HMRC launches new VAT return scheme for GB cars sold in NI

HMRC has is introducing a new VAT return scheme for dealers that buy cars in Great Britain and plan to resell them in Northern Ireland or the EU.

The new scheme, known as the second-hand motor vehicle payment scheme, will replace the existing margin scheme, with the changes taking effect on May 1, 2023.

It can be used to claim a VAT-related payment for any eligible second-hand motor vehicle that is bought in Great Britain and then moved to Northern Ireland or the EU for resale.

MHA MacIntyre Hudson highlighted the new HMRC documentation in a communication to retailers last week.

The payment amount is calculated as one sixth of the purchase price. For example, the payment amount for an eligible second-hand car purchased in Great Britain for £12,000 would be £2,000.

The sale will then attract VAT at 20% on its full value if sold in NI, or at the standard-rate applicable if sold in other EU countries.

Dealers should make the claim on their VAT Return and treat the payment amount as if it were input tax.

The VAT margin scheme will remain available for eligible motor vehicles that are purchased before May 2023.

Use of the margin scheme is a temporary measure allowed by the Government, but breaches the Northern Ireland Protocol. The new scheme was introduced to overcome the problem.

In November 2020, Lookers and TrustFord joined forces with the National Franchised Dealers Association (NFDA) to find a solution to a post-Brexit tax issue which was set to add 20% to the cost of every vehicle imported from the mainland UK.

Three months later the UK Government confirmed it would reinstate the VAT margin scheme for cars imported and resold by car retailers in Northern Ireland – avoiding pressure on dealer margins and price increases for customers, a move celebrated by dealers and the NFDA.

To view the HMRC's new guidance on the scheme's application for car retailers, click here.