VAT on Collectors Item when it is a historical vehicle imported from US at 5% VAT
Client has an American Classic Car showroom importing vehicles from the US.
VAT is paid at the docks on import at 17.5% plus duty or where they are "historical" collectors items only 5% with no duty. The VAT is then reclaimed via the C79.
The margin scheme cannot be used as the vehicles are purchased from outside the EU and therefore the sale includes output tax at the full rate.
The question is that where the cars imported are Historical Collector's Item e.g. a 1968 Shelby with 17,000 original miles valued at £169,000 and, clearly, the car will end up with a Collector or in a museum as opposed to being used as a "normal" car will it be deemed to include VAT at the full rate when sold or is it able to be sold at a reduced Imported works of art, antique's and collectors item rate.
HMRC are stating that it is the full rate and that rules for import VAT and the rules for output tax differ and that may be but I am throwing the question out there in case anyone knows a way of arguing that a lower rate should apply.
Import Rules -v- Output Tax Rules
HMRC are trying to say that the vehicles are classed as collector's items for import but that different rules will apply for the output tax as it comes under the second hand rules and as the cars were purchased outside the EU that the scheme cannot be used.
I am going to write to HMRC though proposing that we elect to use the margin scheme for the cars classified as 5% for import purposes and see what the response is.
Margin Scheme
Why cant the client use the margin scheme?
You can use the margin scheme for imported antiques, works of art, and collectors items, HMRC have already accepted it's such by levying the 5% import VAT rate, so all you need to do is exercise an option to use the scheme for imported collectors items, not recover the 5%, and account for the VAT on the margin between the value plus import VATof the car and the eventual selling price.
See Section 10 of Notice 718 on Margin Schemes http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&columns=1&id=HMCE_CL_000145#P459_27654 for the details you need, or is there a reason for not applying the margin that you haven't covered in your question?