Export Refund Scheme for Second Hand Vehicles

When the UK left the European Union (EU), Northern Ireland (NI) remained within the Customs Union and Single Market in relation to the trade in goods.

The car dealers’ second-hand margin scheme (margin scheme) cannot be used for goods imported into EU member states. As Northern Ireland remains in the European single market, and Great Britain does not, this means that the margin scheme would not be available for the large number of used cars which are transferred from Great Britain to Northern Ireland for sale on the second-hand market.

As a temporary measure, the government has allowed dealers selling cars first registered in the United Kingdom prior to 1 January 2021 to sell under the margin scheme in NI.

Export Refund Scheme

On 1 October 2022, HMRC are introducing the second-hand motor vehicle export refund scheme which mimics the margin scheme. Car dealers will no longer be able to use the margin scheme to account for VAT on second-hand vehicles purchased in Great Britain and moved to Northern Ireland for resale.

When the vehicle is sold in Northern Ireland, VAT will be accounted for on the full value of the supply, the refund scheme allows dealers to claim a refund of VAT when the vehicle is moved from Great Britain to Northern Ireland, providing the dealer intends to resell it.

To compensate for this, a refund of VAT will be available on the vehicle which has been purchased. The VAT refund will be calculated by applying the VAT fraction (currently 1/6th) to the value of the vehicle purchased at the time it is moved from Great Britain to Northern Ireland.

The refund scheme is only available on motor vehicles purchased in Great Britain and sold in Northern Ireland. You cannot use the refund scheme if you purchase second-hand vehicles in Northern Ireland or the European Union. You will continue to use the margin scheme.

The refund scheme will put businesses in a similar financial position as if they had continued access to the VAT margin scheme for these second-hand vehicles. Eligible businesses who sell used motor vehicles from Great Britain for resale in Northern Ireland or the European Union may be able to claim a refund in respect of VAT.

How does the scheme work in practice?

Second-hand vehicle sales made in Great Britain will continue to be dealt with using the margin scheme.

After the introduction of the second-hand motor vehicle export refund scheme, if you purchase a car in GB for £12,000, and resell it in NI for £14,000, you will pay £2,333.33 output VAT (1/6 of £14,000) on the VAT return. You will then also reclaim a refund of £2,000 as input tax on the VAT return. The net VAT paid is £333.33, which is the same amount due as under the margin scheme.

However, failure to account for VAT correctly using the revised rules may result in assessments of VAT being raised plus interest and penalties in respect of errors.

Are you affected by the scheme?

If you are affected and would like to discuss this further, please complete the form below: