Northern Ireland second-hand margin scheme interim arrangement
Published 27 October 2021
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Who is likely to be affected
Businesses buying motor vehicles in Great Britain (GB) for resale in Northern Ireland (NI).
General description of the measure
This measure, once commenced, will provide for the continuing use of the VAT margin scheme for sales in NI of motor vehicles sourced from GB. Motor vehicles first registered in the United Kingdom prior to 1 January 2021 will be available to sell under the VAT margin scheme in NI.
Policy objective
The policy objective is to prevent negative impacts on businesses trading in second-hand motor vehicles in NI by remedying changes to the VAT treatment of NI businesses that deal in second-hand vehicles sourced in GB.
Background to the measure
Under the Northern Ireland Protocol, the VAT margin scheme is not available for sales of motor vehicles in NI if they were purchased in GB. This means that motor vehicle dealers in NI must account for VAT in full on sales of these vehicles. This potentially increases prices for consumers or costs for businesses, which risks undermining the trade in motor vehicles in NI.
This measure allows the VAT margin scheme to be available for sales in NI of motor vehicles sourced from GB that were first registered prior to 1 January 2021. This measure is expected to be replaced by the Second-hand Motor Vehicle Export Refund Scheme when introduced.
Detailed proposal
Operative date
This measure will come into effect on a date to be appointed by HM Treasury, once a relevant agreement with the EU has been reached. Once switched on the legislation will have retrospective effect to the end of the transition period (11pm on 31 December 2020).
Current law
The rules for the VAT margin scheme for motor vehicles are contained in:
- Section 50A of the Value Added Tax Act 1994 (VATA)
- The VAT Cars Order 1992 (SI 1992/3122) (the Cars Order). “Motor car” is defined in Art 2 and the relevant provisions setting out the VAT margin scheme for cars are at Article 8.
- The VAT Special Provisions Order 1995 (SI 1995/1268) – see Article 12, which provides for a taxable person to be entitled to opt to use the margin scheme, where VAT is charged by reference to the profit margin on the supplies, and not their value.
Proposed revisions
Legislative changes are being made to provide that vehicles registered prior to the end of the transition period can benefit from the VAT margin scheme. The changes will come into effect on a date to be appointed by HM Treasury.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| negligible | negligible | – | – | – | – |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
The measure is not expected to impact individuals as this measure only affects businesses. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics as this measure only affects businesses.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on the costs for second-hand motor vehicle businesses based in Northern Ireland, as it will ensure that their liability for VAT is the same as it was before the end of the transition period. Businesses and individuals in Great Britain will have no change to the process when selling a vehicle.
One-off costs could include familiarisation with the changes and could include updating records to remove vehicles registered in 2021 from the scheme, if they are already on stock. There are not expected to be any continuing costs.
Customer experience is expected to remain broadly the same as this measure does not significantly alter how businesses interact with HMRC.
This measure is not expected to impact civil society organisations.
Operational impact (£m) (HMRC or other)
Costs to HMRC of implementing this change are expected to be negligible.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact the VAT stakeholder engagement mailbox by email: vatstakeholderengagementhub@hmrc.gov.uk.