Bon voyage

Captain Pugwash children's amusement ride
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‘There is nothing – absolutely nothing – half so much worth doing as simply messing about in boats.’ (Kenneth Grahame, ‘The Wind in the Willows’)

I recently met someone who lives on a Dutch barge moored on the Thames just East of Tower Bridge. Idyllic lifestyle? Tick. Beautiful view? Tick (apart from when the tide’s out – all that mud). And tax advantages? Absolutely, but I’m sure Zach’s too cool to be swayed by that. After all, he’s living the Alternative Life.

Us landlubbers who have more in common with Mr Cohen, Monty Python’s sea-faring accountant, than Captain Pugwash might appreciate a run-down of the less romantic incentives for choosing a home on the rolling deep.

A ‘qualifying ship’ is zero-rated for VAT purposes, which means that it’s VAT-free when you buy it in the UK.  And when you want to do some work on it, unlike a conventional house, supplies of most parts and equipment are also VAT-free, as are repairs, maintenance works, modifications and conversions.

However, before you sell your semi in East Cheam and start scouring the small ads at the back of Waterways World, you should probably acquaint yourself with the definition of a qualifying ship:

A ‘ship of not less than 15 gross tons which is neither designed nor adapted for use for recreation or pleasure’.

Gross tonnage is a measurement based on volume, not weight, and the method of calculation is not set out in the VAT legislation. A tax tribunal has decided that the reference to gross tonnage means gross tonnage calculated under the Merchant Shipping Acts so far as is possible. The calculation has to be produced by the person making the supply to support the zero-rating of it.

Where gross tonnage has not been certified under the Merchant Shipping Acts, the method of calculation specified in the Merchant Shipping (Tonnage) Regulations 1997 (made under the Merchant Shipping Act 1995) is applied by HMRC guidance for VAT purposes, in relation to ships of less than 24 metres in length. HMRC have set out a simplified formula for ships of 24 metres or over which they claim to have established by agreement with the relevant trade associations but otherwise have given no explanation of how it has been arrived at.

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Gross tonnage is calculated by determining the ship’s enclosed internal space in cubic metres and multiplying it by 0.235 (in the case of a ship of 24 metres in length or over) or by 0.16 (in other cases). So 15 gross tons is, technically speaking, well, biggish.

Vessels of less than 15 gross tons can never be zero-rated, so most narrow boats, even if they are used as a home, will be standard rated.

In the case of The Kei, the High Court decided that a replica Dutch barge was zero-rated because it was designed to be lived in as a permanent home (together with some business use), which was not use for recreation or pleasure. Stung by the loss in favour of the owner of The Kei, marine engineer, Lieutenant Commander Stone, HMRC has sought – rather meanly, in my view – to limit the scope of the decision by imposing an additional (and unjustified) condition that a purchaser must intend to use the ship as a permanent residence in order for it to qualify. Shades of fiscal piracy, methinks.

According to Zach, the member’s forum of the Barge Association is awash with comments and queries on the subject. Hardly surprising in the circumstances. After all most of these boatey people just want to get on with their care free life sunbathing on the poop deck rather than scrutinising the small print of tax legislation.

Houseboats are covered by a separate zero-rate.  For VAT purposes, a houseboat is a boat (whatever its size) which is designed or adapted for use solely as a place of permanent habitation and which does not have, and cannot be fitted with, a means of self-propulsion.

Nothing like a cold shower from HMRC when you’re about to embark on your new bohemian way of life. But if it’s any consolation, provided that oars don’t count as a means as self-propulsion you should be OK with a live-aboard trireme, even if it’s tiny.

Needless to say, the rules in other EU Member States are different. Plain sailing, it seems, is not a meaningful concept in the world of taxation.

P.S. You can read Colin Stone’s account of his battle for zero-rating of Kei here.

Gripping stuff!

Well to me, it is.

