Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

VAT refund issues for UK car purchases

Tuesday, March 27, 2018

by Nick Ryan

Following a number of calls by businesses experiencing difficulties in seeking a VAT refund for the UK VAT accounted for on the purchase of a vehicle from a UK dealer we felt it would be useful to provide this overview and health warning to businesses considering taking advantage of the beneficial exchange rate to purchase a high spec vehicle in the UK.
Unfortunately, although VAT is governed by EU legislation each member state is allowed its own idiosyncracies and differences, VAT on motor vehicles being one that has provided for serious consequences for a number of Irish motor dealers and businesses when purchasing vehicles in the UK. The UK rules for motor vehicles differ to those applied in Ireland, the major difference being the determination on the right to deduct VAT on the purchase of a vehicle and, following this, the VAT treatment of any onward sale.
Also, in conjunction with this, consideration has to be given to the rules introduced under the Single Market in 1993 in relation to the management of cross-border supplies of goods.
For cross-border supplies of goods, the place of supply is determined on whether this is a business to business transaction or, business to consumer. Where business to business is the case then the supply is treated as an Intra EU acquisition of goods by the customer with the requirement for the customer to self account for the VAT due. A point to emphasise at this time is that for a business to business supply to occur it is not merely a requirement for the recipient to be a business, also required, is the need for the supply to be for the customer’s business activity; some readers might recall the cases where UK suppliers where marketing cross-border sales under the “VAT free” premise if a valid VAT identification number could be provided, what was it, ride-on lawnmowers and, pleasure boats!
In simple terms, where an Irish VAT registered business purchases goods from the UK and, where the goods are to be used for the purpose of the Irish customer’s business then the UK supplier can treat the supply as an intra EU dispatch of goods where the customer manages the VAT on the supply.
Unfortunately, given that the rules on VAT deduction for motor vehicles differs in Ireland, UK dealers have taken a stance in applying UK VAT to the sale of a vehicle where the Irish customer is not a registered motor dealer in Ireland. The basis for this is twofold, firstly the historical position in the UK has always been for UK dealers to account for UK VAT on the sale until it has been established that the vehicle was removed from the UK. Secondly, HMRC guidance to motor dealers appears to be to instruct the dealer to charge UK VAT unless the sale is to an Irish motor dealer.
To date, many Irish businesses have attempted to reclaim the UK VAT charged under the EU VAT Refund system, only for the claims to be rejected by the UK authorities on the basis that the UK VAT has been incorrectly charged. Unfortunately, under the EU VAT Refund system, where VAT has been incorrectly charged then the onus is on the customer to seek redress directly from the supplier. As we are becoming more and more aware, UK suppliers are showing little interest in accommodating these approaches.
To date we have acted for a number of Irish businesses in dealing with these disputes and have had some success in facilitating the VAT refund. Also, by taking a proactive approach when considering making a UK asset purchase, we can provide clear guidance in managing the transaction to ensure the VAT is accounted for correctly at the time the purchase occurs which removes the potential negative cost, and stress, to the business where UK VAT has been incorrectly charged.
If you act for a business who has made, or intends to make, a UK purchase or, are a business who has made a UK purchase and is experiencing difficulties in seeking a VAT refund
then please contact us (info@thevatpractice.ie, reference UK VAT purchase) to see how we can help you.

Tags: cross-border supplies and VAT, EU VAT Refund system, UK VAT and motor vehicles, VAT advice, VAT and motor cars