The second-hand motor vehicle payment scheme was implemented on 1 May 2023 and marks a significant development in facilitating trade in the automotive industry.
With its introduction, businesses buying second-hand motor vehicles in Great Britain, including the Isle of Man, gain the opportunity to claim a VAT-related payment when moving these vehicles to Northern Ireland or the European Union (EU) for resale.
The scheme aims to streamline trade operations, alleviate cost burdens, and enhance efficiency for businesses operating within the UK and EU automotive sectors following Brexit.
To qualify, a vehicle must be acquired from a seller who did not account for VAT at the standard rate on the full selling price, be registered with the DVLA upon relocation, and be intended for sale in Northern Ireland or the EU.
The scheme covers various vehicle types, including cars, vans, lorries, and motorcycles. Vehicles intended for scrap or personal use are ineligible.
The scheme does not apply to vehicles moved to Northern Ireland or the EU before 1 May 2023.
The second-hand vehicle payment scheme offers UK VAT-registered businesses the opportunity to claim VAT-related payments when eligible vehicles are purchased in Great Britain and then moved to Northern Ireland for resale.
The scheme allows businesses to claim an amount on their VAT return, calculated based on the VAT fraction (typically one-sixth of the purchase price), for the period covering the date of the vehicle's movement. When the vehicle is sold in Northern Ireland, VAT at the standard rate must be accounted for on the full selling price.
For instance, if a business purchases an eligible vehicle for £6,000 in Great Britain and sells it for £9,000 in Northern Ireland, they can claim £1,000 (£6,000 x 20/120) under the scheme and must account for output tax of £1,500 on the selling price (£9,000 x 20/120). The net result is a VAT liability of £500.
This achieves the same net result as if the vehicle had been sold in Great Britain under the second-hand margin scheme. If the vehicle is not sold until a later VAT return period in Northern Ireland, the output tax would be due after the claimed VAT-related payment.
Businesses can also utilise the scheme when eligible vehicles purchased in Great Britain are moved to the EU for resale.
There are two categories of businesses that can take advantage of this scheme: those registered for VAT in the UK with a UK business establishment, and those registered for VAT in the EU without a UK business establishment.
For businesses registered for VAT in the UK with a UK establishment, the VAT-related payment can be claimed on the VAT return for the period when the vehicle was moved to the EU, treating it as input tax.
On the other hand, businesses registered for VAT in the EU without a UK establishment must follow a separate process directed by HMRC to make their claim.
When the vehicle is sold in the EU, VAT should be accounted for according to the VAT rules of the country where the sale takes place, ensuring compliance with local regulations.
Businesses utilising the scheme must maintain accurate records of transactions, including invoices, transportation documentation, and other supporting evidence. These records should be retained for six years and may be subject to review by tax authorities.
Repayment interest may be granted if HMRC delays processing the claim, compensating for the delay. Late payment interest may be imposed for missed VAT payment deadlines, serving as restitution to HMRC.
By utilising the second-hand motor vehicle payment scheme, businesses can effectively manage their VAT obligations and capitalise on cross-border trade opportunities while ensuring compliance with VAT regulations in Northern Ireland, the EU, and Great Britain.
HMRC had previously stated that motor traders who had purchased vehicles in Great Britain and moved to Northern Ireland before 1 May 2023 had until 31 October to take advantage of the VAT margin scheme, this has now been extended to 30 April 2024.
VAT can be a complex area which is why we have an experienced, specialist team dedicated to assisting you with your queries and offering support, making VAT less daunting. Contact us to find out how we can help your business.