Tax lawyer specialising in business tax, SDLT and VAT

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  1. Anonymous



    I have decided to put my Dutch Barge up for sale. Simply I thought! Find a broker let him market it, sell it job done? Wrong apart from most brokers havING little idea what marketing / selling is ALL about. (MOST SEEM TO THROW A BUNCH OF KEYS TO A PROSPECTIVE PURCHASOR SAYING “GO AND HAVE A LOOK WHY I MAKE MYSELF A CUP OF TEA”) FEE’S OF 6% SAY £170,000 (+VAT!! 20%) = £10,200 vat £2040 = £12,240 NOT BAD MONEY CHUCKING A BUNCH OF KEYS?

    Now brokers say ” please let us know how your barge is % rated” “please send us any copies of letters you may have from Customs & Excise confirming how your barge is 0% rated”? No assistance or advice REASON? “They dont know” only interested in there fees?

    Question? How does one go about obtaining the nessary paperwork (with know doubt requiring C&E ruber stamp on it “saying this barge is 0% rated”). Brokers cant give one an answer. C& E dont know what your talking about. Once again The Country /The World has gone made on rules & regs that make little sense .

    Can you help please

    Kind regards


    • ann

      Hi Bruce,

      VAT will only be due on the sale of your barge (irrespective of whether it is a ‘qualifying ship’) if it is an asset of a VAT-registered business. However a purchaser may nevertheless be interested in the barge’s status because the zero-rating of repair or maintenance work and parts in the future depends on it being a qualifying ship.
      HMRC (rightly) point out in Notice 744C (‘Ships, aircraft and associated supplies’) that determining the liability of those associated supplies is the responsibility of the supplier. They go on to suggest that, for his protection, the supplier obtain a declaration of the ship’s status from the owner in the form set out in paragraph 13.2 of that Notice. Unfortunately the wording of the declaration goes further than the VAT legislation requires in that it declares not only that the ship is a qualifying ship but that ‘all the conditions set out in HMRC’s Notice 744C are fulfilled’.
      The conditions in Notice 744C are of no legal force and, in some cases, such as the requirement that, in order to qualify, the vessel must be designed for commercial purposes or ‘to be used for permanent residential living by the owner’ (in paragraph 2.4), they are downright wrong. There is no justification for imposing an additional condition of permanent residential use.
      The way forward, assuming that this is the case, may be to give a simple statement that the vessel is a qualifying ship for the purposes of Group 8 Schedule 8 Value Added Tax Act 1994 as it is of a gross tonnage of not less that 15 tons and is neither designed nor adapted for recreation or pleasure.

      Hope this helps,


      • Anonymous

        I have a Mangusta 100, at 134 gross tonnes and described in latest Certification for the Isle of Man Registry as a ‘Large Charter Yacht’ and a ‘Commercial Yacht’. Would I be relatively safe in assuming that she is a ‘Qualifying Ship’?

        • ann

          Probably not because, as a yacht, as she will have been designed for recreation or pleasure.


  2. Anonymous

    So If I purchase a new 65ft x 12ft widebeam canal boat, and am buying it to live on does this mean I can avoid paying V.A.T.? It will have an engine so would not satify the rules as a houseboat? Also who satifies the clarification on the VAT the boat builder or the buyer?

    Thanks Michael

    • ann

      Hi Michael,

      The canal boat will be VAT-free when you buy it if it is either not being sold by a VAT-registered business or it is zero-rated as a ‘qualifying ship’.

      As explained in the blog, a ‘qualifying ship’ is a ship of 15 gross tons or more which is not designed or adapted for recreation or pleasure. Qualifying ships have the additional advantage that certain works on them (and supplies of parts) are VAT-free too.

      It is the obligation of the seller to decide whether the boat is subject to VAT, and, if so, whether it is chargeable at the 20% rate or the 0% rate. The seller has to account to HMRC.

      House boats have special rules.


  3. Anonymous

    If a vessel was a qualifying ship at the time of purchase, but something is subsequently done to change that status such that further maintenance etc is no longer zero rated, would the owner have to (re)pay HMR&C the amount of VAT “saved” up to the time it ceased to be a qualifying ship?


  4. ann

    I was recently asked about this subject by someone who had stumbled on this blog. His exact question was:

    ‘Do you know if I can claim back VAT on moorings for a new build replica Dutch barge? I claimed back the VAT back on the purchase and have read same can be done with mooring fees.

    Can you shed any light?’

