VAT and VRT on Transactions involving Motor Vehicles

Introduction

Motor vehicles sold in Ireland are liable to Value-Added Tax (VAT) at the standard rate, currently 21.5%. In addition, when a motor vehicle is being registered in Ireland, it is liable to Vehicle Registration Tax (VRT). The rate of VRT varies between vehicle types, and is mainly dependant on the level of CO2 emissions. VRT is payable on new unregistered vehicles, and also on vehicles brought into Ireland from other countries.

The VAT and VRT procedures involved when buying and selling motor vehicles may vary depending on the status of the buyers or sellers. These may be motor dealers, traders buying or selling their own business vehicles, motor auctions, private individuals, etc. There are also special procedures for transactions involving second-hand vehicles, or vehicles being transported between countries as part of a purchase or sale. As well as vehicle sales, VAT is also due on any work on motor vehicles, such as repair and maintenance, and on the hire and leasing of vehicles.

How VAT and VRT should be paid in different transactions, and the circumstances in which these taxes may be reclaimed, are set out in this guide. Contact details for any further questions are available in the Enquiries section.

What this guide contains

This guide sets out details of how VAT and VRT should be paid and accounted for when buying or selling new or second-hand motor vehicles. It does not contain rates of VRT, or procedures for registration of vehicles. These are available by contacting the local Vehicle Registration Office (VRO), or on the Revenue website.

Also included are:

  • Guidelines regarding the treatment of other transactions involving motor vehicles, such as hiring and repair/maintenance.
  • The special VAT schemes for second-hand means of transport and agricultural machinery
  • Particulars of the VAT/VRT treatment of vehicles registered by distributors or dealers in their own names.

For reasons of clarity, the term 'motor vehicles' is used in preference to the more general 'means of transport', as this leaflet is directed mainly at the motor trade and private purchasers in respect of motorised land vehicles. Where a means of transport other than a motor vehicle is referred to this will be explicitly stated in the relevant part of the leaflet. A glossary of the specialist terms used in this leaflet is available at the section on Useful Terms and Definitions.

This guide replaces previous publications, 'VAT treatment of Second Hand Motor Vehicles', 'VAT Treatment of International Leasing of Means of Transport 3/99' and 'New VAT Treatment of Vehicles registered by Distributors or Dealers prior to Sale'. This guide is broken down into eight sections, as described below.

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  1. Vehicles bought or sold by an authorised motor dealer
  2. Purchase and sale of second-hand motor vehicles under Special Scheme rules
  3. Vehicles bought or sold by a person other than an authorised motor dealer
  4. Hiring and leasing of vehicles
  5. Work on vehicles, including repair and maintenance
  6. Recovery of tax on the purchase of motor vehicles
  7. Useful terms and definitions
  8. Enquiries

Vehicles bought or sold by an authorised motor dealer

A motor dealer who wishes to deal or trade in unregistered or foreign-registered vehicles must apply for authorisation to do so. Once authorised, a dealer will be issued with a TAN (Trader Account Number) by the local Revenue District. Details of the application process and requirements are available on the Revenue website. Authorisation and possession of a TAN number only affects the way in which the dealer operates Vehicle Registration Tax (VRT). For further information on the operation of VRT by traders without a TAN number, see Motor vehicles supplied by dealers without TAN numbers. Dealers' obligations with regard to Value-Added Tax (VAT) are the same whether or not they have a TAN number.

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New Motor Vehicles bought and sold by an authorised motor dealer

For the purposes of this leaflet, a new motor vehicle should generally be regarded as one which has not been owned by any person other than the manufacturer, distributor(s) and authorised dealer(s), and/or has not been registered by any of these in their own name(s). This is not the same as a 'new means of transport', which is a technical term that applies where vehicles are brought in to Ireland from other EU countries (see sections on vehicles brought into the State by motor dealers, other traders and private individuals).

Vehicle Registration Tax (VRT) charges on new vehicles bought and sold by an authorised motor dealer

An authorised motor dealer, who holds a new motor vehicle as stock-in-trade, is not required to register the vehicle in his or her own name. However, the dealer is obliged to ensure that the vehicle is registered before the customer takes delivery of it. In the course of a sale, the dealer therefore generally collects the VRT amount from the customer and registers the vehicle in the customer’s name. This can be done by using the Revenue On-line System (ROS), or at any Vehicle Registration Office (VRO office). Once a vehicle is registered, it can then be supplied to the customer with registration plates fitted.

An easy way of calculating the VRT liability on any vehicle is to use the VRT Calculator on the Revenue website. The VRO office will confirm the amount of VRT payable. It should be noted that VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price.

N.B.: Only authorised motor dealers are entitled to hold unregistered vehicles. If a person other than an authorised dealer obtains a motor vehicle that is not registered in the State, the vehicle must then be registered in his or her own name, and the VRT must be paid at that time.

Value-Added Tax (VAT) charges on new vehicles bought and sold by an authorised motor dealer

In general, VAT is due (at the standard rate, currently 21.5 per cent) on the full purchase price received by a dealer for any vehicle. However, in the sale of an unregistered vehicle by an authorised dealer, Revenue will accept that the portion of the purchase price that represents the VRT liability is paid by the dealer in the name and on the account of the purchaser; i.e., the customer pays the VRT, and the dealer simply administers the payment from the money handed to him or her. Accordingly, the VAT liability on the sale of a new vehicle by an authorised motor dealer is generally calculated on the VRT-exclusive amount received from the customer. (This also applies in the case of a second-hand or used vehicle brought into the State by an authorised dealer, and sold by him or her prior to being registered in Ireland.) In the case of the sale of a registered vehicle, a VAT liability arises on the full VRT-inclusive amount received, and no adjustment is allowed.

VAT on new vehicles sold to VAT-registered customers outside the State by an authorised motor dealer

Sales of new vehicles to VAT registered traders in other Member States of the EU where the vehicles are dispatched to that other Member State by or on behalf of the Irish vendor should generally be treated as intra-Community supplies, and zero-rated for VAT. The dealer must retain proof that the vehicle was transported outside the State. New vehicles exported by the dealer outside the EU should also generally be zero rated for VAT, and the dealer must retain proof that the vehicle was transported outside the EU (The zero-rate does not apply in any circumstances to second-hand or used vehicles sold by Irish vendors under the Special scheme for second-hand vehicles – these are liable to Irish VAT.)

VAT on new vehicles sold to private customers outside the State by an authorised motor dealer

In the case of the sale of a new vehicle which is also a new means of transport to a private individual in another EU Member State, VAT is ultimately payable by the private individual in that other Member State. Nonetheless, the Irish dealer should charge Irish VAT on the sale of the vehicle. The purchaser will then be liable to account again for VAT in his or her own Member State. Once the customer satisfies the dealer that VAT has been paid, and the vehicle registered with the licensing authorities in that Member State, the dealer should refund the Irish VAT to the customer. The dealer must obtain documentary proof from the customer that VAT has been paid, and the vehicle registered, in the other EU Member State, and he or she can then claim an adjustment in the VAT return to account for the refund of VAT.

If an Irish dealer supplies a vehicle in the circumstances set out above, he or she may elect not to charge VAT if the vehicle is dispatched by the dealer to a place in another EU Member State; and the customer is known to the dealer. In this situation, the dealer is relying on the customer returning documents confirming registration of the vehicle in another Member State. If such proof has not been provided by the date on which the VAT return for the period is due, the Irish dealer must account for VAT on the transaction.

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Second-Hand Motor Vehicles bought and sold by an authorised motor dealer

For this section, a second-hand or used vehicle may be regarded as a motor vehicle, agricultural machine, etc. that has had at least one previous owner, including the current owner, but not including a motor dealer who held the vehicle, etc. as stock-in-trade. Most transactions by motor dealers involving second-hand vehicles will also come within the scope of the Special Scheme for Second-Hand Vehicles, which should be consulted in conjunction with this section.

VRT due on second-hand motor vehicles

Where an authorised motor dealer holds a second-hand motor vehicle as stock-in-trade, he/she is not required to register the vehicle in his/her own name, but it must be registered in the name of the eventual purchaser. In general, there is no VRT due on Irish second-hand vehicles; i.e. vehicles that were previously registered in the State. When such a vehicle is sold, the dealer’s only obligation with regard to registration is to forward the documentation for the change of owner (the Single Registration Certificate) to Vehicle Licensing (Motor Tax Unit), Department of Environment, Heritage and Local Government, Shannon, Co. Clare. There is, however, a VRT charge on second-hand vehicles brought into the State from any other country. This VRT must be paid before the vehicle can be registered in Ireland.

VAT due on sales of second-hand motor vehicles

In the case of Irish-registered second-hand vehicles, VAT is due on the price received for the vehicle. Under no circumstances can any portion of the price, e.g. the VRT element, be separated from the rest of the sale price when calculating the VAT liability, which is due (at the standard rate, currently 21.5 per cent) on the full sale price received by a dealer for a second-hand vehicle.

Where an authorised dealer brings a second-hand vehicle into the State that has been registered in another country, he/she is not obliged to register the vehicle in Ireland until it is being sold. At that stage, the dealer is obliged to ensure that the vehicle is registered in Ireland in the name of the purchaser (or the nominated person, where the purchaser is a company) before the vehicle is released to the purchaser. In this situation Revenue generally accepts that the portion of the sale price that represents the VRT liability is paid by the dealer in the name and on the account of the purchaser, i.e. the customer pays the VRT, and the dealer simply administers the payment from the money handed to him or her.

Accordingly, the VAT liability on the sale by an authorised motor dealer of a second-hand vehicle, brought into the State from another country, is generally calculated on the VRT-exclusive amount received from the customer. (This also applies in the case of a new vehicle sold by an authorised dealer prior to being registered in Ireland.)

In the case of the sale of a second-hand vehicle by any person other than an authorised dealer, a VAT liability arises on the full VRT-inclusive amount received, and no adjustment is allowed.

VAT on second-hand vehicles sold to customers outside the State

Most sales of second-hand vehicles by a VAT registered dealer in Ireland to VAT registered traders in other Member States of the EU will come within the scope of the Special Scheme for second-hand motor vehicles. These sales are liable to Irish VAT, and cannot be zero-rated.

Some sales of second-hand vehicles by a VAT registered dealer in Ireland to VAT registered traders in other Member States of the EU do not come within the scope of the Special Scheme for second-hand motor vehicles. These sales should be zero-rated for VAT as intra-Community supplies.

In the case of the sale of a second-hand vehicle to a private individual in another EU Member State, whether under the Special Scheme or not, the dealer should charge Irish VAT.

Second-hand vehicles exported by an Irish dealer to a place outside the EU should generally be zero rated for VAT. Documentary proof of export must be retained. However, exported second-hand vehicles being sold under the Special Scheme for second-hand motor vehicles are liable to Irish VAT, and cannot be zero-rated.

VAT treatment of 'trade-ins'

If a dealer accepts a vehicle as a trade-in against the purchase of another vehicle, this is treated as two separate transactions for the purpose of accounting for VAT: the sale of a vehicle by the dealer, and the purchase of the 'trade-in' by the dealer.

In respect of the sale of the vehicle the dealer accounts for VAT on the full consideration she or he is entitled to receive on that sale, i.e. the value of the trade-in plus any other payment made in respect of the purchase of the vehicle.

The dealer treats the trade-in as the simple purchase of a second-hand vehicle. If the dealer receives a VAT invoice from the person supplying the trade-in (i.e. the trade-in is from a VAT-registered person who was entitled to reclaim VAT on the vehicle) the VAT charged may be reclaimed in the normal way. Otherwise, if it is a qualifying vehicle the Special scheme for second-hand vehicles will generally apply, and the dealer may claim a deduction of the residual VAT included in the purchase price.

Each qualifying vehicle purchased from a private individual by way of trade-in must be accompanied by a signed declaration that the person selling (i.e. trading-in) the vehicle was not registered for VAT, and did not claim back VAT on the vehicle. (Where a person claimed a refund of VAT or VRT under the scheme for disabled drivers he or she may nonetheless sign the declaration as if no VAT had been reclaimed.) If the person trading-in the vehicle was registered for VAT, but was nonetheless not entitled to reclaim VAT on the purchase of the vehicle, the declaration should reflect this.

