Brexit, and VAT on second hand cars imported from Great Britain to Northern Ireland

[Coog]

“The VAT bill for a car bought for £8,000 and sold for £10,000 could rise from £333 to £1666.”

Surely this cannot be accurate? If it is then it’s bound to leave used car dealers in Northern Ireland in a totally non-viable situation.

Surely it's only a short term impact for VAT reg'd traders?

 

[Robert]

But the if current VAT of £333 in this example is paid by the dealer and not claimable then does the £1666 replace this figure eating substantially into profit margins?

 

[Eager]

It possibly just means our used car prices rocket. That traders just add it to the bill

 

[Coog]

In what instance would it not be claimable?

Biggest impact will be driveway traders not VAT reg'd and buying from VAT reg'd sources on the mainland. As far as I can tell everything else stays the same? Happy to be corrected though as it's been 20 years since I've done VAT returns!

 

[Robert]

Taken from Used Car Dealer | VAT, current margin scheme for UK

"For example, if you buy a used vehicle for £3,500 and sell it for £4,000, your margin is £500 and this includes the VAT due, at the standard rate (prices included for illustrative purposes only). This is currently 20%. To work out how much VAT is due, you apply the current VAT fraction - divide the margin by 6: £500 / 6 = £83.33 which is the VAT due. There is no input tax to reclaim under this scheme."

 

[JonnyB23]

In what instance would it not be claimable?

Biggest impact will be driveway traders not VAT reg'd and buying from VAT reg'd sources on the mainland. As far as I can tell everything else stays the same? Happy to be corrected though as it's been 20 years since I've done VAT returns!

This is the understanding l take from it as well, although haven't done any proper in-depth reading of the 'NI deal' and VAT treatment etc. But in my mind it just becomes a normal VAT transaction for VAT registered traders, so normal rules would apply.

 

[Robert]

This is the understanding l take from it as well, although haven't done any proper in-depth reading of the 'NI deal' and VAT treatment etc. But in my mind it just becomes a normal VAT transaction for VAT registered traders, so normal rules would apply.

Lets hope you guys are right, I would have thought that if the consequences were so dire that the local media would have been all over it by now.

 

[Coog]

Taken from Used Car Dealer | VAT, current margin scheme for UK

"For example, if you buy a used vehicle for £3,500 and sell it for £4,000, your margin is £500 and this includes the VAT due, at the standard rate (prices included for illustrative purposes only). This is currently 20%. To work out how much VAT is due, you apply the current VAT fraction - divide the margin by 6: £500 / 6 = £83.33 which is the VAT due. There is no input tax to reclaim under this scheme."

Yes that's correct.

In this example in future the transaction would be:

Purchase: £2917 + VAT (583)
Sale: £3333 + VAT (667)

Difference being the same £84 as above.

The problem here is cashflow.

It makes good headline news also.

 

[acsmyth]

So are used cars going to be more expensive or not?

 

[mark19]

So are used cars going to be more expensive or not?

I would say yea
But can just zip to mainland to buy? I think

 

[acsmyth]

I guess the one upshot is that it may be easier to sell cars privately, but if true this is going to be a **** show for dealers.

 

[stevieturbo]

I guess the one upshot is that it may be easier to sell cars privately, but if true this is going to be a **** show for dealers.

Seems all the gurning would only apply to cars "fresh outta England, motorways miles only...."

 

[KevM]

Brexit changes set to hit second-hand cars in NI

From January, NI car dealers will have a bigger VAT bill for vehicles bought in GB and sold on here.

www.bbc.com

Looks like a body blow for the second hand dealers. Won’t affect the driveway dealers who don’t pay VAT anyway.
If anything it’ll help them.

Surely everyone pays VAT, it’s just how it’s accounted for that’s the difference?

If this is as per the BBC interpretation, even private purchases could be affected as the sale to NI will be treated as an export as far as tax goes?

How they’d trace it or police it, remains to be seen, but you can be sure they can and will.

 

[Coog]

So are used cars going to be more expensive or not?

I'd say so even though it shouldn't.

