New VAT second-hand motor vehicle payment scheme

9 February 2023| CATEGORIES: Brexit, second-hand vehicles, VAT| TAGS: new VAT rules, Northern Ireland, second-hand vehicles

A new second-hand motor vehicle payment scheme will provide for a VAT-related payment to businesses that buy used motor vehicles in GB and remove or export them to Northern Ireland or the European Union for resale. Eligible businesses will be able to claim a payment equivalent to the VAT on the price paid for the vehicle.

The scheme will come into effect from 1 May 2023.

Background

Under the Northern Ireland Protocol, VAT second-hand margin schemes are not available for sales of goods in Northern Ireland if they were purchased in GB or the Isle of Man. Consequently, motor vehicle dealers in Northern Ireland must account for VAT on the full value of sales of these vehicles instead of on the profit margin.

An interim measure was introduced in Autumn Budget 2021 that allowed the VAT margin scheme to be available for sales in Northern Ireland of motor vehicles sourced from GB that were first registered in the UK prior to 1 January 2021.

The new payment scheme

The scheme enables businesses removing or exporting used motor vehicles from GB or the Isle of Man to Northern Ireland or the European Union for resale to claim a VAT-related payment from HMRC.  This will generally be equivalent to the VAT on the price paid for the vehicle or the value of the vehicle at the time of removal or export. This puts Northern Ireland dealers in a comparable financial position to their counterparts in the rest of the UK.

The scheme replaces the interim arrangement introduce in Autumn Budget 2021.

Who is eligible to use the scheme?

Businesses that are VAT registered in the UK can use the payment scheme if:

• their business activity involves buying and selling second-hand vehicles or they make occasional purchases of second-hand vehicles for resale;
• they buy an eligible vehicle in Great Britain and move it to Northern Ireland with the intention to resell it in Northern Ireland or to the EU.

Businesses will not be able to use the payment scheme for second-hand vehicles bought in Northern Ireland or the EU. In these cases, it may be possible to use the VAT margin scheme for second-hand vehicles.

How to claim the payment

The payment is claimed on the VAT Return by treating the payment amount as if it were input tax. Records must be kept showing the calculations of the payment value.

Accounting for VAT when the vehicle is sold

Businesses will no longer be able to use a margin scheme when a vehicle covered by the scheme is sold. VAT must be accounted for on the full selling price of vehicle.

HMRC guidance on the new scheme is available here.

Until the new scheme is introduced, businesses should continue to follow the current guidance on sales of second-hand motor vehicles in Northern Ireland.