Written answers

Tuesday, 7 March 2023

Photo of Marc Ó CathasaighMarc Ó Cathasaigh (Waterford, Green Party)
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137. To ask the Minister for Finance if he will outline the VAT treatment of used car imports into Ireland from Northern Ireland and from Great Britain; if the Windsor Framework will have any effect on this; and if he will make a statement on the matter. [11092/23]

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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The Deputy should note that since the UK left the EU Single Market and Customs Union, from 1 January 2021, the movement of goods from Great Britain into the EU is an importation from a third country and, in accordance with the terms of the Withdrawal Agreement, such goods must be declared to Customs, and are liable to customs duty (if applicable) and VAT at import.

Under the terms of the Protocol on Ireland/Northern Ireland, the movement of goods between Northern Ireland and the EU effectively is regarded as a movement within the EU. However, a particular issue emerged in relation to used cars – known as “margin scheme cars” – following a significant change that the UK unilaterally made on 14 January 2021 which impacted considerably on the application of the Withdrawal Agreement and the Protocol. The UK introduced significant changes to the VAT regime for used cars imported from Great Britain into Northern Ireland and extended the scope of the Margin Scheme to them. The UK asked the Commission for a permanent derogation from the VAT Directive to allow them to operate the scheme, but the Commission refused on the basis that the margin scheme could not be applied on sales in Northern Ireland of second-hand cars imported from any third country including Great Britain. In simple terms, as well as the loss of tax revenue, there was a concern that such a measure would provide an unfair competitive advantage for Northern Ireland car dealers over their counterparts in this market.

As a result, and after considering the scale of the threat posed by the abusive routing of cars imported into the State from Great Britain through Northern Ireland and the resulting non-payment of VAT at import, Revenue changed its guidance and indicated that cars imported from Great Britain into Northern Ireland after 31 December 2020 could only be subsequently imported into the State and reregistered here after they were declared to customs and customs duty, if applicable, and VAT at import were paid. This ensures that they are liable for VAT and Duty on the same basis as used cars brought into the State from Britain. The additional paperwork requirements have been kept to a minimum with a simplified Supplementary Import Declaration (SID) being required which allows the VAT on import to be paid. The guidance also indicated that used cars imported into Northern Ireland from Great Britain prior to 1 January 2021 would not be subject to the need to complete a customs declaration and would not be liable to customs duty or VAT at import.

This approach addressed the risk of substantial tax avoidance that had been posed since the UK’s 14 January 2021 announcement. The aim was to bring equal tax treatment to used car imports from Great Britain into the State, whether they be imported through a direct or an indirect route. The approach was intended to be a temporary measure, pending a resolution to the issue between the UK and the European Commission.

The Windsor Framework, a proposed post-Brexit legal agreement between the European Union and the United Kingdom, was announced on 27 February 2023. The Framework itself does not specifically refer to used cars. However, I understand that the UK Government’s guidance material on the Framework states that the agreement protects Northern Ireland’s second-hand car market into the future with a new scheme to take effect from 1 May 2023, ending two years of uncertainty for traders and consumers. We understand this to be a reference to a proposed VAT Refund Scheme in respect of second-hand vehicles exported from Great Britain that was announced by the UK Government late last year, but details on how it will operate have not been published as yet.

Ireland’s current arrangements will be reviewed when we have more information about the proposed UK scheme and will, if appropriate, be amended.

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