• Direct export – the supplier is solely responsible for arranging the transport for the movement of goods outside the UK.
• Indirect exports – the overseas customer or their agent is responsible for collecting the commercial goods from the supplier i.e. they are responsible for arranging the transport of goods.

In both of these cases, the export can be treated as zero-rated.

However, from the 1^st January 2021, zero-rating now applies to commercial sales only. HMRC have also updated their public VAT notice, which has altered the definition of an overseas customer. Under the new definition, the criteria for an overseas customer is as follows:

• A business person or company who is not resident in the UK.
• A business that has no business establishment in the UK from which taxable supplies are made.
• Overseas authority.

An overseas person now no longer includes private individuals. This is a subtle change that has been missed by many businesses but could potentially cost them a significant amount in VAT.

Impact of VAT treatment (direct and indirect)

The change has had a major impact on the VAT treatment of indirect exports. Zero-rating still applies where there is a direct export and the supply is made to a private individual, however for indirect exports involving private individuals, VAT is now chargeable on the movement of the goods.

The impact of this change could leave businesses vulnerable to VAT assessments from HMRC. Therefore, businesses who are involved in indirect exports with private individuals should review their export processes, as well as the way they have treated exports for VAT since the beginning of 2021.

For more information or to discuss specific circumstances, please get in touch.

The UK Government is introducing a new second-hand motor vehicle export refund scheme, in October. It will allow dealers to claim a refund of VAT if they move a used motor vehicle from Great Britain to Northern Ireland for resale. It will replace the VAT margin scheme, which was introduced last year to avoid pressure on dealer margins and price increases for customers.

The UK government has said it intends to introduce a new VAT refund scheme in a bid to solve a Northern Ireland Protocol problem affecting car dealers.

The second-hand motor vehicle export refund scheme is a new scheme that the government intends to introduce on 1 October 2022. It will allow you to claim a refund of VAT if you move a second-hand motor vehicle from Great Britain (England, Scotland and Wales) to Northern Ireland for resale.

If you’re a car dealer who sells motor vehicles in Northern Ireland, you will soon have to use the scheme if you:

• buy vehicles in Great Britain and move them to Northern Ireland for resale
• currently use the VAT margin scheme for those sales

You may also be able to use the refund scheme if you:

• are VAT registered in the EU
• buy second-hand vehicles in Great Britain and export them to the EU for resale

Further information on the scheme will be published in May 2022.

If you’re a dealer in second-hand motor vehicles in the UK

When the refund scheme is introduced you will no longer be able to use the VAT margin scheme to account for VAT on second-hand vehicles that you buy in Great Britain, move to Northern Ireland and then resell.

The VAT on these sales will be subject to the normal rules for moving goods between Great Britain and Northern Ireland. When you sell the vehicle, you will account for VAT on the full value of the supply.

The refund scheme will allow you to claim a refund of VAT on the vehicle you have purchased when you move it from Great Britain to Northern Ireland as long as you intend to resell it.

What vehicles are eligible under the scheme

Motor vehicles that are currently eligible for the VAT margin scheme when purchased in Great Britain and sold in Northern Ireland will be eligible for the refund scheme when it is introduced.

If you buy second-hand vehicles in Northern Ireland or from the EU, you will not be able to use the export refund scheme. You will continue to be able to use the VAT margin scheme when you sell them.

How you will account for VAT

You will be able to treat the refund amount as if it were input tax and make the claim on your UK VAT return.

The refund amount will be worked out as the VAT element of the value of the vehicle that you purchased in Great Britain at the time that you move it to Northern Ireland.

In most cases, the value will be the full purchase price you paid for the vehicle.

For example, if you purchase an eligible second-hand car in Great Britain for £12,000 the refund amount would be £2,000 (£12,000 × one-sixth). When you sell the car in Northern Ireland, you must account for VAT at the full value of the supply.

What will happen during the transition to the new scheme

You will be able to use the refund scheme for any eligible vehicles that you move from Great Britain to Northern Ireland from the date that the scheme is introduced.

You will continue to be able to use the VAT margin scheme until that date.

