Guidance has been released by HMRC regarding the second-hand motor vehicle payment scheme. The scheme was originally known as the Second-hand Motor Vehicle Export Refund Scheme and was announced in 2021.
When will the second-hand motor vehicle payment scheme come into effect?
The new second-hand motor vehicle payment scheme will come into effect on May 1st, 2023.
How will it work?
The new scheme will enable businesses to claim a VAT-related payment when they purchase a used vehicle in Great Britain and transport it to Northern Ireland for resale.
Currently, businesses can account for VAT on the margin when selling a used vehicle in Northern Ireland that they purchased in Great Britain. However, when the new scheme is introduced, businesses can claim a VAT-related payment instead.
This means that businesses will not be able to use the VAT margin scheme when they sell the vehicle, and they will be required to charge VAT on the full selling price of the vehicle.
However, the payment scheme will put businesses in a similar position to that of the VAT margin scheme if they purchase eligible vehicles from Great Britain.
Who can use the scheme?
If you are registered for VAT in the UK, you can participate in the payment scheme if you:
- engage in the buying and selling of second-hand vehicles,
- occasionally purchase them for resale,
- purchase an eligible vehicle in Great Britain and move it to Northern Ireland with the intention of selling it in Northern Ireland or the EU.
You cannot use the payment scheme if you buy second-hand vehicles in Northern Ireland or the EU, but you may still be eligible for the VAT margin scheme.
If you buy an eligible second-hand vehicle in the Isle of Man and transport it to Northern Ireland for resale, you can use the payment scheme to receive a payment, similar to if the vehicle was purchased in Great Britain.
You can use the scheme if you intend to sell the vehicle but need to carry out repairs or other maintenance work on it before doing so. You can also use the scheme if you offer the vehicle for sale but use it for a different purpose (such as a courtesy car) for a brief period while attempting to sell it.
How can you make a claim?
In order to benefit from the new second-hand motor vehicle payment scheme, companies must report the payment amount as input tax on their UK VAT return.
The payment amount is calculated by multiplying the VAT fraction, which is currently 1/6th, of the value of the vehicle. In most cases, the value will be the full purchase price. The payment amount should be treated as if it were input tax. It is essential that you keep records showing how the payment value was calculated.
Speak to the Shorts VAT team
The Shorts VAT team are experienced and qualified to assist in all aspects of VAT, ranging from initial registration, submitting VAT returns, and offering guidance on correcting errors, to more intricate issues such as assessments, control visits, cross-border transactions, and the transfer of going concerns.
If you have a query about the new second-hand motor vehicle payment scheme or any other area of VAT, we welcome you to get in touch today.
Lynne Gill
My area of expertise is land and property transactions but I have extensive knowledge of both domestic and international VAT and I love complex VAT queries. I have an Honours degree in Business Studies and a VAT legal and technical qualification from the Institute of Indirect Taxation.
View my articlesTags: VAT