    Here is my answer:

    ‘If by ‘claimed back’ you meant that your new replica Dutch barge was zero-rated, the answer to your question on the VAT liability of mooring fees is:

    Item 6(a) of Group 8 to Schedule 8 VATA 1994 zero-rates the ‘handling’ of qualifying ships in a ‘port’ or outside the UK.

    ‘Port’ means an area designated as a port by HMRC pursuant to their powers in section 19(1) Customs and Excise Management Act 1979.

    In Notice 744C HMRC give mooring fees as an example of zero-rated handling. As a matter of law I think that this construction is a little doubtful but that is their current view it seems.

    So it depends where your barge is moored.

    Assuming that the mooring fees should be zero-rated, whether you can recover any VAT paid in the past which should not have been charged depends on your agreement with the supplier.’


    PS Mooring fees for a houseboat are exempt from VAT.

  5. ann

    Hi Tam,

    As long as the vessel was qualifying ship at the time it was supplied that supply will be zero-rated and will remain so.

    There are no provisions allowing for a claw-back if the status changes later.


  6. Anonymous

    We recently heard about the VAT on barges built as a home which ours was in 2005. We have applied to our boat brokers for this and were told that we were out of time for a refund on our VAT. Is this correct?
    Thank you

    • ann

      A claim for recovery of VAT wrongly charged to you is a claim against the person who sold you the barge. Whether that VAT is recoverable depends on the wording of the contract. There are time limits for making a claim and what these are will depend on the reason for the VAT being wrongly charged.


  7. Anonymous


    I have read up on the rules but find them very confusing and I was wondering if you could clear something up for me ?

    I have a 107ft ex military barge that has NO means of propulsion and you couldn’t fit any even if you wanted to, she weighs 275t and I am converting it to my main home. As far as I understand I can’t reclaim the vat on materials once it has been build like you do on a new build house ? Is that right ? And if that is the case then how do I purchase them vat free ? Is there a standard form that I have to give to the suppliers when I place my orders for materials and parts ?



    • ann

      Hi Ben,

      It can be a bit confusing.

      The law provides that the supply of parts and equipment of a kind ordinarily installed or incorporated in, and to be installed, or incorporated in, the propulsion, navigation or communication systems or the general structure, of a ‘qualifying ship’ is zero-rated (VAT-free).

      HMRC’s leaflet on ‘Ships, Aircraft and Associated Services’ (in particular paragraphs 6.4 and 6.5 and section 7) sets out the Revenue’s view of the law in this area.

      You have to claim the relief from the person who sells you the qualifying materials at the time of supply. The suggested evidence to be provided to a supplier to support zero-rating is set out in section 13 of the HMRC leaflet.

      Hope that helps,


  8. Anonymous

    I’m considering selling up and buying a zero-VAT-qualified widebeam narrow boat. It will be my permanent place of residence. However, must this be my ONLY property to qualify as zero rated or would it be possible to also own, for example, a buy-to-let house that I rent out and never live in?

    • ann

      As long as the narrow boat is a ‘qualifying ship’ (as explained in the blog), you don’t have to live on it at all for zero-rating to apply to it nor are you limited to one. You can own any number of qualifying ships and the zero-rating will still apply.


  9. Anonymous

    Hi, could you tell me if you know if the gunwhales on a widebeam @ 70mls are the deck or would this constitute being too small and as such the roof then be counted as the deck in respect of it being a ‘break’ in the deck.
    The boat is 57×12 and without the roof being used does not come above the 15ton, however the builder has sold it to us VAT free with a small note n the invoice saying it is in line with HMRC’s requirements.

  10. ann

    As I said in the blog, gross tonnage is essentially a measure of volume. Where the gross tonnage of a ship has not been calculated under the Merchant Shipping Acts it is to be determined for the purposes of VAT by applying the following formula:

    For vessels 24 metres or greater in length:

    Length x beam x depth x 0.235

    For vessels less than 24 metres in length:

    Length x beam x depth x 0.16

    All measurements in metres.

    Depth is measured vertically from the midpoint overall. The upper calculation point for a decked vessel is the underside of the deck on the middle line, or, if there is no deck on the middle line, the underside of the deck at the side of the vessel. For an open decked vessel the depth measurement is taken from the top of the upper strake or gunwale.

