HMRC has a policy that allows parts bought in a supply chain that is destined for a qualifying aircraft to be zero-rated.
A ‘qualifying aircraft’ is legally defined as any aircraft that is used by either:
- an airline operating for reward chiefly on international routes
- a state institution and is of a weight of not less than 8,000kg and is neither designed nor adapted for use for recreation or pleasure
In order to qualify for zero-rating, two conditions must be met. The parts and equipment must be:
- the sort ordinarily installed or incorporated in the propulsion, navigation or communications systems, or the general structure of a qualifying aircraft
- for the incorporation or installation in a qualifying aircraft
‘Parts and equipment’ also extends to part-assembled aircraft, for example, the fuselage or wings.
Where there is a supply chain, a supplier in the chain can zero rate if at the time of the supply it is known that the parts are destined for installation in a qualifying aircraft. In order for a supplier to zero-rate the supply, they need to hold evidence that the parts are eligible for relief.
VAT Notice 744C section 13 describes the type of evidence that a supplier may require in order to be satisfied with the status of the aircraft and the intended use of the parts. The section includes suggested formats of declarations that the customer can complete for both of these for an issue to the supplier.
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