 

[gcon45]

Surely everyone pays VAT, it’s just how it’s accounted for that’s the difference?

If this is as per the BBC interpretation, even private purchases could be affected as the sale to NI will be treated as an export as far as tax goes?

How they’d trace it or police it, remains to be seen, but you can be sure they can and will.

It remains to be seen but no doubt the law abiding vat registered dealers will be affected the most.

 

[davyk31]

I’m not seeing what the issue is for a properly set up second hand dealer. They reclaim VAT on the purchase and pay VAT on the sale. Even timing shouldn’t generally be an issue with VAT being paid quarterly they should have the car sold before the purchase VAT is due or be clever and buy all stock at the end of a VAT quarter to let them reclaim the VAT and then sales VAT isn’t due for another 3 months.

 

[acsmyth]

I guess the issue is, they need to pass that extra expense onto the customer in the interim. Which may make it harder to shift stock and make them less competitive than dealers on the mainland.

 

[davyk31]

It’s no different to any business paying VAT on sales and reclaiming for purchases and none of those bump up prices because of paying vat before a sale is made.

Need some of the guys from the motor trade to tell us what the issue is with the new rules.

 

[RyanM3]

As a used car dealer myself, my accountant sent me this example earlier:

You buy a car for 7000 today in GB and sell it in Ni for £8000 tomorrow – you pay vat on the margin of £1000 which is £166.66

On 1 /1/21 you buy a car for £7000 in GB and sell it in N Ireland on 2/1/21 for £8000 then HMRC will be looking vat of £1333.33.

If this is how its going to work then it’s not good,

 

[acsmyth]

That’s shocking!

 

[Dave..]

As a used car dealer myself, my accountant sent me this example earlier:

You buy a car for 7000 today in GB and sell it in Ni for £8000 tomorrow – you pay vat on the margin of £1000 which is £166.66

On 1 /1/21 you buy a car for £7000 in GB and sell it in N Ireland on 2/1/21 for £8000 then HMRC will be looking vat of £1333.33.

If this is how its going to work then it’s not good,

Wow that is terrible.

 

[stevieturbo]

As a used car dealer myself, my accountant sent me this example earlier:

You buy a car for 7000 today in GB and sell it in Ni for £8000 tomorrow – you pay vat on the margin of £1000 which is £166.66

On 1 /1/21 you buy a car for £7000 in GB and sell it in N Ireland on 2/1/21 for £8000 then HMRC will be looking vat of £1333.33.

If this is how its going to work then it’s not good,

So why would this only affect cars ?

Surely anything brought in from England would be the same ? Yet one news article says vehicles brought in from the EU are not subject to this stupid EU rule ?

Despite nothing leaving the UK or entering the UK

 

[davyk31]

As a used car dealer myself, my accountant sent me this example earlier:

You buy a car for 7000 today in GB and sell it in Ni for £8000 tomorrow – you pay vat on the margin of £1000 which is £166.66

On 1 /1/21 you buy a car for £7000 in GB and sell it in N Ireland on 2/1/21 for £8000 then HMRC will be looking vat of £1333.33.

If this is how its going to work then it’s not good,

But had your accountant said why you can’t reclaim the VAT you have paid when buying the car at £7000?

The tax is as it is named “value added”. You have only added the value of £1000 to the car not £8000.

 

[RyanM3]

But had your accountant said why you can’t reclaim the VAT you have paid when buying the car at £7000?

The tax is as it is named “value added”. You have only added the value of £1000 to the car not £8000.

The majority of cars coming in don’t have vat, only a very small percentage are vat qualifying

 

[Wild Thing]

As a used car dealer myself, my accountant sent me this example earlier:

You buy a car for 7000 today in GB and sell it in Ni for £8000 tomorrow – you pay vat on the margin of £1000 which is £166.66

On 1 /1/21 you buy a car for £7000 in GB and sell it in N Ireland on 2/1/21 for £8000 then HMRC will be looking vat of £1333.33.

If this is how its going to work then it’s not good,

You maybe need a new accountant, what happened the vat you claim back on the 7k purchase price