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Vehicles purchased as stock-in-trade from foreign sellers by an authorised motor dealer

Where an authorised motor dealer purchases a vehicle from a supplier outside the State, the procedures for paying and reclaiming VAT will vary depending on the status of the supplier, and the way in which the transaction is carried out. In general terms, authorised dealers are entitled to recover VAT on any vehicle purchased as stock-in-trade from any person outside the State. Authorised dealers are not required to register any stock in trade vehicle for VRT purposes until the onward sale of the vehicle takes place (this applies to both new and second-hand vehicles, and whether or not the vehicles were previously registered in any other jurisdiction).

N.B.: Vehicles purchased from suppliers outside the EU are referred to as imports, and may be liable to Customs duty as well as VAT (see below). Vehicles purchased from suppliers within the EU are referred to as 'intra-Community acquisitions', and are not liable to Customs duty, but may be liable to VAT.

In this section, the term 'second-hand vehicle' applies generally to pre-owned vehicles. However, it does not include a pre-owned vehicle brought in to the State that was either supplied less than 6 months after entering into service, or has travelled 6,000 kilometres or less. Such vehicles, even if they were previously owned and registered in another country, are categorised as 'new means of transport', and do not come within the Special Scheme for second-hand motor vehicles. New means of transport bought and sold within the State are not subject to any such restrictions, and may be included in the Special Scheme.

Second-hand vehicles purchased by an authorised motor dealer from a dealer in another country operating the Special or Margin Scheme, including motor auctioneers

Vehicles purchased from a motor dealer operating under a Special or Margin Scheme in another EU Member State are liable to VAT in that country; e.g. a vehicle purchased from a dealer operating the Margin Scheme in the U.K. is liable to U.K. VAT at 17.5% (15% in 2009). This is included in the purchase price as residual VAT, and as such can be recovered by the Irish dealer. To support any claim for residual VAT the dealer must have an invoice issued by the supplier in the other Member State which does not show VAT separately and which is endorsed by the supplier to the effect that the vehicle has been sold under the margin scheme/second-hand goods scheme in that Member State.

N.B.: To avoid confusion, it is essential to note that the term 'qualifying vehicle' applies in Irish law only. Where a vehicle is purchased from a dealer in another Member State of the EU, the use of this term alone is not sufficient indication that the vehicle is within the Special or Margin Scheme. A full statement that the invoice does not give rise to a right to input credit is required. When the Irish dealer sells a vehicle on which he or she has claimed residual VAT, the vehicle must be sold on under the Special Scheme, and the end purchaser will not have any entitlement to reclaim VAT on the vehicle.

Occasionally, a foreign dealer may sell a vehicle outside of the Special or Margin Scheme. In this case, the foreign dealer must issue a zero-rated VAT invoice in respect of the vehicle, quoting the purchaser's VAT number. The purchasing dealer then accounts for VAT in the VAT return for that period, and can claim a simultaneous credit. When selling on a vehicle that was purchased outside of the Scheme the Irish trader may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

A motor auctioneer is deemed to buy and sell the vehicles that pass through the auction. The auctioneer may operate the Special or Margin Scheme in his or her own country, or may sell the vehicles outside of the Scheme, as a VAT registered trader. In either case, the rules set out above will apply equally to an auctioneer. It is important that any vehicle purchased from an auctioneer is accompanied by the correct documentation in order for the purchaser to be entitled to get a refund of VAT.

Second-hand vehicles purchased by an authorised motor dealer from a VAT-registered person in another country other than a dealer

Second-hand vehicles which are purchased as stock in trade by a VAT registered dealer from a VAT registered supplier other than a motor dealer (or a person operating the margin scheme) in another EU Member State are treated as intra-Community acquisitions. That is, the supplier of the vehicle must issue a zero-rated VAT invoice in respect of the vehicle, quoting the purchasing dealer’s VAT number. The purchasing dealer then accounts for VAT in the VAT return for that period, and can claim a simultaneous credit. If this vehicle is subsequently sold by the Irish dealer, s/he must charge VAT on the sale and, where appropriate, issue a normal VAT invoice, and allow the purchaser to claim a credit for the VAT charged.

If the sale of the vehicle takes place in the other Member State, and the supplier charges VAT on the sale rather than zero-rating it, then it may be possible for the Irish dealer to recover the VAT charged once the vehicle has been moved to Ireland. This is subject to the rules in the other Member State, but would normally require the Irish dealer to provide proof to the supplier that the vehicle had been transported to Ireland. The supplier would then issue a credit note and reissue the invoice without VAT.

When selling on a vehicle that was purchased from a VAT registered person other than a dealer, the Irish dealer may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

Second-hand vehicles purchased by an authorised motor dealer from a private person in another country

Where an Irish dealer purchases a second-hand vehicle from a private person in another EU Member State, there will be residual or trapped VAT contained in the price. The purchasing dealer may recover the residual VAT, at the rate that applies in the Member State where the vehicle was registered. In order to claim this residual VAT, the purchasing dealer must prepare a settlement voucher, to include:

  • The name and address of the seller;
  • The name and address of the dealer;
  • The date of the supply;
  • The make, model, engine number, registration number and year of manufacture of the vehicle;
  • The total price of the vehicle;
  • A declaration signed and dated by the seller of the vehicle that the details on the voucher are accurate; and
  • A declaration signed and dated by the seller of the vehicle that he/she is not a VAT-registered person, and/or was not entitled to claim relief in respect of VAT on the vehicle.

This settlement voucher is required to support the dealer’s claim to residual VAT. The dealer must give the seller a copy of the completed settlement voucher within 15 days of the purchase. When the Irish dealer sells a vehicle on which he or she has claimed residual VAT, the vehicle must be sold on under the Special Scheme, and the end purchaser will not have any entitlement to reclaim VAT on the vehicle.

New vehicles (New Means of Transport) purchased by an authorised motor dealer from a VAT-registered person in another country

A 'new means of transport' is a technical term which may be used to describe a motor vehicle that has travelled less than 6,000 km or was supplied less than 6 months since it first entered into service (see full definition). Where an Irish authorised dealer purchases a new means of transport from a person in another EU country, he or she generally accounts for Irish VAT on the vehicle. The VAT-registered foreign supplier issues a zero-rated VAT invoice in respect of the vehicle, quoting the purchasing dealer's VAT number. The purchasing dealer then accounts for VAT in his or her next VAT return, and can claim a simultaneous credit.

If the sale of the vehicle takes place in another Member State, and the supplier charges VAT on the sale rather than zero-rating it, then the Irish dealer can generally recover the VAT charged once the vehicle has been moved to Ireland. The Irish trader will normally be required to provide proof to the supplier that the vehicle has been transported to Ireland, allowing the supplier to issue a credit note and reissue the invoice at zero per cent VAT. This procedure is subject to the rules in force in the other Member State.

When selling on a new means of transport that was purchased from a VAT registered person other than a dealer, the Irish dealer may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

New vehicles (New Means of Transport) purchased by an authorised motor dealer from a private person in another country

Where a dealer purchases a new means of transport from a private person in another country, he or she must always account for Irish VAT on the vehicle even though the supplier cannot charge VAT. The purchasing dealer simply accounts for VAT on the purchase price in the VAT return following the purchase, and can claim a simultaneous credit.

When selling on a new means of transport purchased from a private person in another country, the Irish dealer must issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

Vehicles imported into the EU as a result of purchase by an authorised motor dealer

Vehicles purchased from suppliers outside the EU are referred to as imports. These are liable to Customs Duty and to VAT at the point where they first enter the EU Customs are responsible for taxes and duties on imported goods, and all VAT and duty is payable to Customs. A VAT registered dealer can reclaim this VAT in his or her VAT return. Customs duty cannot be recovered.

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Registration of vehicles by dealers/distributors in their own names

There are a number of different reasons why a dealer would want to register a vehicle in the name of the dealership (a self-registered vehicle). These include where a vehicle is used by the business other than as stock in trade, or where it is used as a demonstration model. In the case of a vehicle on which VAT is not normally deductible (see 'Commercial and non-Commercial Vehicles'), registering it in the name of the dealership is regarded as a 'self-supply' of the vehicle, and the VAT treatment changes. [It is important to note that, in the normal course of events, where a dealer sells a vehicle it must be registered in the name of the purchaser (or in the case of a company car, a person nominated by the company). Following the sale of a vehicle, it cannot be (or remain) registered in the name of the dealer.]

Self-supply of vehicles registered in the name of a dealer/distributor

Where a dealer (and/or distributor) registers a non-deductible vehicle in the name of the dealership the vehicle is treated as removed from stock-in-trade. This removal results in a 'self-supply' for VAT purposes. This means that a dealer, who had taken deductibility for VAT on the purchase or importation of the vehicle, must pay back the VAT claimed on that vehicle. This must be done in the VAT return for the period in which the vehicle was registered in the dealer’s name. The amount of VAT is calculated as if the vehicle were sold at cost price at the time of registration.

Subsequent sale of a vehicle registered in the name of a dealer/distributor

When a vehicle that was self-registered is subsequently sold to a customer, the vehicle is treated as if it were brought back into stock for sale as a second hand vehicle, and it must then be sold through the Special Scheme for second-hand motor vehicles. This means that the dealer will be entitled to make a claim on his/her VAT return for the residual VAT.

Calculation of the amount of the residual input credit on a vehicle registered in the name of a dealer/distributor

The basis for calculating the residual VAT is the VAT-inclusive cost price plus VRT. This is calculated according to the formula normally used for the calculation of residual input credit for second hand motor vehicles with a slight variation, as follows:

A x [B / (B+100)]

Where

  • A is the original cost price (inclusive of VAT and VRT) and
  • B is the percentage rate of VAT

Where a self-registered vehicle is brought back into stock both the claim for the residual VAT and the VAT on the sale of the vehicle will be accounted for in the same VAT return. The effect of this mechanism is that the residual VAT credit will be offset against the output VAT on the sale, and the dealer will actually pay VAT only on the difference between the cost price (inclusive of VAT and VRT) and the sale price. However, the dealer cannot claim more residual VAT than the VAT due on the sale. If the cost price (inclusive of VAT and VRT) is greater than the sale price the residual input credit is limited to an amount equal to the VAT on the sale price. As the vehicle is being sold through the Special Scheme, no deductibility is allowed on foot of the invoice issued (except if the vehicle is purchased by another dealer operating the Special Scheme).

Example VAT due on sale of a demonstration vehicle:

Where a vehicle is to be used as a demonstration model, the dealer (and/or distributor) is obliged to register the vehicle in his or her own name (also referred to as self-registration). The VAT and VRT treatment of such vehicles changed with effect from 1 May 2003. The vehicles involved are those of the type, which, outside of the motor trade, are non-deductible vehicles for VAT purposes. These include the vehicles classified for VRT purposes as 'category A' vehicles (cars in general) and motorcycles.

A new vehicle was purchased by a motor dealer for €11,465 (exclusive of VAT and VRT), registered by the dealer, used for demonstration purposes, and later sold for €21,000. The VAT liability is calculated as follows:

Net cost of vehicle to dealer: 			€11,465
VAT (liability on self-supply): 		€2,465
VRT: 						€5,625
Total cost price (incl. VAT and VRT): 		€19,555

Following use as a demo model, the vehicle was subsequently sold for €21,000.00. The net VAT due on sale of the vehicle is calculated as follows:

VAT due on sale: (21,000 x 21.5) /121.5 =	€3,716.04
Residual credit* due: (19,555 x 21.5) /121.5 =	€3,460.34
Net VAT due on sale of demo vehicle: 		€255.70

*The amount of residual credit claimed cannot exceed the amount of VAT due on the sale of the vehicle.

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Scheme for agricultural machinery and vehicles purchased by dealers

Agricultural machinery is defined as equipment or machinery used by a flat-rate farmer in the course of his or her normal farming activities (as defined in the Fifth Schedule to the VAT Act). This definition covers commercial vehicles used in the course of the farming business.

This scheme, which came into effect on 1 September 1999, provides VAT arrangements for purchases, by dealers, of agricultural machinery from flat-rate farmers. The scheme provides that dealers in agricultural machinery can deduct the residual tax contained in the purchase price of second-hand agricultural machinery bought from any of the above mentioned persons and issue a VAT invoice on the subsequent sale of the goods. The Finance Act 2000 extended the scheme to agricultural machinery that had been repossessed by a hire purchase company, and later sold to a taxable dealer.