Vehicles that you already have in stock in Northern Ireland when the refund scheme is introduced will continue to be eligible to be sold under the VAT margin scheme.

If you’re a dealer in second-hand motor vehicles in an EU country

When you purchase a second-hand vehicle from Great Britain and export it to an EU country, the VAT on the sale of the vehicle will be subject to the normal rules that apply in the EU country in which you make the sale.

This scheme may allow you to claim a refund of UK VAT on the vehicle you have purchased, when you export it from Great Britain, providing that you intend to resell it.

The refund amount will be worked out as the UK VAT element of the value of the vehicle that you purchased in Great Britain at the time that you export it to an EU country.

If you have a business establishment in the UK, you will be able to claim the refund on your UK VAT return.

If you do not have a business establishment in the UK, including if you are a non-established taxable person, there will be a different process for making a claim.

Published 25 March 2022

EU “type-approval” would no longer be granted to prove the vehicles “comply with safety and environmental standards”, it warned.

It was issued just two days after the boss of Jaguar Land Rover attacked Theresa May’s Brexit strategy, warning that that tens of thousands of jobs were being put at risk.

Manufacturers would need to seek approval from an authority in an EU member state – if such an agreement could be struck.

The document says that, if there is a no-deal Brexit, the government would act unilaterally to ensure EU-made cars could still be bought in this country, by recognising approvals.

But it acknowledges that Brussels might no longer be willing to consider the UK’s Vehicle Certification Agency (VCA) as an appropriate body for sales in the EU.

“In a no deal scenario, type-approvals issued in the UK would no longer be valid for sales or registrations on the EU market,” the document reads.

“This means that affected manufacturers would need to ensure that they have the correct type-approval for each market.”

This week – at a conference attended by the prime minister – the chief executive of Jaguar Land Rover warned of the “horrifying” consequences of a hard Brexit, costing the company £1.2bn a year.

Ralf Speth said: “Brexit is due to happen on the 29 March, next year. Currently, I do not even know if any of our manufacturing facilities in the UK will be able to function on the 30,” he warned.

“Crashing out with no-deal could mean the future of UK car exports to the EU could hang in the balance, damaging an industry filled with thousands of high skilled job,” he warned.

“This no deal scenario cannot be seriously considered as an option when we know how much is at stake.”

However, the department for transport said it was “incorrect” to say UK-made cars could not be sold in the EU after a no-deal Brexit, insisting manufacturers would be able to apply to an EU approval authority.

“The deciding factor is whether they obtained their EU type approval in the UK or an EU member state, not where they are manufactured,” a spokeswoman said.

The situation is another example of how the government’s “no deal” preparations would in fact involve trying to strike a series of separate micro-agreements with the EU, to head off huge damage.

Dominic Raab, the Brexit secretary has written to the EU to propose what he called “no deal deals”, if the need arises – but Brussels had previously rejected such an approach.

Source: https://www.independent.co.uk/news/uk/politics/no-deal-brexit-uk-cars-vehicles-ban-eu-trade-export-europe-sales-a8536076.html

The number of cars being made at British factories plunged 16.8 per cent in September compared to the same time last year, new figures show.

The industry body said the decline was the result of new emissions regulations, model updates, trade tensions, uncertainty over diesel policy and Brexit.

A total of 127,051 cars were assembled at British motor plants in September, down from 152,611 in the same month a year ago.

Domestic demand for home-built models continued to dwindle, with production for the UK market down by 19 per cent.

However, it was a 16.2 per cent decline in outputs for export that will cause the most concern.

With four in five cars built in British factories sent overseas, the drop off in orders for foreign markets saw almost 20,000 fewer vehicles made last month.

The Society of Motor Manufacturers and Traders said there were various reasons for the slowdown in September production. 

Stricter emissions rules required by the new Worldwide Harmonised Light Vehicle Test Procedure were partly blamed.

Becoming mandatory on 1 September, it forced certain carmakers across Europe to halt deliveries of some models that had yet to be re-certified under the new standards.

