Buyers and sellers could be counting the cost after Brexit-related changes may result in traders paying more VAT.
British-based business advisers and chartered accountants Hazlewoods has warned that effectively the VAT second-hand margin scheme has been withdrawn for UK businesses, with the exception of Northern Ireland, buying horses from the EU.
This means dealers who previously used the second-hand margin scheme and who source horses from EU nations could face higher VAT rates.
Lucie Hammond, partner in Hazlewoods’ farms and estates team, who leads the firm’s equine specialism, said the company has “many clients operating similar businesses” who are facing this “dilemma”.
“The options are to either put up prices, or to absorb, at least in part, the extra VAT cost. Those who continue as before run the risk of an HMRC investigation, which could result in a VAT bill, interest, and potential penalties,” she said.
“We are not aware that any specific announcement was made to publicise these changes, and HMRC’s margin scheme guidance for buying and selling horses is silent on EU imports. Therefore, many international horse dealers in Britain will not be aware of the change in their VAT position and may have miscalculated their VAT liability since 1 January 2021.”
The second-hand scheme provides VAT relief to businesses buying second-hand goods, including horses, from non-registered members of the public. In broad terms, it works by entitling users to pay VAT on just their profit margin, rather than the full sale value of an animal. This still applies in other circumstances, such as non-international business.
But since Brexit, all second-hand goods from the EU have become imports on which VAT is levied on arrival in the UK, and UK dealers of horses sourced from EU nations have lost their right to charge their buyers the lower sums of VAT.
Tim Warren, owner of Warren Eventing, has been importing horses from Europe for more than 30 years and is now questioning whether it is “even possible to continue”.
“As an example, if a UK dealer bought a horse in Europe pre-Brexit for £15,000 and then sold it in the UK for £20,000, there would be VAT to account for on the margin equalling £833, leaving the dealer with a profit of £4,167 before other costs,” he said.
“Post-Brexit, dealers have to account for VAT on the full sale price of £20,000, increasing the VAT to £3,333.33, Leaving the dealer with a profit of only £1,667 before other costs. After adding transport and insurance costs, along with the import and export agents’ fees, and other necessary expenses, there is little left to make it worthwhile.”
He added: “For decades, I have done this work for the satisfaction of selecting young horses which go on to become top competition horses. Facing thousands of pounds in extra VAT, I will have to question whether it is even possible to continue. Government should consider the situation and take action.”
Hazlewoods advise those affected to make sure they are correctly accounting for VAT on the full sales price of horses imported since 1 January 2021, and to consider lobbying their MP for a change to post-Brexit legislation to allow continued use of the scheme on equines imported to the UK. It also suggests those affected consider making a protective claim to HMRC in respect of the difference between the VAT payable on the full selling price, and the VAT payable under the margin scheme.
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