    Hope this helps,


  11. Anonymous


    It was I that went to VAT Tribunal etc over VAT. I am sure that anyone arguing that their ship was designed not for recreation or pleasure, and having the proof of why it was designed that way, would win again. Yet again HMRC interpretation is at odds with the words of the law. But as my counsel mentioned, HMRC Notices and Business Briefs only rank as “coffee table” publications – sometimes printed on pretty paper but vacuous content!

    Colin Stone


    • ann

      Hi Colin,

      Thanks for your comments. I agree with what you say about HMRC notices etc. They are often wrong and/or misleading. Unfortunately many people don’t realise that they have no legal effect in most cases and disagreeing with HMRC’s published view of what the law is can be a frustrating and expensive business.

      I was impressed that you took the fight to them!



    • Anonymous

      Hi Colin. I spoke to Ann Humphrey this morning and she was interested in military rank (I’m a Wing Commander Ref Retd.)
      I recently won a Tribunal case against HMRC for a huge amount of VAT money and fines. There must be something about our way of life that makes us systematically take on injustice where ever it raises its ugly head.

  12. Ann Humphrey

    VAT and barges: Q&A

    I was contacted by a gentleman called Bob Faulkner and he had some questions relating to this topic so I thought I would share my answers in case they are of interest to any readers.

    Bob had bought a 25 ton barge three years ago and the builder had sold it free of VAT. The barge was designed mainly for residential use. Although Bob and his partner had used the barge for the occasional short trip, for 95%+ of the three years it had just been static at the same mooring, for which Bob had paid a substantial annual fee (plus VAT). Bob now intends to sell the barge to somebody who will,use it very occasionally for recreational purposes but will mostly just leave it at the same mooring.

    These were Bob’s questions and my answers:

    Q: I am assuming that, as the original boat builder declared the barge to be VAT exempt it is a qualifying ship, that the declaration was the builder’s responsibility, that we have not avoided any payable VAT, and there can thus be no retrospective VAT charge levied either on us or the new purchaser. Am I right?

    A: Broadly yes. The barge would have been zero-rated (0% VAT) as a qualifying ship on the sale to you by the builder so there would have been no VAT due. In any case, it would have been up to the supplier (the original boat builder) to decide whether any tax was due and account it to HMRC. Unless you are VAT registered your sale to the new purchaser will be VAT-free even if the barge isn’t a qualifying ship.

    Q: Might we be able to reclaim the VAT paid on the mooring charges?

    A: Not unless you moored in an area designated as a port by HMRC pursuant to their powers in section 19(1) Customs and Excise Management Act 1979 and can persuade the person you paid the fees to that they should have been zero-rated as charges for ‘handling’.

    Q: And, could you kindly clarify the difference between exempt from VAT and 0% VAT?

    A: Exempt means the supply is not taxable. 0% (zero-rated) means taxable but at a nil rate. As far as a purchaser is concerned the difference doesn’t really matter but it can have consequences for a seller.


  13. Lynda Turley

    Dear Ann,

    I live in Ireland and purchased a “qualifying vessel” sailaway in the UK and built it as residential here in Ireland. When I imported it to Ireland I was instructed to pay 23% VAT as Revenue deemed it as a new means of transport. I argued my point that it was residential prior to my built, during my build and upon importation, but to no avail. There is nothing in Legislation here in Ireland regarding Houseboats, Vessels as residential. I am embarking on a similar journey to Colin Stone and I have a hearing with Revenue on 22nd August. My hearing consists of the following:
    I paid 23% VAT, but I requested a refund up to 13.5% on a VAT 62 form which is reference to a caravan, mobile home or a similar structure designed primary for residential purposes. Revenue refused my refund on the grounds they do not deem my residential vessel as a similar structure to a mobile home. Revenue do not give examples or explanation any where in the legislation what they consider would be a similar structure and the wording is slack and loose and the onus it seems is on the Tax Payer to prove my vessel is a similar structure without any guidance. I’m hoping you might be able to give me some additional guidance or just as a matter of interest your opinion on this matter.


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