HMRC issued its policy paper ‘Accounting for VAT on goods moving between Great Britain and Northern Ireland from 1 January 2021’ on 26 October 2020. The final section of the paper has caused some alarm in Northern Ireland; it states:

‘Margin Scheme

In line with EU rules, margin schemes involving goods, such as the second-hand margin schemes, will not usually apply for sales in Northern Ireland where the stock is purchased in Great Britain. The VAT on these sales will be subject to the normal rules and must be accounted for on the full value of the supply.

Margin schemes will remain available for sales of goods that are purchased in Northern Ireland or the EU, whether sold to customers in Northern Ireland, Great Britain or the EU.

Margin schemes will remain available for sellers in Great Britain selling stock originally purchased in Northern Ireland or Great Britain.’

So to take, for example, a second-hand car which is purchased by a Northern Ireland dealer from an individual in the UK for £5000 and sold in Northern Ireland for £8000, VAT would currently be due on the profit margin, i.e. £500 (8000-5000 x 1/6). From 1 January 2021, the VAT due on the same car would be £1600 (8000 x 1/6), an increase of over £1300.

The need for this change appear to be the result of EU legislation which states that ‘the margin scheme shall apply to the supply by a taxable dealer of second-hand goods, works of art, collectors' items or antiques where those goods have been supplied to him within the Community…’ the problem is that the car will not have been supplied ‘within the Community’ and so the margin scheme will not apply to the transaction. Although the EU legislation will not apply in Great Britain with effect from 1 January 2021, it will apply in Northern Ireland as a result of the Northern Ireland Protocol.

This issue relates not just to motor cars, but to most second-hand goods in the same circumstances. It is understood that the Joint Committee on the Northern Ireland Protocol is aware of the issue and is considering it.

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