Auto traders transporting second-hand cars from Great Britain to Northern Ireland (or EU Member States in which they are VAT registered) should be aware of a new export refund program that attempts to resolve some of the current issues with the UK VAT system.

From 1 May 2023, HMRC has implemented a new system (further to demands for change from the industry).

This new initiative offers a VAT refund for businesses purchasing used vehicles in Great Britain and transporting them to NI with the intent to resell them.

The move is a reaction to components of the Northern Ireland Protocol which had created difficulties due to the imposition of import VAT and sometimes customs duties for pre-owned vehicles.

The scheme is aimed to be a solution to resolve problems created by the Northern Ireland protocol.

As a temporary solution, the Government had permitted NI dealers to keep utilizing the margin scheme, though this contravened the Protocol, so could not be a permanent solution.

The new scheme allows traders to claim a ‘refund’ that equals the VAT fraction, i.e. one-sixth of a used car’s purchase price as if it were input VAT upon its relocation to Northern Ireland or the EU for resale.  The refund scheme therefore essentially replicates the margin scheme.

As a result, the final sale will be subject to VAT at 20 per cent (if sold in Northern Ireland, or at the appropriate standard rate applicable if sold in other EU countries.)

The process for a UK-established, VAT-registered trader to claim is fairly simple: the claim is lodged on a VAT return when an eligible vehicle is purchased in GB for resale in NI.

For further details in respect of the process to claim for second-hand vehicles purchased in the UK exported to the EU for resale, see HMRC’s guidance here.

This could be particularly beneficial for dealers in the Republic of Ireland who regularly acquire vehicle inventory from Great Britain.

If you require advice or assistance with this new refund scheme, please speak to our VAT specialists today.