Changes to the second-hand margin scheme for cars which are bought in Great Britain and moved to Northern Ireland

A new scheme has been introduced with effect from 1 May 2023 under “The 2023 Value Added Tax (margin schemes and removal or export of goods: VAT related payments) order”.

It has been introduced to resolve a VAT issue for businesses trading in second-hand motor vehicles in Northern Ireland that have been sourced from Great Britain and Isle of Man. Under the Northern Ireland Protocol, businesses in Northern Ireland cannot use the existing VAT margin schemes for motor vehicles which they have bought from Great Britain or Isle of Man. This meant that businesses had to account for VAT on the full selling price of those vehicles which in turn potentially increases the prices which are charged to end consumers or increase the costs to the business. The purpose of the new scheme is to allow businesses in Northern Ireland to remain in a similar financial position to those businesses that can apply margin schemes elsewhere in the UK. The new scheme is also available to EU VAT registered business that purchase eligible, second-hand motor vehicles in Great Britain and export them to the EU for resale.

This article does not provide detail on second-hand motor vehicles bought in Great Britain for export to the EU for resale. For more information regarding this I would recommend referring to HMRC’s guidance titled “Claim a VAT-related payment if you buy second-hand motor vehicles in Great Britain and export them to the EU for resale”

What has changed

Businesses that purchase vehicles from Great Britain & Isle of Man can no longer use the existing second-hand margin scheme when they move a vehicle to Northern Ireland to resell in Northern Ireland or the EU. The new scheme allows businesses to claim a VAT related payment instead, providing that:

• They buy and take possession of an eligible second-hand motor vehicle in Great Britain
• Move that vehicle to Northern Ireland with the intention of reselling it in Northern Ireland of within the EU
• The business has both a UK business establishment and a UK VAT registration. A business is established in the UK for the purpose of the scheme if it has a UK establishment with a permanent presence of both human and technical resources necessary to provide taxable supplies for which the business is required to account as a taxable person.

To use the scheme the eligible vehicle must be bought in Great Britain or Isle of Man and moved to Northern Ireland after 30 April 2023, with the intention of selling it. You cannot use the scheme if you intend the first use after moving it to Northern Ireland to be anything other than resale. This rules out using the scheme if you intend to use the vehicle in your business, for example as a pool car, or if you intend to use the vehicle privately, even if you intend to sell it afterward.

The vehicle can be moved to Northern Ireland on your behalf by a third party such as the seller or a haulage business. This does not prevent the scheme being used.

To use the scheme, details of the vehicle must be recorded in a stock-book. This must be a separate stock book that you might be using for any records which you keep for the second-hand margin scheme. The stock-book must contain specified information. The full list of information required in the stock-book can be found in HMRC’s published guidance titled “Check which records to keep for second-hand vehicles you move to Northern Ireland for resale”

You should also keep other evidence that you intend to sell the vehicle such as advertising it for sale.

HMRC’s guidance confirms that the scheme can also be used if repairs or other work needs to be carried out first. It also confirms providing the vehicle is held out for sale but is temporarily used for another purpose for a short period of time whilst trying to sell it, the scheme can be used. However, HMRC do not clarify what is meant by ‘a short period of time’. What one person considers short can be different to the next. The wording of the published guidance strongly suggests that providing that the vehicle continues to be advertised or held out for sale whilst it is being put to another purpose the scheme can be used to claim a VAT related payment.

How much can be claimed?

This is currently one-sixth of the value of the vehicle at the time it is moved to Northern Ireland. In most cases this will be the full purchase price of the vehicle. The recovery amount is based on the current VAT rate of 20% giving a VAT fraction of one-sixth. If the VAT rate changes in future, the payment claimed should be calculated accordingly based on the VAT rate in force at that time.

The payment should be claimed by treating it as if it is input tax and entering it into Box 4 of your VAT return.

Accounting for VAT when the vehicle is sold.

The precise treatment will depend on whether the vehicle is sold in the UK, sold to a VAT registered business in the EU or sold to a non-VAT registered customer in the EU.

Vehicles which are subsequently sold in the UK will be liable to VAT at the standard rate.

Vehicles sold to EU VAT registered businesses can be zero rated providing the customer has notified you of their EU VAT number, the goods are transported out of NI to a destination in an EU member state and an EC sales list is submitted accurately accounting for the supply. The customer will then account for acquisition tax in their own country.

Vehicles sold to non-VAT registered EU customers are subject to distance selling rules. Standard Rate UK VAT should be charged to the customer, unless you are over the distance selling threshold of £8818 (10,000 Euros) per calendar year. If you exceed the distance selling threshold you will be required to register and account for VAT in each EU member state where you make supplies or to register for the One Stop Shop (OSS). If you are below the distance selling threshold you also have the choice to voluntarily register in each EU member state or for the One Stop Shop. If you choose to do this, you must account for the VAT in the relevant member state or via the OSS.

Written by Neil Maddison, VAT Consultant