The Finance Act 2002 further extended the scheme to agricultural machinery that had been surrendered to an insurance company in connection with the settlement of a claim under a policy of insurance, and later sold to a taxable dealer.

Calculation and deduction of residual VAT on agricultural machinery

Residual VAT is deductible in the VAT period in which the vehicle is purchased, along with any other VAT incurred by the taxable dealer, by way of the VAT return for that period. The amount of the residual VAT is calculated at the rate of VAT chargeable on the supply of agricultural machinery. The purchase price paid by the dealer is always treated as VAT inclusive. The residual VAT is calculated using the following formula:

(A x B) / (B + 100)

Where
A is the price paid by the dealer for the purchase of the agricultural machinery, and B is the percentage rate of VAT

Example

Where a flat-rate farmer sells a second-hand tractor to a taxable dealer for €10,000, the residual tax is calculated as follows:

Purchase price = 			        €10,000
Residual VAT   = (€10,000 x 21.5) /121.5 = 	€ 1,769

Restriction on recovery of residual VAT on agricultural machinery

The residual tax claimed by the dealer on the purchase of the machinery cannot be greater than the tax chargeable on the subsequent supply. If the dealer sells the machinery for less than the purchase price paid, he or she must pay the same amount of tax as that claimed on the purchase. An adjustment must therefore be made in the VAT return covering the period of the sale to increase the amount of VAT due on the sale to match the amount of residual VAT originally claimed.

Example

A dealer who buys a second-hand tractor from a flat-rate farmer for €5,000, and sells it for €3,000 VAT exclusive, must account as follows:

Tractor purchased for 					€5,000
Residual VAT claimed in VAT3 for period of purchase = 	  €884
Sold for €3,000 excluding VAT 
VAT liability on sale = 				  €645

Dealer must increase the VAT due on sales in his/her VAT return by €239 to account for difference.

Invoicing for sales of agricultural machinery

A flat-rate farmer must issue an invoice in relation to a supply of agricultural machinery to the taxable dealer. However, the document will usually actually be prepared by the taxable dealer and accepted by the flat rate farmer. and shall include the following particulars:

  1. The flat-rate farmer's full name and address,
  2. The full name, address and VAT registration number of the taxable dealer,
  3. The date of issue of the invoice,
  4. A description of the agricultural machinery, including details of the make, model and, where appropriate, the year of manufacture, the engine number and registration number of that machinery,
  5. The date on which the agricultural machinery was supplied,
  6. The consideration for the supply of the agricultural machinery,
  7. A declaration by the farmer that the agricultural machinery was used for the purposes of his or her farming activities.

Where the person disposing of repossessed or surrendered agricultural machinery is an insurance company * and such disposals are deemed not to be a supply of goods, they shall issue a document to the taxable dealer, which shall include the following particulars:

  1. The insurance company’s full name and address,
  2. The full name, address and VAT registration number of the taxable dealer,
  3. The date of issue of the invoice,
  4. A description of the agricultural machinery, including details of the make, model and, where appropriate, the year of manufacture, the engine number and registration number of that machinery,
  5. The date on which the agricultural machinery was supplied,
  6. The consideration for the supply of the agricultural machinery,
  7. Confirmation that the disposal is deemed in accordance with Section 3(5)(d) of the VAT Act 1972 (as amended) not to be a supply of goods.

*Disposal of machinery following repossession by a hire-purchase company is considered to be a supply of goods (with effect from 1 May 2007) and is liable to VAT.

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Purchase and sale of second-hand motor vehicles under Special Scheme rules

Where a motor dealer (whether authorised or not) purchases a second-hand motor vehicle from a person who was not entitled to reclaim VAT on his or her original purchase of the vehicle, the dealer is still obliged to charge VAT on the resale of the vehicle. Therefore, the original VAT charged on the vehicle is regarded as 'trapped' or 'residua'. However, a Special Scheme for second-hand motor vehicles has been put in place to allow dealers to recover some or all of this trapped or residual VAT. The rules and procedures relating to this Scheme are set out below. Any dealer who wishes to operate the Scheme must follow all the relevant rules, particularly with regard to the invoicing requirements under the Scheme.

What second-hand vehicles qualify for the special scheme?

Vehicles that qualify for the scheme are ones which are

  1. sold (or traded-in) to the dealer by a person who was not entitled to deduct any VAT in relation to the original purchase of the vehicle, or
  2. sold (or traded-in) by another dealer who took a deduction of residual VAT on the original purchase of the vehicle.

These are referred to in Irish law as 'qualifying vehicles'.

Qualifying vehicles are bought by the dealer as stock-in-trade for resale, from one of the following:

  1. A private individual in Ireland or in another Member State of the European Union;
  2. A business in Ireland or in another Member State of the European Union which could not claim a VAT credit on its purchase of the vehicle or which is not obliged to issue a VAT invoice in respect of the sale of the vehicle;
  3. A business which is an exempt insurance company which took possession of the goods in connection with the settlement of a claim under a policy of insurance from a person who was not entitled to input credit in respect of the goods.

    In the case of each of the categories (1) to (3) above, each qualifying vehicle purchased by a dealer must be accompanied by a signed declaration that the person selling or trading-in the vehicle was not registered for VAT, and/or was not entitled to claim back VAT on the vehicle. However, a vehicle may still qualify under the scheme where the dealer purchased the vehicle from a person who claimed a refund of VAT or VRT under the scheme for disabled drivers.

    Other vehicles that qualify under the scheme include those purchased from:

  4. A business which is a hire-purchase provider and has claimed residual VAT on the vehicle;
  5. Another motor dealer in Ireland who claimed residual VAT on the purchase of the vehicle;
  6. A motor dealer in another Member State selling the vehicle under the special scheme/margin scheme for taxation of second-hand goods in that other Member State.

In the case of each of the categories (4) and (5) above, each qualifying vehicle purchased by a dealer must be accompanied by a valid Special Scheme invoice endorsed "Special Scheme – this invoice does not give the right to an input credit". In the case of category (6) above, each vehicle must be accompanied by a valid Special Scheme or Margin Scheme invoice issued in accordance with the legislation in that Member State.

N.B.: To avoid confusion, it is essential to note that the term 'qualifying vehicle' applies in Irish law only. Where a vehicle is purchased from a dealer in another Member State of the EU, the use of this term alone is not sufficient indication that the vehicle is within the Special or Margin Scheme. A full statement that the invoice does not give rise to a right to input credit is required.

Calculation and deduction of residual VAT on second-hand vehicles in the Special Scheme

A motor dealer may deduct the residual VAT included in the purchase price of any qualifying vehicle which s/he buys, whether as a straight purchase or as a trade-in (subject to correct procedures having been followed – see Invoicing – the purchase of a qualifying vehicle in the Special Scheme). Residual VAT is deductible in the VAT period in which the vehicle is purchased by way of the VAT return for that period.

The amount of the residual VAT is calculated on the basis that the purchase price is VAT inclusive. The rate at which the VAT should be calculated is the rate at which it is chargeable on the supply of motor vehicles in the EU Member State where the person selling the qualifying vehicle to the Irish dealer is based. That is, if the dealer purchases the vehicle from an Irish source, the rate used for the calculation is the Irish VAT rate of 21.5%. If the dealer purchases the vehicle from a UK source, the rate used for the calculation is the UK VAT rate, currently 17.5% (15% in 2009).

Example 1 – A Qualifying second-hand vehicle purchased from an Irish vendor

If the qualifying vehicle is bought from an individual or business in Ireland, where the current VAT rate is 21.5%, the residual VAT is calculated as follows:

Purchase price = 				€10,000
Residual VAT   =  (€10,000 x 21.5) /121.5 = 	€ 1,769

Example 2 – A Qualifying second-hand vehicle purchased from a U.K. vendor

If the qualifying vehicle is bought from an individual or business in the UK, the residual VAT calculation is based on the UK VAT rate, currently 17.5% (15% in 2009), as follows:

Euro equivalent of Sterling purchase price = 	€10,000
Residual VAT = (€10,000 x 17.5) / 117.5    = 	€ 1,489

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Clawback of residual VAT following the sale of a qualifying second-hand vehicle in the Special Scheme

A 'clawback' is the term used for an adjustment required when the price paid for a qualifying vehicle is greater than the price obtained when the dealer sells that vehicle. For each vehicle, the amount of residual VAT deductible by the dealer must not be more than the amount of VAT charged by the dealer on the subsequent sale.

Example:

Qualifying vehicle purchased in January for €10,000


Residual VAT claimed in VAT 3 for January/February = 		€1,769


Vehicle sold in May for €9,000 including VAT
 
VAT on sale accounted for in VAT 3 for May/June =		€1,592

Amount of clawback which must be deducted from VAT
on purchases in VAT return for May/June = €1769 - €1592 = 	  €177

Effectively, if a qualifying vehicle is sold for less than it was bought for (or less than was given on a trade-in), an adjustment must be made in the VAT return covering the period of the sale to reduce the amount originally claimed. The dealer accounts for the VAT on the sale in the normal way, but reduces the figure for VAT on purchases in that period to account for the clawback. (This also applies if the vehicle is sold in the same VAT period in which it was bought).

The adjustment must be made on each individual transaction, and in respect of the tax period in which the vehicle is sold. However, where a dealer sells more than one qualifying vehicle to a customer in a single transaction (e.g. in a dealer-to-dealer transaction), the amount of the residual VAT deducted in respect of all the vehicles included in the transaction can be added together and compared with the amount of VAT due on that sale for the purpose of calculating whether a clawback is due.

A temporary measure allowing for the deferral of payment of residual VAT due to be clawed-back for 2008 was introduced in December 2008. Full details are available in Chapter 12b-04 of the VAT Manual.

Invoicing – the purchase of a qualifying second-hand vehicle in the Special Scheme

Where a motor dealer claims residual VAT on the purchase of a qualifying vehicle, he or she must be able to support that claim by an invoice or settlement voucher, completed in accordance with the appropriate VAT Regulations.

  1. Where a dealer buys a qualifying vehicle from another dealer established within the State, a valid Special Scheme invoice issued by that other dealer, endorsed "Special Scheme – this invoice does not give the right to an input credit", is required to support the claim to residual VAT.
  2. Where a dealer buys a qualifying vehicle from a person who is not another dealer, the purchasing dealer shall prepare a settlement voucher. It must include:
    • The name and address of the seller;
    • The name and address of the dealer;
    • The date of the supply;
    • The make, model, engine number, registration number and year of manufacture of the vehicle;
    • The total price of the vehicle;
    • A declaration signed and dated by the seller of the vehicle that the details on the voucher are accurate; and a declaration signed and dated by the seller of the vehicle that he/she is not a VAT-registered person, and/or was not entitled to claim relief in respect of VAT on the original purchase vehicle*. If the seller is a VAT-registered person who nonetheless was not entitled to claim VAT on the purchase of the vehicle, the declaration should reflect this.
    This settlement voucher is required to support the dealer’s claim to residual VAT. The dealer must give the seller a copy of the completed settlement voucher within 15 days of the purchase.

    *(Where a person claimed a refund of VAT or VRT under the scheme for disabled drivers he or she may nonetheless sign the declaration as if no VAT had been reclaimed.)
  3. Where a dealer buys a qualifying vehicle from a dealer in another Member State, it will be supplied either under a Special Scheme or a Margin Scheme for the taxation of second-hand goods in that Member State. The purchase price will contain residual VAT, which the Irish dealer can deduct as set out in Calculation and deduction of residual VAT on second-hand vehicles in the Special Scheme.

    To support this deduction the dealer must have an invoice issued by the supplier in the other Member State which does not show VAT separately and which is endorsed by the supplier to the effect that the vehicle has been sold under the margin scheme/second-hand goods scheme in that Member State.

    N.B.: To avoid confusion, it is essential to note that the term 'qualifying vehicle' applies in Irish law only. Where a vehicle is purchased from a dealer in another Member State of the EU, the use of this term alone is not sufficient indication that the vehicle is within the Special or Margin Scheme. A full statement that the invoice does not give rise to a right to input credit is required. In particular, the Irish dealer must ensure that a vehicle on which he or she claimed residual VAT was not in fact zero-rated by the seller as an intra-Community supply. In such a situation, the Irish dealer would be obliged to pay back the residual VAT claimed, and account for VAT on the acquisition of the vehicle.

