item 1. The fact that the hirer will use it for entertaining purposes is not relevant at that stage. The onward supply of the ship by the hirer to the end consumer will then need to be tested against the exclusions.
Qualifying craft without crew
The supply of a qualifying ship or aircraft without crew, whether under a written charter or not, is zero rated by virtue of Group 8, note 2, as the letting on hire of the ship or aircraft.
Yachts and other non-qualifying craft
The following will normally apply to yachts and is written with that view; but it can apply to other ships and aircraft and freight transportation.
Yachts are frequently let out under formal written charters, either by owners to operating companies (without crew), or by owners or operating companies to holidaymakers, but their VAT position is crucially different from that of ships which are qualifying for the purposes of Group 8, item 1. We do not consider yachts to be qualifying ships for the purposes of Group 8 in any circumstances, since they are designed for recreation and pleasure, and therefore excluded from the definition of qualifying ships by Group 8, Note (A1). Neither formal written charters for yachts with crew, informal charters without a written agreement, or hire of a yacht without crew can therefore qualify for zero-rating under item 1.
However, the substance and reality of the supply maybe characterised as something else.
Example
A yacht is supplied with crew for the transport of passengers (for instance, a supply by a yacht owner or operator to a holiday maker for a holiday cruise), then that supply amounts to a supply of passenger transport services (see VTRANS110310). This means that the supply of a yacht in these circumstances falls under the place of supply and liability rules for passenger transport services, and may qualify for relief.
Though problems concerning the hiring of non-qualifying ships or aircraft other than yachts are less common, the same principles will apply if such cases arise. Their supply on hire will not be zero-rated under Group 8, item 1 or 2, and the place of supply and liability will depend on the nature of the services supplied.
Example
The hire of a non-qualifying ship with crew to perform a towage service may be zero-rated as a ship’s handling service under Group 8 item 6(b), subject to the normal conditions: see VTRANS140000.