Treasury clarifies to NFDA VAT treatment of second-hand cars in Northern Ireland

The Government has provided essential clarity to the National Franchised Dealers Association Northern Ireland division (NFDA NI) regarding the VAT treatment of second-hand cars in Northern Ireland.

Following the Budget announcements on the VAT treatment of second-hand cars in Northern Ireland stating that vehicles first registered after 01/01/2021 would not be eligible for relief, NFDA wrote to the Chancellor of the Exchequer seeking clarity.

In its letter, NFDA highlighted how Rt Hon Michael Gove MP, confirmed in Parliament on 13 January 2021 that HMT and HMRC would reinstate a margin scheme to ensure that NI customers do not pay more VAT than in the rest of the UK, a step which was welcomed by the industry.

NFDA outlined that “critically, there was no such limitation announced when the Government first addressed the matter” and that “dealers were extremely anxious that the VAT on thousands of vehicles sold in the past 11 months would have now been due in full”.

In a letter in response to NFDA, The Rt Hon Lucy Frazer Qc MP, Minister responsible for the UK tax system, has confirmed businesses can continue to rely on the HMRC guidance published on 14 January 2021, which does not limit the use of the margin scheme to vehicles first registered before 1 January 2021.

Positively, the Minister also acknowledged that franchised dealers “will have been relying on HMRC’s guidance on this issue” and that “the prospect of revisiting the VAT treatment of vehicles already sold this year will be extremely concerning for your members”.

As a result, the letter stated that “until the interim arrangement is activated, businesses can continue to rely on the HMRC guidance published on 14 January 2021, which does not limit the use of the margin scheme to vehicles first registered before 1 January 2021”.

 The letter continued: “Regarding the interim arrangement, discussions with the EU on this are ongoing, and the legislation announced at Budget will only be activated in the event that a relevant agreement with the EU has been reached. HMRC will publish updated guidance to ensure affected businesses have clarity over how they should treat the sales of affected cars from the interim arrangement’s activation until the new Second-Hand Motor Vehicle Refund Scheme is introduced”.

Sue Robinson, NFDA NI Chief Executive commented: “It is extremely positive that the Government has provided essential clarity on the VAT treatment of second-hand cars in Northern Ireland and confirmed that dealers can refer to the initial guidance.

“It is also encouraging to hear that Government officials recognise the importance of ‘working closely with the industry’ and are ‘keen to engage further’ with NFDA and its members on the design of the new Second-hand Motor Vehicle Refund Scheme.

“We welcome the Government’s invite to discuss the outlook of this policy with us and look forward to providing regular feedback and sharing our industry experience”.