VAT Alert! Revenue investigation on car dealers and cars brought in from the UK heightens, immediate action required

Friday, June 5, 2015

by Nick Ryan

In the last week we have received a number of calls from accountants throughout the State asking the same question about a car dealer client. They have either received a Revenue enquiry or audit notification with the officer asking a specific question about the dealers involvement in purchasing vehicles from the UK and where the purchase(s) were accounted for as margin scheme vehicles. The strong suggestion being made is that the purchases do not qualify as margin scheme supplies.
The focus by Revenue is on the criteria that determines a second-hand vehicle as opposed to a new means of transport. Where a vehicle has been pre-owned, and this includes a dealer demonstrator, but is sold where either, it has been driven for 6,000 kilometres of less or, was registered less than 6 months of the date of its sale then the vehicle is considered to be a new means of transport. This is where the problem arises for vehicles that have been sourced from another EU Member State, specifically the UK.
Generally the sale of used vehicles between authorised dealers is considered to qualify as margin scheme supplies; this applies to vehicles sold by an authorised dealer established in another EU Member State. The dealer selling the vehicle has to identify the vehicle as qualifying as a margin scheme vehicle and state this clearly on the invoice. Where an authorised dealer in the UK sells a vehicle which is deemed to be a new means of transport to an authorised dealer in the State then the sale is managed for VAT purposes as an intra-EU acquisition by the dealer in the State with the requirement to account for VAT on the full selling price of the vehicle in the State.
Revenue’s investigation is producing sizeable assessments where Revenue seek to correct matters by dis-applying the use of the margin scheme and looking for VAT on the full sales price achieved. A key focus appears to be authorised dealers who have been purchasing high end vehicles and/or dealer demonstrators. Taking an example of a dealer over a period of two years who has purchased vehicles from the UK on the understanding that the vendor had identified all vehicles as qualifying margin scheme vehicles. Accounting for VAT under the margin scheme with a total purchase price of Euro 100k and sold for Euro 120k results in VAT of Euro 3,739 whereas VAT on the full sales price equates to Euro 22,439 a difference of Euro 18,000 thereabouts. That is a significant assessment and one Revenue are going to pursue vigorously.
But, is it right to penalise the receiver of a supply if the error rests with the supplier? Is this an equitable approach to the management, control and policing of VAT? I would have major concerns over the approach taken.
It is clear that if the Revenue can identify a vehicle as new means of transport as opposed to used then an assessment will beckon and, it appears that Revenue has information to support this approach thus triggering the rise in investigations, enquiries and audits. The argument appears to be is that the Irish dealer, following SIMI’s guidance in 2013, should take adequate steps to ensure the vehicle purchased does qualify as a margin scheme vehicle and, were this is not established by Revenue then an assessment will follow. The curious thing, though not uncommon, is that Revenue are once again silent on what is considered to be the steps a dealer should take to evidence that the vehicle in question does qualify as a margin scheme vehicle; should we not expect the policeman to provide guidelines as to what falls within the law?
So, what to do? Unfortunately, with investigations under way most approaches are reactive as opposed to pro-active. The first essential step is to review the stock purchased from the UK to identify any potential risks, a problem with this is that there is uncertainty as to what information Revenue are working from but, at lease it is a start.
With our experience in advising on both UK and Irish VAT we can provide guidance considering both aspects of the arrangements and identify those vehicles were there is a potential risk. In conjunction with this we can advise on measures to put into place that can assist the dealer in completing future checks to ensure whether the purchase of the vehicle qualifies as a margin scheme supply. We can also provide assistance in managing the Revenue investigation and in preparing any case to defend the VAT treatment applied where it is concluded from our review that the treatment applied can be stood over.
If you have any clients that fall into this category and wish to discuss how we can be of assistance then please contact Annette Ryan, +353238838181 or info@thevatpractice.ie

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