Manufacturers are already aware of the risks posed by Brexit, with research by British Marine showing that uncertainty over the UK’s future trading relationship with the EU has led to a 22% fall in the business outlook among boat builders, and a 58% fall across the industry as a whole. The costs of fixtures and fittings could also rise with post-Brexit border tariffs. “Manufacturers may have supply chain issues depending on where they source their parts and how these supply chains may be impacted by the new trading agreements with the EU post-Brexit,” says Adrian Jones, a director and tax adviser at Martyn Fiddler Associates.
However, even if no customs deal is arranged, if current legislation stands, UK yachts should be able to enter the EU under temporary admission (TA) procedures, for a maximum of 18 months (extendable to 24 if the yacht is laid up for six of those). This applies to recreational arrivals, and new yachts being sold on the EU market. VAT-free TA arrangements would encourage UK owners to base their yachts in the EU.
“I would put money on EU territories with a big stake in the economics of the yachting sector favouring this,” says Dean Carey, VAT for yachts specialist at Constable VAT Consultancy. “Certainly the history with yachts is that many countries interpret the rules to try to help the sector.”
With this in mind, a two-tier VAT system seems an unlikely product of Brexit. “I would be very surprised to see VAT biting twice,” says Carey. “If a yacht is built in the EU then shipped to the UK, I would expect to see the sale zero-rated (as an export) and the yacht subject to import VAT on arrival in the UK, and vice versa. And a vessel flagged and owned outside the EU that is used for private purposes should be eligible for temporary admission or returned goods relief.”
“Customs and VAT consequences should be neutral for a buyer,” Jones says, “as the supplier will export the yacht free of sales tax in the supplier’s jurisdiction and the only VAT payable will be in the country of the purchaser.”
Jones adds: “There were special arrangements made for yachts and aircraft at the inception of the single market, so it may be possible for similar special arrangements to be made for Brexit – optimistically some kind of grandfathering. These may not be a mirror of those for the creation of the single market, but at least there is a precedent for special arrangements.”
Brexit might actually deliver benefits to UK yacht owners by allowing VAT to be permanently deferred. “With the single market and the revised temporary admission relief rules in place, I can imagine that a lot of UK yacht owners will have their vessels exported when buying them (zero-rated) and claim temporary admission relief as a non-EU resident when they take their yacht into the EU,” says Carey. “When their 18-month temporary admission relief expires, they can pop out to a non-EU location and then head straight back to start another 18-month VAT-free period. Why keep your vessel this side of the Channel if you can buy it for 20% less by keeping it on the other side?”