    For vehicles brought in under the normal zero-rated intra-Community supply rules, see
    Vehicles purchased as stock-in-trade from foreign sellers by an authorised motor dealer.

Invoicing - the sale of a qualifying second-hand vehicle in the Special Scheme

Where a dealer sells a vehicle on which he or she has claimed residual VAT, he or she cannot issue a VAT invoice that allows the customer to claim input credit (this restriction is a legal requirement under European law). Therefore, where a qualifying vehicle is sold to another taxable person, the invoice issued must not show VAT separately and must include the following endorsement:"Special Scheme – this invoice does not give the right to an input credit of VAT".

This rule applies even when the customer is another motor dealer in the State. However, in that case, even though the purchasing dealer is not receiving a normal VAT invoice, he or she is entitled to deduct the residual VAT in the transaction under the Special Scheme because the vehicle is a qualifying vehicle.

If a qualifying vehicle is sold to a person in another Member State, Irish VAT is charged in the same way as it would be if the vehicle was sold to a customer in the State. If that customer in the other Member State is a VAT-registered person, the dealer must issue an invoice under the Special Scheme containing the endorsement set out above.

Treatment of qualifying second-hand vehicles when taken out of the Special Scheme

In order to allow a VAT-registered customer to reclaim VAT, a dealer may choose to take a vehicle out of the Scheme, having already claimed residual VAT. In this case, the dealer must repay any residual VAT previously claimed, by making an adjustment in the VAT return for the period when the vehicle was taken out of the scheme for the full amount of VAT claimed. The dealer may then issue a normal VAT invoice on selling the vehicle, allowing the customer to recover VAT.

When supplying a vehicle taken out of the Scheme to a VAT-registered trader in Ireland, the dealer must issue a normal VAT invoice, including the rate and amount of VAT on the sale. If the customer is a VAT-registered trader in another Member State, the invoice should be zero-rated, and quote the customer’s VAT number.

Similarly, if a vehicle purchased by a dealer in Ireland from a dealer in another Member State is accompanied by a zero-rated VAT invoice under the intra-Community rules, it means that the dealer in the other Member State is not supplying the vehicle under the special scheme and the vehicle is not, therefore, a qualifying vehicle. The dealer in Ireland will not be entitled to claim residual VAT on the transaction, but must put it through the normal intra-Community acquisition mechanism for VAT. In that case, in accordance with normal rules, the invoice from the supplier should show the VAT number of both parties and should indicate that the supply is zero-rated.

For all private customers, Irish VAT at 21.5 per cent should be charged.

The sale of a new means of transport, that is also a qualifying second-hand vehicle, to another EU Member State

Legislation specifies that a vehicle that was supplied less than six months after it first entered into service or has travelled less than 6,000 km is a ‘new means of transport’ for VAT purposes. It is important to note that the term applies to any vehicle that satisfies either one of the criteria above – for example, a vehicle that was supplied 10 months after it first entered into service, but has travelled only 5,000 km is still a new means of transport, as is a vehicle that has travelled 10,000 km but was supplied only 5 months after first entry into service. For a full definition, see Useful Terms and Definitions.

New means of transport are liable to VAT in the country where they are to be used (generally the country where they are, or should be, registered) rather than where the supplier is established.

A qualifying vehicle may also be a new means of transport if a customer trades in (or sells to a garage) a vehicle that was supplied less than six months after first entry into service or has travelled less than 6000 km. The onward sale of such a vehicle to a person in another Member State will be liable to Irish VAT at the standard rate, currently 21.5%, if the sale takes place in Ireland. If the customer then transports the vehicle to another Member State, registers it there with the vehicle licensing authorities, and pays VAT, then the Irish VAT may be refunded subject to proof that the vehicle is registered and VAT was paid in that other EU Member State.

A dealer who gives a VAT refund following the sale of a new means of transport (that is also a qualifying vehicle) to a private customer in another EU Member State may claim a deduction for the VAT charged in the VAT return for the period. In this situation, there is no obligation to operate the clawback rule – i.e. the VAT adjustment claimed may exceed the amount of residual VAT claimed on the vehicle.

Requirement to keep records for the purchase and sale of vehicles in the Special Scheme

The Revenue Commissioners require an audit trail from the purchase of a qualifying vehicle to the sale of that vehicle with cross-reference to the relevant supporting documentation. Where residual VAT has been claimed and the vehicle has not been sold, adequate stock records should be available to substantiate this. It is important for traders to note that if documentation is missing or incorrectly completed, this may affect the right of the trader to claim a refund of VAT.

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Vehicles Bought or Sold by a Person Other Than an Authorised Motor Dealer

Vehicles purchased from foreign sellers by Irish VAT-registered traders (including dealers without TAN numbers)

Where a VAT-registered trader, other than an authorised motor dealer, purchases a vehicle from a supplier outside the State, the procedures for paying and reclaiming VAT will vary depending on the status of the supplier, and the way in which the transaction is carried out. In general terms, VAT-registered traders may recover VAT incurred on the purchase of any commercial vehicle for business use. In addition, motor dealers without TAN numbers are also entitled to recover residual VAT on any qualifying second-hand vehicles purchased as stock-in-trade. Any person other than an authorised dealer who brings a vehicle into the State is obliged to register it for VRT purposes by the end of the day following its arrival in the State (this applies to both new and second-hand vehicles, and whether or not the vehicles were previously registered in any other jurisdiction). An easy way of calculating the VRT liability on any vehicle is to use the VRT Calculator on the Revenue website. The VRO office will confirm the amount of VRT payable. It should be noted that VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price.

N.B.: Vehicles purchased from suppliers outside the EU are referred to as imports, and may be liable to Customs duty as well as VAT (see below). Vehicles purchased from suppliers within the EU are referred to as 'intra-Community acquisitions', and are not liable to Customs duty, but may be liable to VAT.

In this section, the term 'second-hand vehicle' applies generally to pre-owned vehicles. However, it does not include a pre-owned vehicle brought into the State that was either supplied less than 6 months after entering into service, or has travelled 6,000 kilometres or less. Such vehicles, even if they were previously owned and registered in another country, are categorised as 'new means of transport', and do not come within the Special Scheme for second-hand motor vehicles. New means of transport bought and sold within the State are not subject to any such restrictions, and may be included in the Special Scheme.

Second-hand vehicles purchased by a VAT-registered trader from a dealer operating the Special or Margin Scheme in another country

Second-hand vehicles purchased from a motor dealer operating under a Special or Margin Scheme for sales of goods in another EU Member State are liable to VAT in that country; e.g. a vehicle purchased from a dealer operating the Margin Scheme in the U.K. is subject to U.K. VAT at 17.5% (15% in 2009). This VAT forms part of the purchase price. Any invoice issued under a Special or Margin Scheme will contain an endorsement to the effect that no part of the VAT charged may be reclaimed. Therefore, a VAT registered trader (other than a motor dealer) will normally not be entitled to recover any VAT on a vehicle purchased from a dealer in another Member State operating under a Special or Margin Scheme. However, if the trader subsequently sells any such vehicle, he or she will be obliged to charge VAT on the sale, despite not having any entitlement to reclaim VAT on the purchase.

A motor dealer does not have to be authorised or have a TAN number in order to avail of the Special Scheme for Second-Hand Vehicles in Ireland. If such a motor dealer purchases a vehicle as stock in trade from a dealer abroad operating a Special or Margin Scheme, then he or she is entitled to recover the residual VAT contained in the purchase price. To support any claim for residual VAT the Irish dealer must have an invoice issued by the supplier in the other Member State which does not show VAT separately and which is endorsed by the supplier to the effect that the vehicle has been sold under the margin scheme/second-hand goods scheme in that Member State.

Any subsequent sale of the vehicle by the Irish dealer must also be under the Special Scheme in Ireland, unless he or she takes the vehicle out of the Scheme and repays the residual VAT.

N.B.: To avoid confusion, it is essential to note that the term 'qualifying vehicle' applies in Irish law only. Where a vehicle is purchased from a dealer in another Member State of the EU, the use of this term alone is not sufficient indication that the vehicle is within the Special or Margin Scheme. A full statement that the invoice does not give rise to a right to input credit is required. When the Irish dealer sells a vehicle on which he or she has claimed residual VAT, the vehicle must be sold on under the Special Scheme, and the end purchaser will not have any entitlement to reclaim VAT on the vehicle.

Occasionally, a foreign dealer may sell a vehicle outside of the Special or Margin Scheme. In this case, the foreign dealer must issue a zero-rated VAT invoice in respect of the vehicle, quoting the purchaser’s VAT number. The purchaser then accounts for VAT in his or her next VAT return, and can claim a simultaneous credit. When selling on a vehicle that was purchased outside of the Scheme, the Irish trader may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

A motor auctioneer is deemed to buy and sell the vehicles that pass through the auction. The auctioneer may operate the Special or Margin Scheme in his or her own country, or may sell the vehicles outside of the Scheme, as a VAT registered trader. In either case, the rules set out above will apply equally to an auctioneer. It is important that any vehicle purchased from an auctioneer is accompanied by the correct documentation in order for the purchasing dealer to be entitled to get a refund of VAT.

Second-hand vehicles purchased by a VAT-registered trader from a VAT-registered person in another country other than a dealer

Second-hand vehicles which are purchased by an Irish VAT-registered trader from a VAT-registered supplier in another EU Member State are 'intra-Community acquisitions'. That is, the supplier of the vehicle must issue a zero-rated VAT invoice in respect of the vehicle, quoting the purchasing trader's VAT number. The purchasing trader then accounts for VAT in his or her next VAT return, and can claim a simultaneous credit. If this vehicle is subsequently sold by the Irish trader, the seller must charge VAT on the sale and issue a normal VAT invoice and the purchaser may claim a credit for the VAT charged.

If the sale of the vehicle takes place in the other Member State, and the supplier charges VAT on the sale rather than zero-rating it, then the Irish trader may nonetheless recover the VAT charged once the vehicle has been moved to Ireland. The Irish trader must provide proof to the supplier that the vehicle has been transported to Ireland, and the supplier should then issue a credit note and reissue the invoice at zero per cent VAT.

When selling on a vehicle that was purchased from a VAT-registered person other than a dealer, the Irish trader may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

Second-hand vehicles purchased by a VAT-registered trader from a private person in another country

Where an Irish VAT–registered trader purchases a second-hand vehicle from a private person in another country there are generally no VAT implications on arrival of the vehicle in Ireland. The trader has not been charged VAT, and has no entitlement to recover any VAT.

However, where an unauthorised dealer operating the Special Scheme for Second-Hand Vehicles purchases a second-hand vehicle from a private person in another EU Member State, there will be residual or trapped VAT contained in the price. The purchasing dealer may recover the residual VAT, at the rate that applies in the Member State where the vehicle was registered.

In order to claim this residual VAT, the purchasing dealer must prepare a settlement voucher, to include:

  • The name and address of the seller;
  • The name and address of the dealer;
  • The date of the supply;
  • The make, model, engine number, registration number and year of manufacture of the vehicle;
  • The total price of the vehicle;
  • A declaration signed and dated by the seller of the vehicle that the details on the voucher are accurate; and
  • A declaration signed and dated by the seller of the vehicle that he/she is not a VAT-registered person, and/or was not entitled to claim relief in respect of VAT on the vehicle.

This settlement voucher is required to support the dealer’s claim to residual VAT. The dealer must give the seller a copy of the completed settlement voucher within 15 days of the purchase. When the Irish dealer sells a vehicle on which he or she has claimed residual VAT, the vehicle must be sold on under the Special Scheme, and the end purchaser will not have any entitlement to reclaim VAT on the vehicle.

New vehicles (New Means of Transport) purchased by a VAT-registered trader from a VAT-registered person in another country

A 'new means of transport' is a technical term which may be used to describe a motor vehicle that has travelled less than 6,000 km or was supplied less than 6 months since it first entered into service (see full definition). Where an Irish VAT-registered trader, including an unauthorised dealer, purchases a new means of transport from a person in another EU country he or she must account for Irish VAT on the vehicle. The VAT-registered foreign supplier issues a zero-rated VAT invoice in respect of the vehicle, quoting the purchaser’s VAT number.The irish purchaser then accounts for VAT in his or her next VAT return, and can claim a simultaneous credit.

