HMRC has published guidance about a new VAT refund scheme for second-hand motor vehicle exports. The government intends to introduce the new scheme on 1 October 2022. It will allow businesses to make VAT refund claims when a second-hand motor vehicle is moved from Great Britain (England, Scotland, and Wales) to Northern Ireland for resale.

Motor vehicles that are currently eligible for the VAT margin scheme when purchased in Great Britain and sold in Northern Ireland will qualify for the refund scheme when it is introduced. However, second-hand vehicles purchased in Northern Ireland or from the EU will not be eligible for the export refund scheme. These should continue to be accounted for using the VAT margin scheme when sold.

The new refund scheme may also be available to businesses that are VAT registered in the EU and buy second-hand vehicles in Great Britain and export them to the EU for resale.

HMRC has indicated that further information on the scheme will be published in May 2022.

Second-hand motor vehicle dealers in the UK

Car dealers that sell motor vehicles in Northern Ireland will have to use the scheme if they currently use the VAT margin scheme to account for sales of vehicles that are bought in Great Britain and moved to Northern Ireland for resale.

Once the refund scheme is introduced, it will no longer be possible to use the VAT margin scheme to account for VAT on second-hand vehicles bought in Great Britain and moved to Northern Ireland for resale.

The VAT on these sales will be subject to the normal rules for moving goods between Great Britain and Northern Ireland. This means that output tax will be accountable on the full value of the supply when the vehicle is sold.

The refund scheme will allow businesses to claim VAT on the purchase of a vehicle when it is moved from Great Britain to Northern Ireland as if it were input tax, but only if the purchasing dealer intends to resell it.

The refund amount will be the VAT element of the value of the vehicle purchased in Great Britain at the time it is moved to Northern Ireland. In most cases, the value will be the full purchase price paid for the vehicle.

The refund scheme will be available for any eligible vehicles that move from Great Britain to Northern Ireland from the date that the scheme is introduced. The existing VAT margin scheme should continue to be used until that date.

Vehicles already in stock in Northern Ireland that were purchased from Great Britain when the refund scheme is introduced will continue to be eligible to be sold under the VAT margin scheme.

Second-hand motor vehicle dealers in an EU country

When a second-hand vehicle is purchased in Great Britain and exported to an EU country, the VAT on the sale of the vehicle will be subject to the normal rules that apply in the EU country in which the sale is made. The new export refund scheme may allow a refund of UK VAT on the vehicle purchased when exported from Great Britain, but only if the dealer intends to resell it.

The refund amount will be worked out as the UK VAT element of the value of the vehicle purchased in Great Britain at the time of its export to an EU country.

If the EU purchaser has a business establishment in the UK, it will be able to claim the refund on its UK VAT return. If the purchaser does not have a business establishment in the UK, including non-established taxable persons, there will be a different process for making a claim.