Second Hand Motor Vehicle Payment Scheme for Northern Ireland

Written by Simon Verona, 7th Mar 2023

What is the Scheme?

The Second Hand Motor Vehicle Payment Scheme for Northern Ireland is a new scheme to be implemented from the 1st May which will enable Northern Ireland to effectively have a level VAT playing field with the rest of the UK with regards to Margin Vehicles sourced from the mainland.

The Northern Ireland Protocol, and it's interesting position of being part of the UK and of the EU from a VAT perspective does have some compromises.

One of which is that it is not possible to treat Margin Vehicles bought from Great Britain as margin on sale in Northern Ireland.

So, what would happen is that a Margin Vehicle bought in Manchester would have zero reclaimable VAT on purchase but would be subject to VAT in full as a fully qualifying vehicle for VAT purposes when sold in Northen Ireland.

Example of why the scheme is needed.

So, taking an example of a 10,000 purchased second hand margin vehicle sold for 12,000.

If the vehicle was bought and sold in Manchester for example, then it would have zero vat on purchase and sale, and VAT would be paid to the HMRC on the profit of 2,000 ie £333.33 - leaving £1,666.67 profit for the dealer.

But..

If you bought the car in Manchester and sold in Belfast, the following would happen without the Second Hand Motor Vehicle Payment Scheme :-

The purchase would be £10,000 still with zero vat reclaimable, but when it was sold, the £12,000 would effectively include VAT in full.. ie £10,0000 + £2,000 VAT. The actual profit would be zero and the VAT man would take the lot!

So, the Northern Ireland dealer would be disadvantaged compared to the dealer in Manchester to the turn of £1,666.67 for buying and selling the same car for the same price!  

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How does the Scheme Work?

Firstly, it's important to note that when purchasing the vehicle - nothing different happens. The vehicle is still bought under he Margin Scheme and no VAT is reclaimable.

The Second Hand Motor Vehicle Payment Scheme comes into action when the vehicle is physically moved to Northern Ireland.

At the point of moving, you can claim a payment back from HMRC for the value equlvalent to VAT on the purchase price (or Value is the vehicle isn't moved to NI immediately after purchase).

Technically, it's not a VAT payment but it is claimed as Input VAT on the VAT return.

The Tax point of this reclaim is the date the vehicle entered Northern Ireland.

It's important that the Vehicle will be resold as it's first use (beyond being used as a demonstrator/courtesy car for example).

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Example with the Scheme in Place

So, lets replay the example above with the Scheme in place.

The vehicle is bought in Manchester for £10,000 as a margin vehicle.  The invoice is processed as a purchase with no VAT reclaimed.

Some days later, the vehicle enters Northern Ireland.

At this point a reclaim can be made from HMRC equal to the VAT in the £10,000 - ie £1666.67. This reduces the cost of the vehicle to £8333.33

The vehicle is sold for £12,000 which is £10,000 + vat of £2,000.

So, the profit for the dealer is £10,000-£8,333.33 which equals £1,666,67 and is the same as the profit made by the dealer buying and selling in Manchester under the Margin Scheme.

The net payment to the HMRC is £2,000 - £1,666.67 = £333.33 - again the same as the dealer in Manchester

All is good in the world!

How do we implement this in Navigator?

Simply, we have added a button to the Vehicle Record which processes the reclaim on entry.

It asks for the date of entry, and the value to calculate the re-claim on (it's normally the same as the purchase price).

It then reduces the cost of the vehicle by the VAT content, makes sure it's a Qualifying Vehicle when sold and posts a VAT input journal for zero Turnover and the amount reclaimed.

There is a report in the VAT reporting to show these transactions - as you need to log and evidence the reclaim.

The VAT return itself also notes these transactions.

See video below :-

Additional Notes

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What about vehicle purchased before the 1st May?

These are treated under the existing Margin scheme providing they are sold before the 1st October. After the 1st October, they are sold as Qualifying Vehicles

What does a Navigator User need to do to switch this on?

The software will be distributed to dealers by the end of March. There will instructions on how to switch this on via a Newsletter

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