The SMMT said the sector was also still showing signs of concern regarding the industry's future following Britain's exit from the European Union.

Many manufacturers are already preparing potential backlogs caused by custom checks and new tariffs that could be imposed next year if London and Brussels fail to strike a Brexit deal, adding more costs and red tape for UK vehicle makers.

'It has been a turbulent year and the industry needs stability, something which appears elusive given the lack of resolution to Brexit negotiations,' said SMMT boss Mike Hawes.

'The UK government has recognised the importance of a deal that maintains free and frictionless trade with the EU, but it is up to all sides to deliver this to safeguard the hundreds of thousands of jobs depending on the sector.'

The sector has also suffered due to nosediving demand for diesel and was angered by a British government announcement ahead of next week's budget statement that subsidies offered to those buying plug-in hybrid vehicles will be cut.

Having planned for the Plug-in Car Grant rates to be slashed for electric cars and removed for hybrids on November 9, the government fast-tracked the reduced incentives to October 21 after seeing a spike in sales of low-emissions vehicles. 

'Stability is also needed at home and a stronger UK new car market would go a long way to boosting manufacturing output,' Mr Hawes added. 

'The Chancellor’s Budget next week is the perfect opportunity to stimulate the market, sending consumers and businesses the right signals to encourage the purchase of new cars, which would help bolster economic performance as well as delivering environmental goals.' 

+3

The SMMT's figures showed the drastic slow down in UK car production over the last two years

Alex Buttle, director of car buying comparison website Motorway.co.uk, said the results showed how dependent UK manufacturing is on a strong export market, and the significant decline in overseas demand was alarming. 

'It's doubtful the rest of year will see a reversal of fortunes,'' he said. 'If anything, the situation could get significantly worse.

'Perhaps the most worrying trend is the drop off in domestic sales and the reliance on the export market. 

'This puts the industry on shaky ground as we're still completely in the dark as to how the trading landscape will evolve post Brexit.' 

Justin Benson, head of Automotive at KPMG UK, said it would be a 'pleasant and very welcome surprise' for manufacturers if the chancellor announced an incentive for consumers to buy low emission vehicles in the Budget on Monday having found that many Britons are holding back on buying new cars.

'Brexit and continuing uncertainty is making consumers think twice about making major purchases and KPMG's recent survey of the public in the event of a ‘no deal’ scenario found that almost half of the public expect to delay such purchases,' he said.

'While this means great offers on cars will continue, levels of consumer confidence are directly aligned to vehicle purchases. 

'If there is certainty then confidence should increase, which will hopefully see an improvement in car production and sales.'

Exports drive UK car production in first half as industry urges all Brexit negotiators to safeguard frictionless trade

In 2017, the EU exported EUR 132 billion worth of cars. Imports in that same year amounted to EUR 45 billion, giving the EU a trade surplus of EUR 87 billion (Figure 1). The value of extra-EU exports of cars increased by an average of 5.6 % per year between 2002 and 2017 while imports grew at an average of 5.4 % per year.

Figure 1:EU-28 exports, imports and trade balance in cars, 2002-2017 (EUR_billion)
Source: Eurostat (online data code: DS-018995)

In 2002, the share of cars in total EU exports of goods was 6.5 % (Figure 2). This share dropped to 4.4 % in 2009 and peaked at 7.2 % in 2015 and 2016. It dropped slightly to 7.0 % in 2017. The share of cars in total EU imports of goods did not fluctuate as much. It was 2.2 % in 2002, peaked at 2.6 % in 2004, had a low of 1.4 % in 2012 and 2013 and reached 2.4 % in 2017.

Figure 2: Share of cars in total extra-EU trade, 2002-2017 (%)
Source: Eurostat (online data code: DS-018995)

Who are the EU's partners in trade of cars?

In 2017, the United States was the main export destination of EU's cars (29 % of the total), well ahead of China (17 %) (Figure 3). Japan (6 %), Switzerland (6 %), Turkey (5 %) and South Korea (5 %) completed the top 6. These six made up a little over two thirds of extra-EU exports of cars.

