Changes to VRT rules set to combat conversions

Changes to Vehicle Registration Tax (VRT) rules for commercial vehicle to be introduced next year are set to end the common practice here of converting passenger cars and SUVs in order to benefit from lower tax.

The planned changes will effectively remove the discretion from car buyers or local garages to convert individual vehicles.

The Revenue Commissioners and Department of Finance are planning to introduce a “type approval” system.

This will mean that only vehicles with prior approval for commercial use can be registered as such.

A Revenue spokesman said the change was designed to bring the State into line with a number of European Directives on vehicle classification and would come into force on January 1st.

Provision for the change was included in the Finance Act 2010.

It is hoped the move will largely eliminate the practice of converting high-value passenger SUVs to commercial vehicles before purchase or importation, with some people then converting them back again to passenger vehicles, having benefitted from the VRT savings.

A major reason for the popularity of conversions is the significant differences in the VRT rates between passenger and commercial vehicles.

VRT on a passenger car can range from 14 per cent up to 36 per cent depending on the vehicle’s emissions.

However for large commercial vehicles VRT is charged at a flat rate of just €50 and for other commercial vehicles the rate is 13.3 per cent.

It is vehicles in this latter category, particularly some bigger-engined SUVs, that would qualify for substantial savings when granted the commercial rate, which are often converted from passenger formats after arrival here.

To date this year there were 6,624 vans and lorries registered, generating €331,200 in VRT while 523 other commercial vehicles registered generated €1.6 million.

Over a two-week period in April this year Revenue officials seized more than 323 vehicles as part of an investigation into VRT evasion.

The officials also challenged more than 3,279 vehicles – a process whereby they contest the whether it is a commercial vehicle – resulting in 384 warnings.

This led to 185 vehicles subsequently being registered.

Last year Revenue examined over 22,000 unregistered vehicles of which, just under 5,000 were found to be non-compliant.

Of these, 1,952 were seized leading to 50 prosecutions.

Alan Nolan, chief executive of the Society of the Irish Motor Industry (Simi), said the industry broadly approved of the changes but was in talks with Revenue and the department about some minor changes to the new criteria.

The Finance Bill proposes three VRT categories; M1 or passenger car, an N1 type or commercial vehicle with a 13.3 per cent VRT rate and an N2 type with VRT rate of €50.

“What we are concerned about is that certain types of commercial vehicles, such as small panel vans, which are essential to the small and medium enterprise sector may fall into the N1 category. These vehicles have always being in the €50 group.”

“We will have to wait for the Budget for confirmation but I think progress has been made on this and that some modifications may be introduced.”

He said while there were a number of bona fide vehicle conversion firms, the issue was with operators “on the fringes of the industry”.

“There have also been cases where the definition of a commercial vehicle has been challenged.

“For example, the definition of a car with no back seats and two doors is also a sports car. The changes will simplify this.”

A spokeswoman for the Department of Finance confirmed the changes are planned to be introduced on January 1st.

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