Dáil Éireann Debate, Thursday - 22 June 2023
135. Deputy Pearse Doherty asked the Minister for Finance to provide an update on his engagement with Revenue with respect to the current tax rules regarding the importation of vehicles from Britain and the North and their impact on North-South trade and the domestic motor vehicle market. [30179/23]
View answerSince the UK left the EU Single Market and Customs Union, from 1 January 2021, the movement of goods from Great Britain into the EU is an importation from a third country and, in accordance with the terms of the Withdrawal Agreement, such goods must be declared to Customs, and are liable to customs duty (if applicable) and VAT at import. However, the EU-UK Trade and Cooperation Agreement (TCA) eliminated tariff duties for trade between the EU and Great Britain where the relevant rules of origin are met. This means that if vehicles are imported which are of UK origin, then a 0% duty applies, whereas duty of 10% applies to vehicles which are not of UK origin. In certain instances, Returned Goods Relief may apply where the vehicles were originally exported from the EU, have not been altered and are re-imported within three years of export from the EU. In very specific circumstances, relief from Value-Added Tax (VAT) may also apply where the goods are re-imported into the EU by the same economic entity that originally exported the goods out of the EU.
Under the terms of the Protocol on Ireland/Northern Ireland, the movement of goods between Northern Ireland and the EU effectively is regarded as a movement within the EU. However, a particular issue has existed in relation to used cars – known as “margin scheme cars” – following a significant change that the UK unilaterally made on 14 January 2021 which impacted considerably on the application of the Withdrawal Agreement and the Protocol. The UK introduced significant changes to the VAT regime for used cars imported from Great Britain into Northern Ireland and extended the scope of the Margin Scheme to them. Under the Margin Scheme, a car dealer simply accounts for VAT on his or her gross profit margin on the sale of a used car, i.e., on the difference in the trade-in and resale prices. While the UK had signalled that it would approach the European Commission to seek changes to the rules that apply under the Withdrawal Agreement/Protocol, they instead moved unilaterally on 14 January 2021 and published new rules that applied retrospectively from 31 December 2020. The UK then asked the Commission for a permanent derogation from the VAT Directive to allow them to operate the scheme, but the Commission refused on the basis that the Margin Scheme cannot be applied on sales in Northern Ireland of second-hand cars imported from any third country including Great Britain and would result in opportunities for significant abuse.
The UK’s extension of the scheme created a significant tax avoidance possibility here whereby the trade in used cars from Great Britain to this State could avoid customs duty and VAT if they were moved through Northern Ireland. To counteract the tax avoidance opportunities this presented, Revenue revised its published guidance in February 2021 indicating that used cars imported from Great Britain into Northern Ireland after 31 December 2020 could only be subsequently imported into the State and re-registered here after they were declared to Customs and customs duty (if applicable) and VAT at import were paid. This ensured that the cars were liable for VAT and Duty on the same basis as used cars brought into the State directly from Great Britain. The additional paperwork requirements were kept to a minimum with a simplified Supplementary Import Declaration (SID) being required which allowed the VAT on import to be paid.
This approach addressed the risk for Ireland of substantial tax avoidance that had been posed since the UK’s January 2021 announcement, should parties who were importing used vehicles from Britain into the State decide to route the transaction via Northern Ireland. The aim was to bring equal tax treatment to used car imports from Great Britain into the State, whether they were imported through a direct or an indirect route. It was made clear that the approach was temporary in nature, pending a resolution to the issue between the UK and the European Commission. This response was agreed and put in place following extensive consultation between my Department, the Revenue Commissioners and other Government Departments.
Since 1 May 2023, the UK Government has introduced a new scheme – known as the Second-Hand Motor Vehicle Payment Scheme (SHMVPS) – which replaces the Margin Scheme for second-hand vehicles that dealers buy in Great Britain, move to Northern Ireland, and then resell. The UK’s SHMVPS Statutory Instrument was laid on 25 January and the related guidance was published at the same time. When the Windsor Framework was announced on 27 February 2023, the UK Government’s guidance material on the Framework referred to the SHMVPS. The new scheme allows car dealers who are VAT registered in Northern Ireland and other Member States to reclaim the VAT element of the vehicle cost if the vehicle is purchased in Great Britain and removed or exported from there by the purchaser or by the Great Britain dealer. This means that Irish car dealers will now be in the same position as Northern Irish car dealers when purchasing a qualifying vehicle from Great Britain. The UK guidance information explains that claims will be accepted from 1 August 2023, and that from October 2023 the margin scheme will no longer apply in respect of cars moved between Great Britain and Northern Ireland.
As explained, Revenue’s approach was temporary in nature in response to the UK operating outside the remit of the Withdrawal Agreement/Protocol by allowing the margin scheme to apply to used cars imported from Great Britain into Northern Ireland. The approach ensured that the same treatment was applied to used cars imported from Great Britain regardless of whether the cars entered the State directly or were routed through Northern Ireland. In light of the UK’s recent introduction of a new arrangement and present wind-down of its previous arrangement, Revenue is currently considering its impact and I expect updated guidance to be published shortly.
