UK: VAT and Customs Duties - Recent News in Relation to Aircraft

Last Updated: 6 July 2010
Article by Zoe Hammond and Aideen Ruddy

Clarification of customs duty relief for the importation of civil aircraft (JCCC CIP (10) 38 Importation of Civil Aircraft for Maintenance/Storage, 27 May 2010).

Customs duty is a tax charged on the importation of goods produced outside of the EU. There is relief from such customs duties on the importation of civil aircraft into the UK where the aircraft is being imported for maintenance or storage purposes.

Broadly, there are three heads of relief, and to apply for any of them, a "declaration" must be made.1

  • Firstly, if an aircraft which is not in free circulation is imported for a short time for repair, overhaul, refitting, renovation or refurbishment and is later re-exported, relief may be available under "inward processing".
  • Secondly, for aircraft which are not in free circulation and are registered outside the EU, and which are temporarily imported for private or commercial transport use, relief from customs duties may be available under "temporary admission".
  • Finally, if an aircraft is imported for maintenance/repair, and afterwards will remain within the EU, relief may be available under "end use".

In order to obtain authorisation for "end use" or "inward processing" relief, an application should be made to HMRC. HMRC then has 30 days to consider the application. Preferably, the application should be made in advance and be attached to the import entry but can, in exceptional circumstances, be done retrospectively. It should be noted that authorisation is only available to applicants who are established in the EU.

For the purpose of "end use" relief, the aircraft must carry a civil registration. This can be UK/EC or a third country. Normally, the aircraft should be imported under the end use authorisation of the owner/lessor of the aircraft in the EU. This is the position even if they are not carrying out the work themselves.

If, on the other hand, you are an agent, you may use your own end use authorisation number. It is important to note that, in these circumstances, you will be responsible for ensuring that the conditions of authorisation are adhered to and for any customs duty that may become due.

For aircraft maintenance/repair organisations that wish to import spare parts, it is necessary to obtain an end use authorisation in your own right. Alternatively, however, if the parts carry a certificate of airworthiness which is available at the time of import, the Certificate of Airworthiness Scheme may be a more suitable avenue of relief. (This is outside the scope of this article).

Different procedures for making an application for the relief apply in different situations, and HMRC has set out the most common situations in its recent published guidance. For example, for aircraft not carrying passengers. or freight which is imported from outside the EU, the reason for the visit will determine what relief the aircraft should be declared to. An end use declaration will be appropriate where the aircraft is to be permanently imported. Whereas, if the aircraft is imported for repair or maintenance and is to be re-exported, inward processing may be the more suitable relief.

For aircraft carrying passengers or freight, arriving in the EU from a third country, which then discharges the passengers or freight and then flies to the UK for maintenance, the aircraft can enter the EU to discharge the passengers/freight without any customs entry being required. On arrival in the UK, an entry to "end use" relief will need to be made (assuming that the aircraft remains in the EU). After the maintenance works, the aircraft will be deemed to be in free circulation and can fly within EU member states without another entry being required.

For advice on customs duties in relation to other specific arrangements involving the importation of civil aircraft arriving in the UK for non-passenger related uses or for general advice on HMRC's guidance in this area, please contact Ray Smith (Tax, Partner) or Zoe Hammond (Tax, Associate Director).

Change to supplies of "qualifying aircraft" that can be made at the zero rate

HMRC announced in the two recent Budgets - first on 24 March 2010 and then again on 22 June 2010 - that measures would be enacted (in a Finance Bill introduced by the current Parliament) to change the definition of aircraft that can be supplied at the zero rate of VAT to one based on the status of the customer using the aircraft, rather than on the aircraft's weight and usage2. This will bring UK law in alignment with EU law3. Supplies of aircraft after 1 January 2011 will then only be zero-rated where used by airlines operating on mainly international routes. The change is likely to have an adverse impact on general aviation users, in particular private users, as having to charge VAT at the standard rate will present a cashflow issue, and potentially increase their ongoing cost base. The change will now also have even greater consequences for such users following the announcement in the 22 June Budget that this standard rate will be increased from 17.5 per cent to 20 per cent from 4 January 2011.

Footnotes

1. Article 36(a)(1) of the Community Customs Code (Council Regulation 2912/93).

2. Currently, the supply of aircraft may be zero-rated where the aircraft is of a weight of no less than 8,000kg and is not designed or adapted for recreation or pleasure use (Schedule 8 to the VAT Act 1994).

3. Article 148 of the Principal VAT Directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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