If the sale of the vehicle takes place in the other Member State, and the supplier charges VAT on the sale rather than zero-rating it, then the Irish trader may nonetheless recover the VAT charged once the vehicle has been moved to Ireland. The Irish trader must provide proof to the supplier that the vehicle has been transported to Ireland, and the supplier should then issue a credit note and reissue the invoice at zero per cent VAT. The Irish trader must then self-account for the VAT on the supply.

When selling on a new means of transport that was purchased from a VAT registered person other than a dealer, the Irish trader must issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

New vehicles (New Means of Transport) purchased by a VAT-registered trader from a private person in another country

A ‘new means of transport’ is a technical term which may be used to describe a motor vehicle that has travelled less than 6,000 km or was supplied less than 6 months since it first entered into service (see full definition). Where a VAT-registered trader, including an unauthorised dealer, purchases a 'new means of transport' from a private person in another country, this is regarded as an 'intra-Community acquisition' of the vehicle. The trader must account for Irish VAT on the vehicle even though the supplier cannot charge VAT. The purchasing trader simply accounts for VAT in the VAT return following the purchase, and may be able to claim a simultaneous credit if the vehicle is purchased as stock-in-trade, or is 'commercial'.

The private person in another country who sells a new means of transport to an Irish VAT-registered trader may be entitled to reclaim the VAT charged to them on the original purchase of the vehicle, subject to the rules applying in their own country. This will normally be dependent on proof that VAT has been paid on the vehicle in Ireland.

When selling on a new means of transport purchased from a private person in another country, the Irish trader may issue a normal VAT invoice if the customer is registered for VAT, and the customer may reclaim the VAT charged, subject to the usual conditions.

Vehicles imported into the EU as a result of purchase by an Irish VAT-registered trader

Vehicles purchased from suppliers outside the EU are referred to as imports. These are liable to Customs Duty and to VAT at the point where they first enter the EU Customs are responsible for taxes and duties on imported goods, and all VAT and duty is payable to Customs. A VAT registered dealer can reclaim this VAT in his or her VAT return. Customs duty cannot be recovered.

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Vehicles purchased from foreign sellers by private individuals

Any vehicle purchased abroad and brought in to the country by a private individual is liable to VRT, and will be liable to VAT if it is a 'new means of transport'. In this section, the term 'second-hand vehicle' applies generally to pre-owned vehicles. However, it does not include a pre-owned vehicle brought in to the State that was either supplied less than 6 months after entering into service, or has travelled 6,000 kilometres or less. Such vehicles, even if they were previously owned and registered in another country, are categorised as 'new means of transport', and are always liable to VAT in Ireland.

An easy way of calculating the VRT liability on any vehicle is to use the VRT Calculator on the Revenue website. The VRO office will confirm the amount of VRT payable. It should be noted that VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price.

Second-hand vehicles purchased by a private individual from a VAT–registered trader, including a motor dealer, in another country

Where a private individual purchases a second-hand vehicle from a motor dealer or any VAT-registered trader in another country, the price will generally include any VAT or other tax chargeable in that country. This VAT cannot be reclaimed. There is no VAT liability in Ireland. The vehicle must be registered by the end of the day following the day on which it arrives in Ireland. This must be done at the wordlocal VRO office (MS Word, 54KB). The VRT liability can be calculated using the VRT Calculator on the Revenue website.

Second-hand vehicles purchased by a private individual from a private individual in another country

Where a private individual in Ireland purchases a second-hand vehicle (but not a 'new means of transport' – see below) from a private person in another country, there is no VAT element included in the price, nor is there any VAT liability in Ireland. The vehicle must be registered by the end of the day following the day on which it arrives in Ireland. This must be done at the wordlocal VRO office (MS Word, 54KB). The VRT liability can be calculated using the VRT Calculator on the Revenue website.

New vehicles (New Means of Transport) purchased by a private individual from a VAT-registered person, including a motor dealer, in another country

A 'new means of transport' is a technical term which may be used to describe a motor vehicle that has travelled less than 6,000 km or was supplied less than 6 months since it first entered into service (see full definition). It is important to note that the operative date in determining whether a means of transport comes within the time limits is the date on which it was purchased by the current owner. The distance travelled, however, is calculated by reference to when the vehicle arrives in Ireland.

For example;

  • If a person purchases a 4-month old car in the U.K., and brings it into Ireland when it is 7 months old, then at the time of supply it was less than 6 months old. Regardless of the distance travelled, this vehicle is a new means of transport, and is liable to Irish VAT.
  • If a person purchases a 7-month old car in the U.K., which, at the time of supply in the U.K. had travelled only 5,000 kilometres, but had travelled 6001 kilometres in total by the time it arrived in Ireland, the vehicle is not a new means of transport.

Where a private individual purchases a new means of transport from a VAT-registered person in another country it must be registered by the end of the day following the day on which it arrives in Ireland. This must be done at the wordlocal VRO office (MS Word, 54KB). The VRT liability can be calculated using the VRT Calculator on the Revenue website. The vehicle is also liable to Irish VAT on registration, and this VAT is payable to the VRO office. The VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price. The value for calculating VAT is the price charged for the vehicle, converted to Euro where necessary.

If the seller also charged VAT or an equivalent tax on the sale of the vehicle in the other country, then this can normally be reclaimed from the foreign supplier, once the vehicle is registered and VAT has been paid in Ireland. The purchaser must send proof of registration and payment of Irish VAT to the foreign supplier, who will then arrange repayment of the foreign VAT (or equivalent tax) subject to the regulations in that country. However, it is important to note that the refund of VAT from the foreign supplier is subject to the laws and regulations in force in that country, which may differ significantly from the Irish laws. This means that in certain circumstances a person bringing a vehicle into Ireland, and therefore obliged to pay VAT in Ireland, may be unable to obtain a refund of VAT paid in another country. This will result in VAT being paid twice on the same vehicle. It is essential that any person who intends to purchase a new vehicle in another EU country, with the intention of bringing it into Ireland, ensures that he or she will be able to obtain a refund of any VAT paid in the other country, as there is no provision whereby VAT properly charged in Ireland can be refunded to a private individual.

For example, Revenue has been advised that the current position in the U.K. is that a dealer will not refund VAT on a vehicle purchased there and subsequently registered in Ireland - 

  • If, at the time of purchase in the UK, the dealer was not notified that the vehicle was going to be brought out of the country;
  • If the vehicle was not brought out of the UK within two months of purchase;
  • If the original invoice shows a UK address for the purchaser.

Similar positions may be held in other EU countries, and details should be obtained from the relevant tax authorities in those countries.

New vehicles (New Means of Transport) purchased by a private individual from a private individual in another country

A 'new means of transport' is a technical term which may be used to describe a motor vehicle that has travelled less than 6,000 km or was supplied less than 6 months since it first entered into service (see full definition). It is important to note that the operative date in determining whether a means of transport comes within the time limits is the date on which it was purchased by the current owner. The distance travelled, however, is calculated by reference to when the vehicle arrives in Ireland.

For example;

  • If a person purchases a 4-month old car in the U.K., and brings it into Ireland when it is 7 months old, then at the time of supply it was less than 6 months old. Regardless of the distance travelled, this vehicle is a new means of transport, and is liable to Irish VAT
  • If a person purchases a 7-month old car in the U.K., which, at the time of supply in the U.K. had travelled only 5,000 kilometres, but had travelled 6001 kilometres in total by the time it arrived in Ireland, the vehicle is not a new means of transport.

Where a private person purchases a new means of transport from a private person in another country, there is no VAT chargeable on that transaction.

When the vehicle is brought into Ireland, it must be registered by the end of the day following the day on which it arrives. This must be done at the wordlocal VRO office (MS Word, 54KB). The VRT liability can be calculated using the VRT Calculator on the Revenue website. The vehicle is also liable to Irish VAT on registration, and this VAT is payable to the VRO office. The VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price. The value for calculating VAT is the price charged for the vehicle, converted to Euro where necessary.

Vehicles imported into the EU as a result of purchase by a private individual

Vehicles purchased from suppliers outside the EU are referred to as imports. Where a private individual purchases a vehicle from a person outside the EU, he or she is liable to Customs Duty and to VAT at the point where the vehicle first enters the EU. These must be paid to Customs before the vehicle will be released. It should be noted that the value of the vehicle for Customs purposes may include freight costs.

The vehicle must be registered, and VRT paid, by the end of the day following the day on which it clears Customs. This must be done at the wordlocal VRO office (MS Word, 54KB). The VRT liability can be calculated using the VRT Calculator on the Revenue website. The VRT is calculated on the Open Market Selling Price (OMSP) of a vehicle, rather than the actual purchase price. While a vehicle is normally also liable to Irish VAT on registration, proof that VAT has been paid to Customs will be accepted .

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Motor vehicles supplied by private individuals

Private individuals are not registered for VAT, and do not use vehicles owned by them in the course or furtherance of a business. Therefore, they are not entitled or obliged to charge VAT on the sale of any such vehicles. This applies even where the individual had an entitlement under a special repayment scheme to recover VAT on the purchase of the vehicle (see Recovery of VAT and/or VRT by Purchasers not Registered for VAT). Private individuals resident in the State are not entitled to hold unregistered vehicles. Any vehicle offered for sale by a private individual should be already registered, and VRT should not be an issue.

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Motor vehicles supplied by dealers without TAN numbers

The possession of a Trader Account Number (TAN) only affects the way in which the dealer operates VRT. The VAT obligations remain unchanged for dealers whether or not they have a TAN number, and such dealers may also avail of any of the special VAT schemes referred to in this leaflet. A dealer without a TAN number may not defer the registration of vehicles that are held as stock-in-trade. Where such a dealer acquires a vehicle that is not registered in the State (either new or second-hand - see also Vehicles purchased from foreign sellers by Irish VAT-registered traders), and the vehicle is not sold on by the end of the next working day, then the dealer remains the owner of the vehicle, and must register it in his/her own name. This registration is treated as a self-supply of the vehicle, as if the vehicle was taken out of stock by the dealer for his/her own use or for use as a demonstration model (see Registration of vehicles by dealers/distributors in their own names).

This means that, while a dealer, with or without a TAN number, is entitled to recover any VAT charged on the acquisition of a vehicle as stock-in-trade, following self-registration the dealer will be liable to repay any VAT claimed by him/her, and any subsequent sale of the vehicle must come under the Special Scheme for Second-Hand Vehicles set out in Special scheme for second-hand motor vehicles. It should also be noted that when such a vehicle is sold, under no circumstances may any portion of the sale price be regarded as attributable to VRT and stripped out from the sale price prior to calculating the VAT.

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Motor vehicles supplied by traders who are not motor dealers

Ordinary VAT registered traders who are not motor dealers may acquire motor vehicles (such as vans, trucks and company cars) for their own business use, and which they later resell. These vehicles are not acquired as stock-in-trade, but for the purpose of carrying on the normal activities of the business.

If the trader was entitled to recover VAT on the acquisition of the vehicle (see Recovery of Tax on the Purchase of Motor Vehicles ) then the subsequent resale of the vehicle is liable to VAT on the full amount received for the vehicle. If the trader was not entitled to recover VAT on the acquisition of the vehicle, then the subsequent sale of the vehicle is not liable to VAT. This applies generally to non-deductible vehicles, such as passenger motorcars. However, it also applies where a VAT registered trader is reselling a commercial vehicle that he or she purchased at a time prior to registration for VAT (e.g. the trader was below the turnover threshold for registration at the time of purchase). In this case, the trader may be required to show that he or she did not recover VAT on the original purchase.

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Hiring and Leasing of Vehicles

Short-term and long-term hire

Short-term hire is an agreement for the hire of a motor vehicle to a person, not exceeding a total of 5 weeks hire in any 12-month period. This is liable to VAT at 13.5%. The hiring of a motor vehicle for more than 5 weeks in any twelve-month period is liable to VAT at 21.5%.

