Second-hand Motor Vehicle Export Refund Scheme start date

Time to prepare for the Second-hand vehicle export scheme

Dealer groups moving vehicles from GB to resell in Northern Ireland and the EU should start preparing now for the new export refund scheme, which, after much delay, HMRC have announced with a start date of 1 May 2023. Claim a VAT-related payment if you buy second-hand motor vehicles in Great Britain and move them to Northern Ireland for resale - GOV.UK (www.gov.uk).

The announcement will be welcome news to the second-hand market for the whole of Ireland, which has been damaged by the uncertainty created by aspects of the Northern Ireland protocol and by the imposition of Irish import VAT (and in some cases Customs duty) on second-hand cars sourced from GB after Brexit. Dealers and auction houses are likely to see a boost in demand from the Republic of Ireland in particular, as the scheme will provide an absolute cost advantage to dealers selling there.

The scheme is a somewhat awkward solution to a problem created by the Northern Ireland Protocol, which when properly implemented does not allow the margin scheme to be used for vehicles  imported into NI from Great Britain for resale there. As a temporary measure the government allowed dealers selling in NI to continue to use the margin scheme, but as this is in breach of the Protocol it could not continue indefinitely.

The refund scheme mimics the effect of the margin scheme by allowing dealers to claim a ‘refund’ of an amount equivalent to 1/6th of the purchase price of a used car as if it were input VAT, when it is moved to Northern Ireland to be sold there or in the EU. 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. The table below illustrates how this works in practice:

The claim mechanism for a UK established VAT-registered dealer is straightforward – the claim is made on a VAT return when buying an eligible vehicle in GB which is to be moved to NI for sale there. However, in order to avoid conflict with the EU, the scheme goes further:

it allows the same refund mechanism to be used when an eligible vehicle is moved to Northern Ireland with the intention of reselling it in another EU country – e.g for sale in the Republic of Ireland.

It allows dealers from other EU countries to make refund claims when buying eligible vehicles in GB for export and sale in NI or the EU – this will be especially helpful to dealers in the Republic of Ireland who source vehicle stock from GB.

The scheme can only be used for vehicles which are currently eligible to be resold using the margin scheme, so qualifying cars are excluded. In addition, where a vehicle is purchased to be used in Northern Ireland prior to a later sale, no refund claim can be made.

Vehicles in stock prior to 1 May 2023 are not eligible for a refund, but can continue to be sold using the traditional margin scheme as long as they are sold by 31 October 2023. Vehicles sold after that date will be liable for VAT on the full sales price.

The mechanics for refunds to dealers who are not UK-established are still to be announced. HMRC have indicated that the first claims will be possible after August. This extension of the scheme will be especially welcome to dealers in the Irish Republic who rely on GB for a source of second-hand cars. Since Brexit, Irish dealers buying in the UK have been greatly disadvantaged as their use of the margin scheme ceased on 1st January 2021 so that all GB sourced cars have attracted import VAT and then the full VAT rate when sold in Ireland. The new refund scheme will therefore result in an absolute cash advantage to them, whereas for NI dealers it is just a different means to produce the same outcome.  

Get in touch

There are nuances to the scheme, including specific record-keeping requirements. For further information and support, please contact Glyn Edwards, MHA Motor Sector VAT Director using our online enquiry form