Figure 3: Main extra EU-28 partners for exports and imports of cars, 2017(%)
Source: Eurostat (online data code: DS-018995)

With 22 % Japan was the main origin of extra-EU imports, 3 percentage points ahead of Turkey (19 %) which had been the main import partner in 2016. They preceded South Korea (15 %), the United States (14 %), Mexico (10 %) and South Africa (7 %). Together the top six made up 87 % of all extra-EU imports of cars. It should be noted that exports and imports relate to production within the corresponding country, regardless of the nationality of the factory.

Between 2002 and 2008, exports of cars to the United States had already fallen from EUR 28 billion to EUR 21 billion (Figure 4) but in 2009 they declined to EUR 13 billion, losing EUR 8 billion in only one year. However there was a strong resurgence of exports, gaining EUR 15 billion between 2009 and 2013 and EUR 13 billion in the next two years, thus peaking at 40 billion in 2015. After this peak there was a decline to EUR 38 billion in 2016 and 2017.

Figure 4:EU-28 trade with the United States in cars, 2002-2017 (EUR_billion)
Source: Eurostat (online data code: DS-018995)

Imports from the United States grew from EUR 4 billion in 2002 to EUR 6 billion in 2008 but then halved in 2009. In most of the following years (exceptions in 2011 and 2016) they grew, peaking at EUR 7 billion in 2016 and reaching EUR 6 billion in 2017. During the whole period the EU had a trade surplus for cars with the United States. It was lowest in 2009 (EUR 10 billion), peaking in 2015 (EUR 33 billion) and then falling to EUR 32 billion in 2017.

In 2002 exports of cars to Japan amounted to EUR 5 billion which after some fluctuations dropped to EUR 3 billion in 2009 (Figure 5). After that they grew in every year except 2014 and consequently reached a new high of EUR 8 billion in 2017. EU imports from Japan were EUR 10 billion in 2002 and hovered around EUR 11 to 12 billion until 2008. The next years they dropped until bottoming out at EUR 6 billion in 2013 after which they started growing again. In 2017 imports reached EUR 10 billion, which was still below its previous peak in 2004.

Figure 5: EU-28 trade with Japan in cars, 2002-2017 (EUR_billion)
Source: Eurostat (online data code: DS-018995)

Between 2002 and 2011 the EU had a trade deficit for cars with Japan which peaked at EUR 8 billion in 2006 and 2007. In 2012 and 2013 the EU had a small trade surplus. From 2014 (EUR 1 billion) to 2017 (EUR 2 billion) there was again a trade deficits but much smaller than it had been earlier.

Japan (21 times ), Turkey (20 times ) and South Korea (17 times) appear most often as a top three partner for imports of cars by EU Member States, well ahead of the other countries which appear between 1 and 4 times (Figure 6). Only Germany and Lithuania have a top three without Japan, Turkey and Korea. In total there are 13 different countries as a top three partner for the Member States.

Figure 6: Top 3 partners for extra EU-28 imports of cars by Member State, 2017 (%)
Source: Eurostat (online data code: DS-018995)

There is more variation in export destinations where a total of 33 countries appear as a top three partner for the EU Member States (Figure 7). However 29 of these partners appear three times or less. Only China (13 times), the United States (10 times), Switzerland (9 times) and Turkey (7 times) appear seven times or more. Proximity plays a role in exports, as can be seen in the top partners for Greece (Egypt), France (Switzerland), Lithuania (Belarus), Hungary (Serbia), Malta (Libya), Romania (Turkey) and Finland (Russia).

Figure 7: Top 3 partners for extra EU-28 exports of cars by Member State, 2017 (%)
Source: Eurostat (online data code: DS-018995)

Germany is the EU's largest exporter of cars

Looking at the trade in cars by individual Member State, Germany alone was responsible for well over half (55 %) of the EU total exports in 2017 (Table 1). The United Kingdom, ranking second, registered a sixth (17 %) of the EU total exports. In relative terms, i.e. compared to their total extra-EU export, cars represented 13.6 % of Germany's total exports. This share was surpassed only by Slovakia (39.9 %). The Czech Republic (12.2 %) and the United Kingdom (10.8 %) were the only other Member States whose share of cars in total exports of goods was higher than 10 %.

