British yacht owners with boats moored in the Mediterranean have been thrown a temporary lifeline after the UK government delayed plans to force them to pay a double tax bill on their vessels after Brexit.
Complex customs rules meant owners of boats moored in the EU for at least three years would have to return to UK waters before New Year’s Day — or pay the VAT twice.
However, after the Financial Times contacted HM Revenue & Customs, the government publicly announced it had pushed back the date by which boats would need to return to the UK to avoid paying VAT again to December 31 2021.
British recreational boats can travel freely in EU and UK waters without paying customs duties if VAT has already been paid on the boat in the EU. But this will end after the transition period at the end of this year.
The amount of VAT yacht owners could face runs into thousands of pounds, depending on the market value of the vessel when it returned to the UK.
Ruth Corkin, VAT director at accountants Hillier Hopkins, said for example that owners of a yacht worth £250,000 — which had already paid £50,000 VAT in the past — would be faced with another tax bill of £40,000 on their return to the UK with the boat if it was now worth £200,000.
The Royal Yachting Association, the national body for recreational and competitive boating, has been lobbying the tax office for a three-year extension to the relief.
Howard Pridding, director of external affairs at the association, welcomed the decision but said the extension was not “long enough” as coronavirus travel restrictions and winter weather would make it difficult for people to bring back boats in time.
Boats returning to the UK had been due to lose a customs relief called the “returned goods relief”. This is available on temporary exports — including recreational boats — returned to their origin country within a period of three years.
The government said: “We fully recognise that some individuals will have possessions in the EU that were exported more than three years ago. That’s why we’ve made the returned goods relief available for these possessions for a year from 1 January 2021, subject to the other conditions for relief being met.”
Ms Corkin warned that leaving a vessel in EU waters after 31 December could also cause EU tax liabilities for British boat owners.
This is because the “VAT-paid” status currently enjoyed by British yachts in the EU only applies to EU-flagged craft. And after the UK leaves the EU and customs union, EU authorities may seek to charge VAT and duty on the value of the yacht.
“There may be a double whammy at the EU end if the yachts stay in EU waters,” she said. “With Covid, each of the member states is going to want to fill its tax gaps and will be hunting for areas that are a quick win. And there’s the feeling that people who have a lot of money should be taxed more.”