HMRC issues guidance on transferring used car to Northern Ireland

HMRC has now provided detailed guidance for the new repayment process that will replace the VAT margin scheme for second-hand vehicles transferred between Great Britain and Northern Ireland, and then resold.

Head of automotive tax at Armstrong Watson Michelle Malone, said the HMRC move was welcome

The on-going uncertainty over what the rules would look like left some suppliers concerned they would have an unexpected VAT liability on vehicles they sold to dealers in Northern Ireland, and which had led them to stop supplying second-hand vehicles to Northern Ireland altogether.

Malone said: “Following Brexit, the Northern Ireland protocol prevented businesses from being able to use the normal VAT margin scheme for vehicles transferred to Northern Ireland from Great Britain or the Isle of Man.

“This would have put Northern Irish businesses at a disadvantage, as they would have needed to account for output VAT on the full selling price of the vehicle but have no input VAT to offset. This compares to the margin scheme rules where output VAT is only paid on any profit margin.

“A temporary fix was introduced from 1 January 2021 to put businesses in a similar position to those using the normal margin scheme, and it was announced last year that the new VAT repayment scheme would be in place by October 2022.

“This timeline has slipped, and we are only now getting the full details of the new process. It is welcome news in that traders now know where they stand, but for those affected, now also comes the work to ensure they have the right processes in place ahead of the new rules coming into force on 1 May 2023.”

The scheme applies to second-hand vehicles bought under the margin scheme in Great Britain which are then transferred to Northern Ireland.  For eligible vehicles acquired from 1 May 2023 traders will no longer be able to use the margin scheme when the vehicle is sold, and instead, must account for output VAT as normal.

Traders who have vehicles in stock on 1 May 2023 can continue to sell them under the margin scheme as long as they are disposed of before 31 October 2023, otherwise VAT would have to be accounted for on the full selling price.

The new scheme can be used by Northern Ireland dealers and certain EU VAT-registered businesses, providing the vehicle is moved to Northern Ireland with the intention to sell it in Northern Ireland or the EU, and cannot be put to another use before this.

With extensive record-keeping required, Michelle explains that two of the most important obligations of the new scheme are to keep a detailed stock book which is separate to the normal margin scheme records, and to obtain evidence that the vehicle has been removed from Great Britain to Northern Ireland.

She adds: “With margin scheme sales, we normally rely on the DMS to create all the necessary documentation and records.  It will be interesting to see whether the DMS providers roll out a facility to account for the new scheme but it is likely that, in the short-term at least, dealers will need to come up with their own workaround to ensure all conditions are met.

“With these rules being so new, I would expect HMRC to make it a focus of future compliance reviews so I would advise that you start planning new control procedures now so that they are in place for the first transactions.”