Policy paper

The 2023 Value Added Tax (margin schemes and removal or export of goods: VAT related payments) order

Updated 4 April 2023

1. Who is likely to be affected

Businesses buying eligible used motor vehicles in Great Britain (GB) and the Isle of Man (IoM) that are removed to Northern Ireland (NI) or exported to the European Union (EU) for resale.

2. General description of the measure

This measure provides for a VAT-related payment scheme (the Scheme). Businesses that buy used motor vehicles in GB and remove or export these to NI or the EU for resale may be able to claim a payment equivalent to VAT on the price paid.

3. Policy objective

The policy objective is to remedy an outstanding VAT issue for businesses trading in second-hand motor vehicles in NI that are sourced in GB and IoM. This will put businesses in a similar financial position as if they had continued access to the second-hand margin schemes for these vehicles.

4. Background to the measure

Under the Northern Ireland Protocol, second-hand motor vehicle dealers in NI may not use the VAT margin schemes on motor vehicles bought in GB or IoM. 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 distorting the trade in motor vehicles within the UK. To support the second-hand motor vehicle industry in NI, the government is introducing the Scheme. VAT registered businesses that purchase eligible used motor vehicles in GB or IoM and remove them to NI for resale may be able to claim VAT-related payments. This means that businesses that deal in motor vehicles in NI will remain in a similar financial position as those applying the VAT margin schemes elsewhere in the UK.

The new scheme will also be available to EU VAT registered businesses that purchase eligible used motor vehicles in GB and export them to the EU for resale.

5. Detailed proposal

5.1 Operative date

This measure will come into effect on 1 May 2023.

5.2 Current law

The current law that enables this measure is Section 50B of the Value Added Tax Act 1994.

5.3 Proposed revisions

This instrument introduces a scheme for businesses removing or exporting second-hand motor vehicles from GB or IoM to NI or the EU for resale.

• In order to make a claim for a VAT-related payment a business has to be registered for VAT in the United Kingdom (where the vehicle is removed to NI) or in the EU (where the vehicle is exported to the EU) and the amount of the claim is based on the value of the vehicle at the time it is obtained or when it is removed/exported (if the latter value is less than the former).

• A UK VAT registered business with a business establishment in the UK will claim the VAT-related payment through its VAT return as though it were input tax and the relevant provisions of the VAT Act 1994 will therefore apply.

• All other claimants must submit claims (overseas claims) directly to HMRC subject to time limits. HMRC may direct in a notice how an overseas claim should be made.

• A business that does not have a business establishment in the UK may appoint a UK based representative and HMRC may require appointment of such a representative as a condition of allowing a claim.

• There is an error correction mechanism for overseas claims. HMRC may assess and recover an overclaim by an overseas claimant and charge interest on such assessments and there are penalties for offences and errors in making claims. There is a right of appeal to the First-tier Tribunal (Tax chamber).

• HMRC may direct what records must be kept (by both UK and EU claimants) and has the power to inspect them.

6. Summary of impacts

6.1 Exchequer impact (£m)

2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028
—	-40	-45	-45	-45	-50

These figures are set out in Table 4.1 of Spring Budget 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Spring Budget 2023.

6.2 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.

6.3 Impact on individuals, households and families

The measure is not expected to impact individuals. This measure is not expected to impact on family formation, stability or breakdown.

6.4 Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

6.5 Impact on business including civil society organisations

The Scheme is expected to have a minimal VAT 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 VAT-related payment to be applied and calculated correctly.

Continuing costs would include NI businesses keeping records of which motor vehicles have had a payment 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 other 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.

6.6 Operational impact (£m) (HMRC or other)

There will be operational impacts for HMRC in implementing this measure, both in terms of changes required to HMRC’s IT systems and the extra resource required to support compliance.

6.7 Other impacts

Other impacts have been considered and none have been identified.

7. Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

8. Further advice

If you have any questions about this change, please contact the VAT stakeholder engagement mailbox by email: [email protected].

9. Declaration

Victoria Atkins MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.