When a vehicle is brought into an EU Member State, a liability to VAT may arise depending on the place from which the vehicle is coming and whether the vehicle is regarded as new. As regards the movement of vehicles between Member States, VAT arises where a vehicle falls within the meaning of a “new means of transport”, which is a vehicle which is 6 months old or less, or has travelled 6,000 km or less. As regards vehicles imported into a Member State from places outside the EU (known as a “third country”), regardless of whether a vehicle is new or not, the importation is subject to customs procedures, including Customs Duty (if applicable), and VAT.
Prior to the withdrawal of the United Kingdom from the EU on 1 January 2021, movements of vehicles into the State from the UK were movements between Member States. Following the UK’s withdrawal from the EU, all such movements would have been importations from a third country, but the Protocol to the Withdrawal Agreement, and more recently the Windsor Framework, ensured that the movement of goods between Northern Ireland and the EU would continue to be treated as an intra-EU movement.
However, on 14 January 2021, the UK Government announced a change, effective from the beginning of that year, to extend its VAT “margin scheme” to include used cars brought into Northern Ireland from Great Britain. This unilateral measure impacted considerably on the application of the Withdrawal Agreement and Protocol to create a significant tax risk here. In order to protect the tax base, in February 2021 Revenue introduced temporary arrangements to address this risk, pending resolution of the situation between the UK and the EU.
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 between the trade-in and resale prices). The UK’s extension of the margin scheme created a significant tax avoidance possibility here because the trade in used cars from Great Britain to this State could avoid customs duty and VAT at import if the cars 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.
Revenue’s approach addressed the substantial tax avoidance risk for Ireland posed by 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 of the approach 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.
Such a resolution emerged in 2023, when the UK 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 (or the EU), and then resell. Operating with effect from 1 May 2023, 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 currently has a transitional arrangement in place, recently extended until 30 April 2024, in respect of cars to which the margin scheme had applied.
The UK Government’s introduction of the SHMVPS and winding down of the previous margin scheme arrangement is welcome as, when complete, it will remove the tax avoidance risk that was created by their previous approach. As a result, Revenue will be able to remove the temporary approach adopted here.
Save for situations to which the EU VAT rules on “new means of transport” apply, used cars which have been in use in NI can be registered in the State without liability to additional Customs duties and import Value-Added Tax (VAT) where proof is provided showing that the car has been in genuine private ownership in Northern Ireland. There is no prescribed period of time required for a car to be in private ownership in Northern Ireland, but it is necessary that appropriate proofs – such as a copy of the V5C showing the last registered keeper in NI and a date of registration to that keeper, tax and insurance details indicating use in NI, Ministry of Transport (MOT) test history in NI, etc. – are provided to reflect that ownership.
Guidance material for the public on importing cars from Northern Ireland is available on the Revenue website.
