Selling used cars to other countries in the European Union can be quite complex, as it involves various rules that you have to abide by. If you’re in the business of exporting used cars, you’ll almost certainly have heard of “qualifying cars” and the fact that they are treated differently. But what does this mean in practice?
What is a qualifying car?
When you’re exporting used cars within the EU, you need to determine if the buyer is a private individual or a business, as well as whether the car is “qualifying” or whether it comes under the margin scheme.
If a business buys a car, it loses the right to claim back VAT if there’s any private use. So if a driving school buys a car and there’s no leisure or private use – or it to be used as a taxi – the VAT can be claimed back fully. These cars therefore “qualify” for full VAT refunds. The VAT is applied to the full sale price, not the second-hand price.
You should always ensure a car is legal by doing a vehicle check using mycarcheck.com or similar before you sell it. If you’re selling a qualifying car to a private person in another EU country, you must charge UK VAT on the full sale price, even though it’s second hand. If you’re selling a qualifying car to an enterprise, you can, if you satisfy a couple of conditions, zero-rate the sale. You need:
- the customer’s VAT number and display it on your invoice, and
- Commercial documents showing evidence of the car leaving the UK.
The customer accounts for the VAT on the receipt of the car in the destination EU state and claims it back on their next VAT return.
You cannot, however, sell a qualifying car under the second-hand margin scheme.
Margin scheme
If you export a used car into the EU under the margin scheme you have to account for the VAT on your own margin. Your customer doesn’t need to be VAT-registered and you can use the margin scheme on any cars that aren’t “qualifying”.
EC Sales Lists
You need to fill out Form VAT 101 (the EC Sales List) for any car which falls under these two conditions:
- your purchase invoice showed VAT, and
- you sold it to VAT-registered business in another EU member state.
You won’t need to fill out any forms if:
- you sold the car under the margin scheme, and
- it was sold as a new means of transport.
What you need to watch out for
There have been reports of car dealers in Ireland selling qualifying cars and the dealer has asked them to be “transformed” into a margin scheme car. This is so the VAT costs don’t apply and the selling price is reduced. The tax authorities in Ireland had to trace the UK-based car dealers who did as they were asked in good faith, as they were at risk of being penalised by UK VAT authorities. Dealers unknowingly “turning” qualifying cars into margin cars could end up paying the VAT on the profit margin and also paying interest on VAT owed.
This article was written by Elizabeth Hill on behalf of Expressive Labs.