N.B.: It is important to note, when determining the rate of VAT, that the 5 weeks hire do not have to be consecutive, and that the agreement does not have to relate to a specific vehicle. The hiring of the same vehicle, or of a number of vehicles of the same kind, for a single period or a number of non-consecutive periods totalling more than five weeks in any 12 months, is ‘long-term hire’ and is liable to VAT at 21.5%.

Insurance, damage waivers, maintenance etc.

The amount that is liable to VAT is the full amount that the hiring or leasing company is entitled to receive under the contract. This includes any amounts paid by the customer in respect of insurance, accidental damage waivers, cleaning, maintenance, etc., all of which are liable to VAT at the same rate as the main contract for hire of the vehicle. (Payments specifically for petrol are always liable at 21.5 per cent.) However, if the customer enters into an insurance policy with an insurance company or intermediary at the time of hiring, and the exact amount of the insurance payment is collected by the hire/leasing company on behalf of the insurance company or intermediary, then, and only in these circumstances, this amount may be treated as being an exempt payment in respect of insurance.

Accessories supplied with a hired vehicle

Where vehicle accessories, such as global positioning systems, roof-boxes etc. are supplied with hired or leased vehicles then the rate of VAT that applies to the main contract for hire of the vehicle (13.5% for short-term, 21.5% for long-term) will apply to any extra charge in respect of the accessory. This is the case even where a separate charge is made for these accessories.

Recovery of VAT charged on hire / leasing payments

Any traders registered for VAT are entitled to recover any VAT charged to them on the acquisition of 'commercial' vehicles (e.g. vans, trucks, crew-cabs etc.) insofar as these are used for business purposes. This includes the right to recover any VAT charged on the hire, leasing or hire-purchase of vehicles.

VAT-registered traders generally may not recover VAT incurred on the hire, leasing or purchase of vehicles for use in their businesses where these vehicles are classed as Category A for VRT purposes, i.e. non-commercial passenger cars or motorcycles. However, a trader may be entitled to recover VAT on vehicles for use as stock-in-trade, or in a driving school or car-hire business - see Recovery of Tax on the Purchase of Motor Vehicles for further details.

Recovery of VAT & VRT by hire / lease providers

A company that operates a business hiring or leasing out cars or other vehicles is entitled to claim back VAT on any vehicles purchased or hired by it for onward hiring to customers. In other words, vehicles purchased for hiring out are treated in the same way as stock-in-trade. The hire company must charge and account for VAT on any subsequent sale or disposal of vehicles that were used for hiring out.

Vehicle hire companies may also recover a portion of the VRT charged on the registration of certain non-commercial (category A) cars and motorcycles purchased for onward hiring or leasing. Details of the requirements and procedures for repayments are contained in pdfStatement of Practice SP1/97 - Repayment of Vehicle Registration Tax in respect of Vehicles acquired for leasing or hiring or providing instructions in the driving of Vehicles (PDF, 62KB) . There is also a wordStatement of Practice SP1/98 - Repayment of Vehicle Registration Tax in respect of Motor Vehicles used solely for hiring to others under short term self-drive contracts (MS Word, 385KB). dealing specifically with traders engaged in short-term hire. Further information and application forms can also be obtained from:

The Central Repayments Office,
Freepost,
M: TEK II Building, Armagh Road,
Monaghan,
Co. Monaghan.
Phone: Lo-Call 1890-60 60 61, also 047-62100, or by Fax at 047-62199.

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Work on Vehicles, Including Repair and Maintenance

In the context of this section only, a new motor vehicle is one that has not been registered (in any country) at the time that a service, repair, alteration, conversion or paint-job is carried out. This is different from the definition of new means of transport used in the parts of this leaflet dealing with buying and selling vehicles.

Servicing, repair and maintenance

Any service, maintenance or repair that is carried out on any vehicle, whether new or second-hand, is liable to VAT at 13.5%. This rate also covers the supply of most parts essential to the service, maintenance or repair, even if the supply of these parts would normally be liable at 21.5%. However, the 13.5% cannot be applied to the supply of certain parts and accessories, which are always liable at 21.5%. The list below sets out the parts, or types of parts, the supply of which is always liable to VAT at 21.5% (this list is not exhaustive – items similar to those mentioned at (1) and (2) will also be liable at 21.5%):

  1. Accessories such as radios/CD players, speakers, car-phones, GPS and similar navigation systems, alarms, seat covers and floor mats;
  2. Attachments such as spoilers, body kits, roof racks, tow bars and fake exhausts;
  3. Batteries;
  4. Tyres, tyre cases, interchangeable tyre treads, inner tubes and tyre flaps, for wheels of all kinds.

The two-thirds’ rule (see * The two-thirds’ rule) is not applied in the case of the bona fide service, repair or maintenance of motor vehicles. The 13.5% VAT rate still applies to the labour and other goods supplied in the course of the service, repair or maintenance, regardless of the value of the goods supplied at 21.5%. The repair or maintenance of any accessories and attachments that were fitted previously is also liable at 13.5%, and again the two-thirds rule does not apply. For example, the supply and fitting of a GPS to a vehicle is liable at 21.5%, but the subsequent repair or maintenance of the GPS is liable at 13.5%.

It is important to note that the supply and fitting of the parts or accessories set out above is not regarded, in itself, as repair or maintenance, or as the alteration of the vehicle (see Alterations and conversions). For a job consisting solely of the fitting of an accessory, the 21.5% rate of VAT applies to both the supply of the part, and any associated labour costs. For example, in the case of the repair or fitting of a spoiler in the course of the repair or maintenance of a vehicle, the part is liable at 21.5%, and the labour at 13.5%. In the case of the fitting of a new body kit in circumstances other than repair or maintenance, both the parts and the labour are liable at 21.5%. The 21.5% VAT rate also applies to all other parts supplied outside the context of service, maintenance or repair, including all over-the-counter sales.

Vehicle recovery services such as the towing, securing and temporary storage of vehicles are generally liable at 21.5%. If a vehicle is recovered and repaired as part of a single contract, any amount charged separately for the recovery is liable at 21.5%, even if the repair work is liable at 13.5%. Long term storage and 'garaging' of vehicles is also liable at 21.5%.

Alterations and conversions

The alteration of a vehicle involves changing the physical characteristics of the vehicle, but not changing its essential nature. Alterations are liable to VAT at 21.5% on new vehicles, and at 13.5% on second-hand vehicles, subject to the two-thirds’ rule (see * The two-thirds’ rule). The following work on a vehicle constitutes alteration (this list is not exhaustive – operations similar to those set out below will also be liable at 13.5% if carried out on second-hand vehicles):

  • The fitting of a sunroof;
  • The conversion of a vehicle from a commercial jeep or van to a car;
  • The conversion of a vehicle from a van to a minibus;
  • The conversion of a vehicle from one fuel system to another, e.g. from petrol to LPG

However, where a trader builds up a vehicle using parts that have been supplied by the customer, then this is liable to VAT at 21.5% in all cases, being regarded as similar to the supply of a new vehicle. An example is where a coachbuilder builds an ambulance using a chassis supplied by a customer, and delivers the finished or nearly finished ambulance back to the customer after it has been worked on.
It should be noted that the conversion or alteration of a vehicle post-registration might involve a change in the VRT category of the vehicle – for example, a small van may be converted from Category B (commercial) to Category A (passenger) by the insertion of seats, footwells, rear windows, etc. In the case of any vehicle altered or converted in this manner, the person who has possession of the vehicle at the time must notify the local VRO office and, if necessary, it will be reclassified, and additional VRT may be payable. Where the conversion has been carried out by, for example, a garage or mechanic, it is their responsibility to notify the VRO office that the conversion has been carried out.
The VRO office will subsequently notify the Department of Environment, Heritage and Local Government Vehicle Licensing Unit of the change in the vehicle category, and the registration certificate will be updated accordingly.

* The two-thirds’ rule provides that the supply of goods made as part of the supply of a service is liable at the same rate as the supply of services (13.5% in this case) unless the VAT exclusive cost of the goods to the supplier exceeds two-thirds of the total VAT exclusive charge to the customer. In other words, if the VAT exclusive cost of a sun-roof itself exceeds two-thirds of the total VAT exclusive cost of supplying and fitting the sun-roof, then it is treated as a supply of goods liable at 21.5% VAT.

Painting (including logos)

The rate of VAT on painting depends on whether the vehicle is new at the time the work is carried out. Again, in this context, a new vehicle is one that has not been registered at the time that the work is carried out. If a vehicle manufacturer or distributor arranges for the paint colour to be changed or repaired, or for a logo to be included, on any vehicle prior to its first registration, then any extra cost to the customer is regarded as part of the purchase price of the vehicle, and is liable to VAT at 21.5%. In the case of a second-hand vehicle (subsequent to purchase and registration), then Revenue are concessionally prepared to accept that this constitutes a form of maintenance and is liable to VAT at 13.5%.
A paint shop or similar trader may only charge the 13.5% rate if they have sufficient proof that any vehicle was registered at the time that the work was carried out. Otherwise the 21.5% rate must be charged. If the colour of a vehicle is changed subsequent to registration, the owner should notify the Vehicle Licensing (Motor Tax Unit), Department of Environment, Heritage and Local Government, Shannon, Co. Clare in order that the details on the registration certificate of the vehicle may be updated.

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Recovery of Tax on the Purchase of Motor Vehicles

Recovery of VAT by Motor Dealers

Motor dealers who are registered for VAT are entitled to recover any VAT properly incurred and invoiced on the purchase of vehicles for use as stock-in-trade, including vehicles acquired from abroad.

In addition, in the case of commercial vehicles (i.e. generally other than VRT Category A vehicles or motor cycles) the dealer is entitled to recover some or all of the VAT included in the invoice if the vehicle is to be used in the course of the dealer’s business, even if it is not purchased as stock-in-trade.

The amount of VAT that can be recovered will reflect the extent to which the vehicle is used for the business.

Restrictions on the recovery of VAT for non-commercial vehicles (i.e. generally VRT Category A vehicles and motor-cycles) purchased for use as demonstration models or otherwise self-registered by the dealer are dealt with in Registration of vehicles by dealers/distributors in their own names.

Motor dealers are also entitled to recover some or all of the VAT incurred on expenses such as the repair, maintenance or servicing of vehicles.

Paperwork and Documentation

As with all claims for the recovery of VAT, the issuing and retention of documentation is of great importance. A motor dealer may purchase a vehicle from a number of different sources, and the paperwork requirements and procedures will vary accordingly. There are relatively few documents involved, the most important being the VAT invoice, the Special Scheme VAT invoice and the declaration, to be signed by certain sellers, that they had no entitlement to recover VAT. A motor dealer who fails to get and retain correct documentation for each purchase will not be entitled to recover VAT on the purchase of the vehicle, although he or she will still be liable to VAT on the subsequent resale.

If a dealer buys a motor vehicle from a VAT-registered supplier in the State (other than another dealer using the Special Scheme for second-hand motor vehicles) the supplier must issue a VAT invoice, dated by reference to the date of transfer of ownership of the vehicle to the dealer. VAT is liable at 21.5% on the full sale price. If the vehicle is to be used as stock-in-trade, or is a commercial vehicle to be used in the business, the dealer is entitled to reclaim the VAT charged, and will include it in the 'T2' box in the next VAT return, to set off against any VAT liability he or she may have.

With regard to a vehicle purchased from a foreign VAT-registered supplier who is not using the Special or Margin Scheme for sales, the dealer will give the foreign supplier his or her VAT registration number, and the supplier will issue an invoice charging zero per cent VAT. The dealer must then 'self-account' for VAT on the transaction – he or she must calculate the VAT due on the vehicle at 21.5% of the sale price, and include this in the 'T1 box' on the VAT return. If the vehicle is to be used as stock-in-trade, or is a commercial vehicle to be used in the business, then a cancelling amount may be included in the 'T2 box'.

If a dealer buys a second-hand vehicle from a private individual (e.g. by way of a trade-in), or from another dealer using the Special Scheme, the dealer can claim a deduction of the residual VAT. There is specific documentation required with regard to the Special Scheme for Second-Hand Vehicles. A dealer must ensure that all this documentation is correct before claiming a deduction for VAT. Full details of the documentation required are set out in Invoicing – the purchase of a qualifying second-hand vehicle in the Special Scheme and Invoicing - the sale of a qualifying second-hand vehicle in the Special Scheme.

