I believe there was a mod to fix the flag visibility problem, but I don't remember the details.
As was pointed out, in game, if the lights are on, it's 100% guaranteed to be neutral.
Lights off, it could be neutral or hostile. Cheater way to check is try to up your time compression. You won't be able to go very high if an enemy is in sight.
Otherwise either see the flag, or check your position on the map. If you are in questionable waters you'll want to check more closely. On the other hand if you are sailing up the Thames it's probably hostile.
Steve