With a trade value of EUR 13 billion in 2017, Germany’s share in total EU imports of cars was the most significant (29 % of the EU imports), followed by Belgium (20 %), Italy and the United Kingdom (both 10 %). For most member states imports of cars made up less than 3 % of their total imports of goods. Only four countries had higher shares: Spain (3.1 %), Germany (3.8 %), Belgium (7.1 %) and Slovenia (16.2 %). Thirteen Member States had trade deficits in 2017, Belgium (EUR 6.3 billion) and Slovenia (EUR 1.0 billion) were the only two to exceed one billion.

The largest trade surpluses in 2017 were achieved by Germany (EUR 59.3 billion) and the United Kingdom (EUR 17.6 billion). Hungary (EUR 1.0 billion), Spain (EUR 1.1 billion), the Czech Republic (EUR 2.6 billion), Sweden (EUR 3.4 billion), Italy (EUR 3.9 billion) and Slovakia (EUR 4.2 billion) also had surpluses of more than EUR 1 billion.

Table1: Extra EU trade in cars by Member State, 2017 (EUR million and %)
Source: Eurostat (online data code: DS-018995)

Cars dominate trade in motor vehicles and related products

The subcategory 'cars and other motor vehicles for transporting people', described above as cars, was the largest of the six subcategories that make up the category motor vehicles. Its exports were worth EUR 132 billion (64 % of motor vehicles) and its imports were EUR 45 billion (52 % motor vehicles) in 2017 (Figure 8). ‘Parts and accessories of motor vehicles’ followed with exports of EUR 47 billion (23 %) and imports of EUR 23 billion (26 %). Two other sectors are noteworthy: ‘Motor cycles and cycles’ are mainly imported (EUR 8 billion, 10 %) and ‘Motor vehicles for the transport of goods’ have exports of EUR 14 billion (7 %) and imports of EUR 7 billion (8 %). ‘Motor cycles and cycles’ is the only subcategory where the EU had a trade deficit which amounted to EUR 5.5 billion.

Figure 8: Extra EU-28 trade in motor vehicles by category, 2017 (EUR_billion)
Source: Eurostat (online data code: DS-018995)

UK car exports jumped to 1.25m, the highest ever, after factories put on more shifts and increased overtime to meet the demand for British-made vehicles.

The low pound has widely been cited by car makers as a reason for increased demand abroad while others have stressed the need for the UK to maintain zero tariffs and harmonised regulations to aid the steady flow of parts and finished vehicles across Europe.

Last week Nissan UK, which employs 7,000 workers at its plant in Sunderland and exports more than 80% of its vehicles, warned that it would be forced to reconsider expanding production in the UK should it face higher shipment costs or restrictions on the supply of vital parts.

Mike Hawes, chief executive of UK car industry trade body SMMT, said the car industry’s success could be jeopardised without the current arrangements staying in place.

“Made in Britain is a badge coveted by car buyers worldwide, and these latest figures highlight not just that international appeal but the fact that the UK is a globally competitive place to make cars,” he said.

“These latest results are the product of significant investments made over the past few years, but which will continue only if we can maintain the competitive trading conditions that have enabled the UK to become an automotive success story.”

The UK car industry’s total production was also strong, reaching a level not seen since 1999 after it climbed 9.6% in the first 11 months to more than 1.6m units. In November the total reached 170,000 vehicles, also a 17-year high.

The SMMT said production for the home market was “particularly strong in November” after rising 14.0% to 33,745 units, a situation that is expected to continue as the cost of imported cars begins to rise in the new year, giving UK-built cars a price advantage.

The automotive industry is increasingly seen as a vital part of the UK economy that accounts for more than £71.6bn turnover.

“With some 169,000 people employed directly in manufacturing and 814,000 across the wider automotive industry, it accounts for 12.0% of total UK export of goods and invests £2.5bn each year in automotive R&D,” the organisation said.