Recovery of VAT & VRT by Driving Schools

Driving training schools (which must charge 13.5% VAT on driving lessons) can recover VAT on all vehicles purchased to be used by them for the purpose of tuition. In addition, driving schools may recover a portion of the VRT charged on the registration of certain non-commercial vehicles (generally category A cars and motorcycles). Details of the requirements and procedures for repayments are contained in pdfStatement of Practice SP1/97 - Repayment of Vehicle Registration Tax in respect of Vehicles acquired for leasing or hiring or providing instructions in the driving of Vehicles (PDF, 62KB). Further information and application forms can also be obtained from:

The Central Repayments Office,
Freepost,
M: TEK II Building, Armagh Road,
Monaghan,
Co. Monaghan.
Phone: Lo-Call 1890-60 60 61, also 047-38010, or by Fax at 047-82782.

Recovery of VAT by Other VAT-Registered Traders

The general rule for VAT-registered traders is that they are entitled to recover any VAT charged to them on purchases made for business purposes. However, in the case of motor vehicles, there are some limitations to this entitlement. Any VAT-registered trader is generally entitled to reclaim VAT charged on the purchase of a motor vehicle for use in his or her business if the vehicle comes within the definitions of Category B or Category C vehicles for the purposes of VRT. If such a vehicle is used exclusively for business purposes, a full refund of the VAT is allowed. The refund should be claimed in the next VAT return following the purchase of the vehicle. If the vehicle is used partly for business and partly for non-business use, then the trader will recover a portion of the VAT incurred to reflect the amount of business use. If the vehicle is purchased from a dealer operating the special scheme set out in Special Scheme for second-hand motor vehicles, then the purchaser has no right to recover any VAT charged. In this case, the invoice will clearly indicate that no recovery of VAT is allowed.

VAT registered traders are also entitled to recover some or all of the VAT incurred on expenses such as the purchase of diesel (but not petrol), road tolls, and the repair or servicing of vehicles.

Up to the end of 2008, a trader was not able to recover any VAT on non-commercial or Category A vehicles [which includes cars (saloons, estates, hatchbacks, convertibles, coupes, MPVs, Jeeps, etc.) and minibuses with less than 12 permanently fitted passenger seats], even where they were 'company cars' or otherwise used for business purposes.  Nor was there any entitlement to reclaim VAT on motorcycles, motor scooters or any similar vehicles.  The only traders entitled to reclaim VAT on the purchase of any of these vehicles were motor dealers who purchased them as stock-in-trade; driving schools that purchased them for teaching purposes; car-hire companies that purchased them for hiring out; and financial services companies selling vehicles by hire-purchase arrangements, or leasing vehicles.

However, this position was changed with effect from 1 January 2009.  With effect from that date, any VAT-registered trader other than those mentioned above is entitled to recover some of the VAT charged on the purchase or hire of vehicles coming within VRT  Category A, subject to certain conditions, including:

  • This provision only applies to vehicles registered from 1 January 2009;
  • A maximum of 20% of the VAT incurred can be reclaimed.  In the case of hire or leasing charges, a maximum of 20% of the VAT on the monthly leasing charges may be reclaimed;
  • VAT can only be reclaimed for vehicles that have a level of CO2 emissions of less than 156g/km (i.e. CO2 emission bands A, B and C); 
  • At least 60% of the vehicle's use must be for business purposes;
  • If the business is exempt from VAT (e.g. taxi, limousine and other passenger transport) then no VAT can be reclaimed.  Partly exempt businesses can reclaim some, but not all, of the 20%;
  • If VAT is reclaimed on a vehicle purchased under this provision, some or all of the VAT must be repaid to Revenue if the vehicle is disposed of (by sale or otherwise) within two years;
  • There is no need to charge VAT on the disposal of the vehicle, even though VAT was reclaimed under this provision;
  • If the vehicle is sold or traded-in to a motor-dealer, the special scheme for second-hand vehicles will apply, and the dealer can reclaim any residual VAT.

Full details of how the recovery of this VAT can be achieved, including examples, are available in the information leaflet Deduction of VAT for Certain Business Cars.

Recovery of VAT under Hire-Purchase Agreements

A hire-purchase agreement is one whereby a customer hires a vehicle from a provider (usually a bank or finance company) for a specified period of time, with an option to purchase the vehicle after the period of hire. An agreement is drawn up providing for regular repayments of equal amounts. Generally, the actual legal transfer of ownership of the vehicle occurs with the last payment. For VAT purposes, however, the supply of the vehicle takes place at the time that it is handed over by the supplier to the customer. That is, a customer who is registered for VAT receives a VAT invoice (from the hire-purchase provider) for the value of the vehicle, not including any finance charges that might apply. If the vehicle is a commercial one then the VAT registered customer is entitled to recover the full amount of the VAT at the time that he or she takes delivery of the vehicle. The actual legal transfer of ownership of the vehicle (at the time of the final payment) is therefore ignored for VAT purposes. If a second-hand vehicle is sold by hire-purchase arrangement, then, subject to the conditions set out, the hire-purchase provider may avail of the special scheme for motor dealers set out in Special Scheme for second-hand motor vehicles. In this situation, the bank, finance company etc., may recover any residual or trapped VAT, and will issue a special invoice with the onward supply of the vehicle. A customer acquiring such a vehicle will not be entitled to recover any VAT charged to him/her. The VAT treatment of hire-purchase providers changed with effect from 1 May 2007. An information leaflet setting out the new treatment is available on the Revenue website at Hire Purchase Transactions.

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Recovery of VAT and/or VRT by Purchasers not Registered for VAT

A person who is not registered for VAT and who buys a motor vehicle is generally not entitled to recover any VAT charged. However, in certain circumstances VAT may be repaid, as set out below:

Repayment of VAT on touring coaches

The transport of passengers is an exempt activity, and a person carrying on this activity cannot register for or reclaim VAT. However, in accordance with regulations set out in Statutory Instrument 98/1996 (VAT Refund Order No. 28) a coach operator can reclaim VAT on the purchase, lease or hire of touring coaches, where the coaches are used

  • To carry tourists,
  • Under contracts for group transport, and
  • The coaches come within the following specifications:
    • Single-deck touring coaches having dimensions as designated by the manufacturer of not less than 2,700 millimetres in height, not less than 8,000 millimetres in length, not less than 775 millimetres in floor height and with an underfloor luggage capacity of not less than 3 cubic metres; or
    • Double-deck touring coaches having dimensions as designated by the manufacturer of not more than 4,300 millimetres in height and not less than 10,000 millimetres in length.

Repayment claims should be entered on pdfform VAT 71 - Claim for Refund of Value-Added Tax (VAT) on Certain Touring Coaches under the Value Added Tax (Refund of Tax) (No. 28) Order, 1996 (as amended) (PDF, 57KB) , and submitted to the following address:

VAT Unregistered Repayments,
Revenue Commissioners,
Floor 3 River House,
Charlotte’s Quay,
Limerick.

pdf Form VAT 71 - Claim for Refund of Value-Added Tax (VAT) on Certain Touring Coaches under the Value Added Tax (Refund of Tax) (No. 28) Order, 1996 (as amended) (PDF, 57KB) can be obtained from the Revenue website or by contacting the repayments section at unregvat@revenue.ie

Repayment of tax on motor vehicles for use by or for disabled persons

There is provision for the repayment, subject to conditions, of VAT, VRT and fuel excise duty in respect of vehicles used by drivers or for passengers with disabilities. Registration of motor vehicles for the transport of drivers and passengers with disabilities without the payment of Vehicle Registration Tax may be allowed - the appropriate pdf Form (DD1) - Tax Relief in Relation to Vehicles Purchased for Use by People with Disabilities (PDF, 32KB) is available from the Revenue website or can be obtained by contacting the repayments section at:

The Central Repayments Office,
Freepost,
M: TEK II Building,
Armagh Road,
Monaghan,
Co. Monaghan.

The form can also be ordered by phone from Lo-Call 1890-60 60 61, also 047-38010, or by Fax at 047-82782. Once relief from VRT is granted, the Central Repayments Office will also arrange for repayment of VAT incurred on the purchase of the vehicle. Excise duty on fuel used in motor vehicles for the transport of drivers and passengers with disabilities can also be reclaimed - the appropriate pdf Form DD3 - Claim for Repayment of Excise Duty on Fuel used in Motor Vehicles for the Transport of Drivers & Passengers with Disabilities (PDF, 57KB) is available on the Revenue website or can be obtained by contacting the repayments office at the above numbers.

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Useful Terms and Definitions

Agricultural Machinery

Agricultural machinery is equipment or machinery used by a farmer entitled to the flat-rate addition in the course of his or her normal farming activities as defined in the Fifth Schedule to the VAT Act. This definition also covers commercial vehicles used in the course of the farming business: See Scheme for agricultural machinery purchased by dealers.

Commercial and non-Commercial Vehicles

The term 'commercial vehicle' does not occur in VAT law, and therefore there is no strict definition of the term. Nonetheless, when a trader intends to purchase a vehicle, the questions are often asked "Is it a commercial vehicle?", and "can I get my VAT back on it?" Traders are entitled to recover VAT on a number of different types of vehicles (to the extent that the vehicles are used for business purposes). It is these which are often referred to as 'commercial vehicles', and this term denotes vehicles that are deductible for VAT, i.e., any trader registered for VAT may reclaim the VAT charged to him or her on the purchase or hire of the vehicle.

Whether a trader can reclaim VAT on the purchase of a vehicle depends on four things:

  1. Is the trader registered for VAT and generally entitled to claim it back?
  2. Is the vehicle to be used for the purposes of a VAT-registered business?
  3. Is the vehicle of a category that allows a repayment to be made?
  4. Was VAT charged on the sale of the vehicle?

We will assume that the answer to questions (1) and (2) is 'Yes', and deal with questions (3) and (4) below.

Vehicle Categories

VAT legislation does not generally allow a repayment of VAT to any person who purchases (other than as stock-in-trade) any motor vehicle designed or constructed for carrying people by road. Nor is any VAT repayment allowed in respect of sports motor vehicles, estate cars, station wagons, motor cycles, motor scooters, mopeds and auto cycles whether or not they are designed and constructed for carrying people by road. However, repayment may be allowed in respect of vehicles designed and constructed for the carriage of more than 16 persons (inclusive of the driver), invalid carriages and other vehicles of a type designed for use by invalids and infirm persons.

For practical purposes, an attempt has been made to match the VAT legislation to the VRT registration categories. Motor vehicles are divided into a number of different categories for VRT purposes. Vehicles may be liable to different rates of VRT and different registration procedures depending on the category. Vehicles used for commercial purposes will generally come within Categories B and C, and will be liable to VRT at lower rates than Category A vehicles. Further details of the VRT Categories are available on the Revenue website.

Vehicles within VRT Categories B & C, such as vans, lorries, pick-ups and crew-cabs are generally deductible for VAT, and these are often referred to as commercial vehicles for VAT purposes. However, buses or minibuses suitable for carrying between 12 and 16 persons (including the driver) are not generally deductible for VAT, although they come within Category C. (Buses or minibuses are not usually deductible in any case, as they are normally used for the exempt activity of carrying passengers. However, for example, a company that purchased a bus, suitable for carrying more than 16 persons, to transport its own staff between worksites would be entitled to reclaim some or all of the VAT.)

Vehicles that come within VRT Category A [which includes cars (saloons, estates, hatchbacks, convertibles, coupes, MPVs, Jeeps, etc.) and minibuses with less than 12 permanently fitted passenger seats] are not generally deductible, and neither are motorcycles, motor scooters or similar vehicles of all kinds. The only traders entitled to reclaim VAT on these vehicles are those who purchase them as stock-in-trade (see Recovery of VAT by Motor Dealers), for use in a driving school (see Recovery of VAT & VRT by Driving Schools), or for use in a car hire business (see Hiring and Leasing of Vehicles).

Vehicles that come within VRT Category D, and other vehicles not in Categories A, B, or C may be deductible, depending on whether the purchasers are registered for VAT and the uses to which the vehicles are put.

