Second-hand Motor Vehicle Export Refund Scheme
Published 27 October 2021
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Who is likely to be affected
Businesses buying eligible used motor vehicles in Great Britain (GB) that are removed for resale to Northern Ireland (NI) or the European Union (EU).
General description of the measure
This measure provides a power which enables the introduction of a Second-hand Motor Vehicle Export Refund Scheme. Businesses who buy used motor vehicles from GB that are removed for resale in NI or the EU may be able to claim a refund equivalent to VAT on the price paid. This will put businesses in a similar financial position as if they had continued access to the VAT margin scheme for these second-hand vehicles.
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, motor vehicle dealers in NI may not use the VAT margin scheme on motor vehicles purchased in GB. This means that they must account for VAT in full on sales of these vehicles, potentially increasing prices for consumers or increasing costs for businesses. This risks undermining the trade in motor vehicles in NI.
To support the second-hand motor vehicle industry in NI, the government is introducing a Second-hand Motor Vehicle Export Refund Scheme. Eligible businesses who remove used motor vehicles from GB for resale in NI or the EU may be able to claim a refund in respect of VAT. This means that NI motor vehicle dealers will remain in a similar financial position as those applying the VAT margin scheme elsewhere in the UK.
Detailed proposal
Operative date
The power will come into effect on Royal Assent. Legislation outlining the detail of the scheme will be introduced in 2022.
Current law
The rules for the VAT margin scheme for motor vehicles are contained in:
- Section 50A of the Value Added Tax Act 1994.
- 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 margin scheme for cars are at Article 8.
- The VAT Special Provisions Order 1995 (SI 1995/1268) – 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 which allow the Treasury to make an order. The order, once introduced, will provide for an export refund in relation to motor vehicles removed for resale from GB to NI or EU.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| empty | empty | empty | empty | empty | empty |
The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.
Economic impact
This measure is not expected to have any significant macroeconomic 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
The scheme which will be introduced using the powers provided for in this measure is expected to have a negligible impact on the costs for second-hand motor vehicle businesses based in NI, 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 GB will have no change to the process when selling a vehicle.
One-off costs will include familiarisation with the changes and could include updating software to enable the refund to be applied and calculated correctly.
Continuing costs would include NI businesses keeping records of which motor vehicles have had a credit claim, although this is only a minor addition as margin scheme vehicles were always required to be accounted for separately. 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 are expected to be minimal as we expect that administration for the scheme will be absorbed into existing structures. However, additional resource is likely to be required to process claims from EU businesses.
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.