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HMRC internal manual

VAT Margin Schemes

Second-hand vehicles: What this section covers

Although the general margin scheme principles explained in VATMARG02000 apply to vehicles, there are some additional issues which apply solely to vehicles.

The legal basis covering the relief for second-hand motor cars is in the Value Added Tax (Cars) Order 1992 (S.I. 1992/3122) Article 8.


Article 8

(1) Subject to complying with such conditions (including the keeping of such records and accounts) as the Commissioners may direct in a notice published by them for the purposes of this Order or may otherwise direct, and subject to paragraph (3) below, where a person supplies a used motor car which he took possession of in any of the circumstances set out in paragraph (2) below, he may opt to account for the VAT chargeable on the supply on the profit margin on the supply instead of by reference to its value.

(2) The circumstances referred to in paragraph (1) above are that the taxable person took possession of the motor car pursuant to -

(a) a supply in respect of which no VAT was chargeable under the Act or under Part I of the Manx Act;

(b) a supply on which VAT was chargeable on the profit margin in accordance with paragraph (1) above, or a corresponding provision of the law of another member State;

[(bb) a supply to which the provisions of article 7(4) of the Value Added Tax (Input Tax) Order 1992 applied;]

(c) a transaction which was treated by virtue of any Order made under Section 5(3) of the Act or under the corresponding provisions of the Manx Act as being neither a supply of goods nor a supply of services.

ECJ judgement in the case of Commission v Italian Republic

Where a car bought by a registered business has been subject to an input tax block, the VAT treatment of the disposal of such a vehicle has been affected by the European Court of Justice judgement in the case of the Commission v Italian Republic. With effect from 1 March 2000, such supplies are exempt under Group 14 of Schedule 9 VAT Act 1994. If such a vehicle is purchased by a VAT-registered dealer, he can use the margin scheme for the onward sale.

Prior to 1 March 2000, cars on which the supplier had been unable to reclaim input tax would have been sold on under the Input Tax Margin Scheme. The Input Tax Margin Scheme, which was abolished on 1 March 2000, applied to sales of cars on which the supplier was unable to claim input tax because those cars were available for private use.

Further guidance can be found in VIT. Further advice can be obtained from the VAT Supply team.