Purchasing & selling commercial vehicles

Where a dealer (or other VAT-registered trader) sells a commercial vehicle to a VAT-registered purchaser, the purchaser will normally seek to recover the VAT element of the purchase price. A trader may only reclaim VAT charged to him or her on the purchase of a commercial vehicle if the seller issues a VAT invoice that allows a VAT deduction (a 'normal' VAT invoice).

If a motor dealer sells any vehicle, that would otherwise be deductible, through the 'Special Scheme for second-hand motor vehicles' then the dealer must issue an invoice containing an endorsement specifically disallowing any right for the purchaser to deduct VAT. If a dealer issues a ‘normal’ invoice in respect of a vehicle in the Special Scheme, this has the effect of taking the vehicle out of the Scheme, and the dealer will need to make an adjustment for any residual VAT previously claimed.

Where a VAT-registered trader sells a vehicle, by way of trade-in or otherwise, on which VAT has been claimed back, the trader must issue a VAT invoice, and account for VAT on the sale (see Motor vehicles supplied by traders who are not motor dealers).

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Importation

Importing a vehicle means bringing it into the State from any place outside the European Union. VAT is due on imports at the point where they enter the EU, and is normally paid directly to Customs before the goods are released. Imports include vehicles that enter the EU in another country and are trans-shipped from there to Ireland.

Intra-Community Acquisitions

An intra-Community acquisition is a transaction that results in a person in Ireland being obliged to account for Irish VAT on a vehicle purchased or otherwise acquired from a person in another EU Member State. This happens in the case of:

  1. Any 'new means of transport' supplied by any person, including a private individual, in another Member State and dispatched or transported by them, or by the purchaser, into the State. This includes a 'new means of transport' that enters the EU as an import in a Member State other than Ireland, but is transported on to Ireland. A 'new means of transport' is always liable to VAT in the country where it is to be used, regardless of where, by whom and from whom it is purchased.
  2. Any other means of transport supplied by a VAT registered person in any other Member State and dispatched or transported by them to a person carrying on business in Ireland, but NOT INCLUDING any such vehicle sold under the Special Scheme or Margin Scheme for second-hand goods in that Member State. These are liable to VAT in the country where the supplier is located.

An Information leaflet on intra-Community acquisitions is available on the Revenue website.

Intra-Community Supplies

An intra-Community supply is a transaction that allows a VAT-registered trader in Ireland to charge 0% VAT on the supply of a vehicle to another EU Member State. This applies where a vehicle is dispatched or transported to a VAT-registered trader carrying on business in the other Member State, but NOT INCLUDING any such vehicle sold under the Special Scheme for second-hand vehicles. These are liable to VAT in Ireland. Where a 'new means of transport' is supplied by any person, including a private individual, in Ireland and dispatched or transported by them or by the purchaser to another Member State, then there is a liability to VAT in that Member State as an intra-Community acquisition there. The purchaser will be entitled, on proof that VAT was paid in the other country, to a refund of any Irish VAT paid on the purchase of the vehicle.

An Information leaflet on intra-Community Supplies is available on the Revenue website.

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Member State

A Member State is a country that is a full member of the European Union (EU), and therefore part of the European VAT system.

Motor Dealer

A Motor dealer is a person who has a business in the buying and selling of cars. Motor Dealers will generally be registered for VAT (taxable dealer), and may also be authorised to trade in unregistered vehicles (authorised dealer).

  • Taxable Dealer: A Taxable Dealer is a VAT-registered person whose business is the buying and selling of motor vehicles and/or agricultural machinery on his or her own behalf, or on behalf of others. Dealers must register for VAT when their turnover exceeds, or is likely to exceed, €75,000 (increased from €70,000 w.e.f. 12/05/08) in any 12-month period. A person can be a taxable dealer for VAT purposes without being an Authorised Dealer (see next paragraph) for VRT purposes.
  • Authorised Dealer: An Authorised Dealer is a motor dealer who is granted authorisation to deal or trade in unregistered or foreign-registered vehicles. These dealers are issued with a TAN (Trader Account Number) by the local Revenue District. Details of the application process and requirements for the authorisation of motor dealers are available on the Revenue website, which also contains a Guide to Methods of Payment for VRT Traders. Authorisation and possession of a TAN number only affects the way in which the dealer operates VRT, not VAT.

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New Means of Transport

The term 'new means of transport' refers to vehicles which are less than a specified age, or have travelled less than a specified distance. It is a concept in European VAT law, and is significant only when calculating VAT liability for vehicles transported into a Member State from another Member State or non-EU country. It is important to note that a vehicle can have been owned by one or more persons, or registered in one or more countries, and still be taxable as a 'new means of transport' if it is moved from one country to another. The following vehicles are 'new means of transport':

  • A motorised land vehicle with an engine cylinder capacity of 48 cubic centimetres or a power exceeding 7.2 kilowatts which was supplied 6 months or less after the date of first entry into service; or has travelled 6,000 kilometres or less.
  • A vessel exceeding 7.5 metres in length which was supplied 3 months or less after the date of first entry into service; or has sailed for 100 hours or less
  • An aircraft with a take-off weight exceeding 1550 kilogrammes which is intended for the transport of persons or goods and which was supplied 3 months or less after the date of first entry into service; or has flown for 40 hours or less.

In the case of motor vehicles, the 'date of first entry into service' is generally the date on which the vehicle was registered, unless the registration was delayed for any reason.

If a vehicle with any of the specifications set out above is brought into Ireland, then the person bringing it in is liable to pay Irish VAT. This is normally paid at the same time as the vehicle is registered in Ireland.

It is important to note that the operative date of supply, when determining whether a means of transport comes within the time limits, is the date on which it was purchased by the current owner. The distance travelled, however, is calculated by reference to when the vehicle arrives in Ireland. For example;

  1. If a person purchases a 4-month old car in the U.K., and brings it into Ireland when it is 7 months old, then at the time of supply it was less than 6 months old. Regardless of the distance travelled, this vehicle is a new means of transport, and is liable to Irish VAT
  2. If a person purchases a 7-month old car in the U.K., which, at the time of supply in the U.K. had travelled only 5,000 kilometres, but had travelled 6001 kilometres in total by the time it arrived in Ireland, the vehicle is not a new means of transport.

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New Motor Vehicle

Unlike the technical term 'new means of transport', there is no definition in VAT law for the standard concept of a new motor vehicle, as distinct from a used or second-hand vehicle. For the purposes of this leaflet, a new motor vehicle should generally be regarded as one which has not been owned by any person other than the manufacturer, distributor(s) and authorised dealer(s). However, where a dealer has registered a vehicle in his or her own name and subsequently sells that vehicle, it must be treated as a second-hand vehicle and sold through the special scheme, even if there have been no other owners.

For the purposes of the section of this leaflet dealing with Work on vehicles, including repair & maintenance only, a new vehicle is one that has not been registered (in any country) at the time that a service, repair, alteration, conversion or paint-job is carried out.

Private Individual

For the purposes of this leaflet, a private individual is a person who is acting in a non-business capacity in relation to the purchase or sale of a vehicle. This includes people who are not in the motor trade or any other trade involving the purchase or sale of vehicles. It also includes any person who may be in such a trade but who is buying or selling his or her own personal vehicle. For example, a VAT-registered self-employed haulier bringing in a car from the U.K. for his own personal use will be treated as a private individual for that transaction.

Qualifying Vehicles

A qualifying vehicle is one that qualifies for a deduction of residual VAT under the Special Scheme for second-hand motor vehicles. Essentially, a qualifying vehicle under the Scheme is

  1. one that is sold or traded-in to the dealer by a person who was not entitled to deduct any VAT in relation to the original purchase of that vehicle; or
  2. a vehicle which is sold or traded-in by another dealer who took a deduction of residual VAT on his or her purchase of that vehicle.

A dealer who purchases a qualifying vehicle may claim the residual VAT on the vehicle, and on selling the vehicle must issue an invoice containing an endorsement disallowing any deduction of VAT to the purchaser.

Registration for VRT

Each EU Member State (and every other jurisdiction) maintains a register of motor vehicles. In the context of this leaflet, registration for VRT means the registering of a vehicle with a Vehicle Registration Office in the State, including the payment of any VRT. A vehicle is regarded as unregistered in the State even if it has been registered in another jurisdiction.

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Residual VAT

Residual VAT is the portion of the price paid by a motor dealer for a car that represents unrecoverable VAT paid by a previous owner. For example, if a private individual buys a car, he or she is not entitled to reclaim any VAT. If this car is then traded in or sold to a dealer, the dealer may calculate the VAT on the basis of the price paid for the car, and claim the 'trapped' or residual VAT from Revenue. Residual VAT may only be reclaimed by a dealer where a vehicle is to be sold under the Special Scheme for second-hand motor vehicles.

Second-Hand or Used Motor Vehicle

As with 'new motor vehicle', there is no definition in VAT law for a second-hand, or used, vehicle. For the purposes of this leaflet a second-hand or used vehicle may be regarded as a motor vehicle, agricultural machine, etc. that has had at least one previous owner, including the current owner, but not including a motor dealer who held the vehicle, etc. as stock-in-trade. However, where a dealer has registered a vehicle in his or her own name and subsequently sells that vehicle, it must be treated as a second-hand vehicle and sold through the special scheme, even if there have been no other owners. It is important to note that a vehicle may be used or second-hand and still come within the definition of 'new means of transport' above.

Self-registered Vehicles

A self-registered vehicle is one that has been registered for VRT in the name of the dealer or distributor. This happens where a vehicle is used as a demonstration model by a dealer, or where it is otherwise taken out of stock-in-trade. If a vehicle is sold, or provided for the use of a person other than the dealer or distributor, it should not be self-registered, but should be registered in the name of the purchaser or user. When a vehicle, other than a commercial vehicle, is self-registered, any VAT reclaimed on the purchase of the vehicle must be returned to Revenue. If the vehicle is subsequently sold, it must be sold through the Special Scheme for second-hand motor vehicles. The dealer can reclaim an amount of residual VAT equal to the amount of VAT charged on the sale.

Special Scheme for Second-Hand Motor Vehicles

The Special Scheme for Second-Hand Vehicles allows a dealer to reclaim the notional or residual VAT in the price of a car he or she purchases from a private individual, and sets out the rules governing the subsequent sale of the vehicle. This is dealt with fully in the section of this leaflet titled Purchase and sale of second-hand motor vehicles under the Special Scheme rules.

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Trade-in

A trade-in is the sale of a vehicle to a dealer to reduce the cost of the purchase of a (usually more expensive) vehicle from the dealer. For VAT purposes, these are treated as two separate transactions – a sale of the trade-in to the dealer, and the subsequent purchase of another vehicle.

Value Added Tax (VAT)

Value Added Tax is chargeable on the supply of goods and services. All traders who exceed the relevant turnover thresholds are required to register for and charge VAT. A liability to VAT also arises in the case of a new means of transport brought into the State, which is payable on registration of the vehicle, along with the VRT.

Vehicle Registration Tax (VRT)

Vehicle Registration Tax is chargeable on the registration of a motor vehicle in the State. All motor vehicles in the State, other than those brought in temporarily by visitors, must be registered with the Revenue Commissioners before being licensed for road tax purposes.

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Enquiries

Enquiries regarding the topics covered in this leaflet should be addressed as follows:

  • Value Added Tax (VAT) queries should be addressed to the local Revenue District office. The contact details for your district, and other useful addresses, telephone, fax numbers and email addresses can be found on the Contact Details section of the Revenue website.
  • Vehicle Registration Tax (VRT) queries should be addressed to the local Vehicle Registration Office (VRO). A wordlist of contact details for the VROs (MS Word, 54KB) is available on the Revenue website.
  • Contact details for specific queries regarding topics covered in this leaflet will be set out in the relevant section of the leaflet.

Enquiries or comments regarding the leaflet itself should be addressed to:

VAT Appeals & Communications Branch,
Indirect Taxes Division
Stamping Building,
Dublin Castle,
Dublin 2.

This Guide is issued by:
VAT Appeals & Communications Branch,
Dublin Castle.

December, 2008

This information leaflet which sets out the current practice at the date of its issue is intended for guidance only and does not purport to be a definitive legal interpretation of the provisions of the Value-Added Tax Act 1972 (as amended).

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