Written answers

Tuesday, 19 January 2010

9:00 pm

Photo of Joe McHughJoe McHugh (Donegal North East, Fine Gael)
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Question 258: To ask the Minister for Finance his views on whether the VAT margin scheme that was introduced in budget 2010 imposes credit flow problems and cash flow problems on vendors of agricultural machinery, who heretofore traded via the special VAT scheme for used agricultural machinery; his further views on whether the new VAT margin scheme makes allowances for the seasonal nature of the agricultural machinery trade; if these considerations will be taken into account when structuring the Finance Bill 2010; and if he will make a statement on the matter. [1119/10]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The VAT Margin Scheme was introduced on 1 January 2010 in respect of second-hand means of transport and agricultural machinery. Under the Margin Scheme, dealers will account for VAT on their profit margin, that is, on the difference between the cost of acquiring the means of transport and agricultural machinery and its reselling price. This will apply to all second-hand means of transport and agricultural machinery sold on or after 1 January 2010.

Up to now all EU Member States applied the Margin Scheme to second-hand vehicles with the exception of Ireland and Denmark. When the Margin Scheme was introduced under the EU VAT Directive in 1994, Ireland, following strong representations from the industry, negotiated a derogation in the form of the Special Scheme which applied up until December last, which is also provided for under the VAT Directive. Introducing the VAT Margin Scheme brought Ireland into line with the vast majority of other Member States.

Although under the new Margin Scheme dealers may experience a cash-flow change where they will be no longer entitled to claim VAT input on the purchase of a second-hand vehicle, this is being compensated for by appropriate transitional measures. In this respect, second-hand vehicles or agricultural machinery acquired by dealers before 1 January 2010 and resold after 1 July 2009 are taxed on their resale price. In effect this means that there will be no clawback of VAT in the case where such vehicles or agricultural machinery are sold at a loss.

In addition, as part of the transition measures, for second-hand vehicles or agricultural machinery purchased from 1 January 2010, dealers will be entitled to claim VAT input credit on those vehicles for six months up to June 2010 at a reducing scale of 40% in the period January/February 2010, 30% in the period March/April and 20% in the period May/June.

It should be noted, as already stated, that moving to the VAT Margin Scheme brings the VAT treatment of second-hand means of transport and agricultural machinery in the State into line with the treatment applying in the vast majority of other Member States.

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