After 30th April 2023, the used vehicle margin scheme cannot be applied to vehicles purchased in GB and moved to Northern Ireland for sale.
This means that a vehicle bought in GB by a NI registered business cannot be sold on using the margin scheme. Those vehicles are effectively treated as VAT-qualifying for the purpose of onward sale.
As no VAT is charged on the purchase invoice of these vehicles, ordinarily a business would not be able to claim the VAT back against the purchase. The Second Hand Motor Vehicle Payment Scheme is a mechanism that seeks to address the negative effect this is likely to have on businesses buying a used vehicle from GB and transporting them to NI for sale.
A VAT-related payment can be claimed from HMRC for those vehicles purchased in GB and moved to NI with the intention to resell them in NI or to the EU.
This change is a result of the manner in which the UK left the EU and this payment scheme is a permanent replacement for the Used vehicle margin scheme.
Determining if the vehicle is eligible
Considerations such as vehicle type, history, and intended purpose after purchasing as the place of supply are important here. For example, the location of the vehicle at the point the purchase is made has a bearing on whether the dealer can claim this new payment or could continue to use the VAT Margin scheme - e.g. a vehicle owned by a GB-based customer who drives the car to Northern Ireland and sells to an NI registered dealer would not be eligible for the new scheme as the purchase took place in NI.
The dealer should satisfy themselves that the vehicle they have purchased is eligible for the scheme and seek advice if they are unsure.
Purchasing and bringing a vehicle into DMS stock
The onward sale in NI of an eligible vehicle must be treated as a qualifying sale. As such, the Vehicle should be brought into stock as a VAT-qualifying vehicle.
There will be a zero purchase VAT on the invoice for the vehicle from the supplier, but, the dealer must also account for Import VAT.
This can be achieved by selecting a supplier with a tax category of Non-EU or by using the Vehicle GRNI process to move invoice processing for the vehicle to the purchase ledger where the correct VAT treatment can be set on the PL account as a default or at the point of posting the invoice.
Doing this allows a reverse charge type of tax posting to be made to account for and reclaim the import VAT.
How to claim a payment on your VAT return
The payment can be claimed on the dealer's VAT return and the payment should be treated as if it were input VAT.
The payment becomes claimable on the removal of the vehicle from GB - not at the invoice date of the vehicle purchase by the NI dealer.
HMRC requires that a dealer keep any and all documentation relating to the removal/transportation of the vehicle to evidence the claim.
In Pinewood DMS we suggest recording this claim as a Nominal Ledger journal with a credit entry to the relevant Input VAT code using the date the vehicle was removed from GB to NI as the transaction date. The debit side of the journal can be recorded as the dealer sees fit - the value in effect serves as a write-down against the cost of the vehicle and so the dealer may also choose to post a bonus to the vehicle whose control entry posts to the same nominal as this side of the journal.
Any tax category other than internal can be used for this, although “Home” would avoid confusion with any actual foreign purchases and will result in the turnover value recorded as that will result in the value being placed in Box 4 of the HMRC Return report in the DMS. This will result in the value appearing in the DMS VAT report and in the MTD for VAT values if that integration is being used by the dealer. These posting(s) can also be linked to the vehicle stock ID by selecting the vehicle stock number when creating the journal.
Documentary evidence for the removal of the vehicle can then be either uploaded against the vehicle stock card or against the Nominal journal transaction (the latter requires this to be turned on in NL Parameters). Dealers should consult HMRC on the evidence they require to be kept for this purpose.
Calculating the payment amount to claim
The amount that a dealer can claim in relation to a vehicle is the VAT fraction of the purchase price of the vehicle. Therefore if a vehicle is purchased in GB for £12000 a VAT-related payment of £2000 can be claimed in relation to that vehicle. One method of calculating this is shown below:
Purchase Price * (1 - (1 / 1+VAT rate))
12000 * (1 - (1 / 1.2))
12000 * (1 - 0.83333333333333333)
12000 * (0.1666666666666666667) = 2000
Circumstances that can affect this calculation
There are several circumstances in which the purchase price should not be the basis for the claim calculation. Some of these are:
Delays in moving the vehicle can affect the value the dealer can claim as payment under this scheme. If the vehicle is moved within 3 months of purchase, then the dealer will normally be able to use the purchase price of the vehicle as the basis for the claim. If the vehicle is moved more than three months after purchase then the dealer must revalue the vehicle using a recognised "arms-length commercial basis or trader valuation". If the value has decreased, this new valuation must be used. If the value has increased then the original purchase price must be used.
If the dealer has inflated the value of the vehicle, for instance when applying over-allowance to secure the sale of a New vehicle, then the valuation must be the trade value only and must not include any price inflation owing to this practice.
Bulk purchases of multiple vehicles at a single price also mean the dealer must apply a fair and reasonable valuation method when claiming for individual vehicles.
The dealer should satisfy themselves that they have applied the correct treatment to any such vehicles.