Minister for Finance, Brian Lenihan has announced a change to the way VAT is calculated on used car sales, in an effort to give the motor industry a much needed boost. Following discussions with motor industry representatives a new scheme will be introduced from 1 January 2010.

Under the Margin Scheme, dealers will account for VAT on their profit margin, that is, on the difference between the cost of acquiring the car and its reselling price. This will apply to all second-hand cars purchased and resold on or after 1 January 2010.

The move will bring Ireland into line with most other EU states which all use this method of calculation with the exception of Demark. Most introduced it under a 1994 EU directive but following strong representations from the motor industry, Ireland negotiated an opt out at this time.

The VAT Margin Scheme for second-hand vehicles, including transitional arrangements, will also apply in respect of second-hand agricultural machinery.
The necessary legislation to underpin these new arrangements will be introduced in the Budget.