CHANGES TO the VAT system on used cars for dealers, annou-nced during the supplementary Budget, now seem unlikely to feature in this week’s Finance Bill.
A major element of the car industry’s pre-Budget submissions, it seems that the move – aimed at helping the industry – requires further negotiations between the various parties. It was feared that, in its current format, the revised scheme would have added to cashflow problems being suffered by dealers.
Under the current system, car dealers can reclaim the VAT value on a used car either purchased or traded in and pay it back when the car is sold. In reality, this rebate is used to offset other VAT payments on new cars, ultimately adding to the trading cashflow of the business.
However, with increasing numbers of used cars being sold at a loss, dealers are finding that the repayment is higher than what would have been due if the VAT was charged simply on the sales margin of the car.
The Budget plan would have introduced a margin-based system, but it seems there were concerns among some dealers that the withdrawal of the value of the VAT rebate on used cars purchased or traded in would have a detrimental impact on their working capital – not easily replaced with extra credit from finance houses.
Talks between the Department of Finance and the Society of the Irish Motor Industry (SIMI) are said to be ongoing and it is hoped a resolution will be found before the Bill is enacted.