Used car dealer and paying vat ?

[Danny4494]

Just after some help/advice what is the whole VAT situation selling used cars on the gov website section 2.2 it says “you do not have to use the margin scheme”

I was under the impression that you just have the standard tax and no VAT unless you are VAT registered (I am looking at becoming vat registered soon) but as it stands at the moment I’m not.

However after doing some research there’s something called the margin scheme that kinda works like this.

Purchase price £1,500.00
(b) Selling price £2,000.00
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6) £83.33

Personally I haven’t been using the margin scheme since I started trading 8 months ago im a registered sole trader and doing everything above board.

Just lots of conflicting information online, friend of mine been trading for over 10 years now and not vat registered and not been using the margin scheme, but got chatting to a guy today that was adamant it’s mandatory, I have googled and checked GOV website and anyone in the trade advise me please last thing I want is VAT man stinging me with a big bill I’ll just pay now and carry on with a new margin to consider

[wheelerc]

I'm not an accountant, but my understanding is that if your turnover is or is projected to be over the VAT registration threshold (currently £85k per year) then you must register for VAT. You can then opt to use the Margin Scheme on sales of used cars, which probably makes sense to do.

[Danny4494]

wheelerc said:

I'm not an accountant, but my understanding is that if your turnover is or is projected to be over the VAT registration threshold (currently £85k per year) then you must register for VAT. You can then opt to use the Margin Scheme on sales of used cars, which probably makes sense to do.

Thanks for the reply appreciate it, that was also what I was under the impression too so I guess the question is..


No vat registered no vat at all ??

Sold a couple of vans and commercials with vat but nothing I can do about that as I’m not registered

[silentbrown]

VAT threshold is £85K in any 12 months Turnover . Just selling one ~£7K car every month will hit that.

Once you're VAT registered, you'd be a mug not to use the Margin scheme. Without it, if you buy a car privately for £5K and retail it for £6K inc VAT, your entire £1K of potential profit goes straight to HMRC. With the margin scheme, you'd pay at most £200 VAT

If you fail to register for VAT and should have done so, expect a big VAT bill and potential fines...

[Danny4494]

silentbrown said:

VAT threshold is £85K in any 12 months Turnover . Just selling one ~£7K car every month will hit that.

Once you're VAT registered, you'd be a mug not to use the Margin scheme. Without it, if you buy a car privately for £5K and retail it for £6K inc VAT, your entire £1K of potential profit goes straight to HMRC. With the margin scheme, you'd pay at most £200 VAT

If you fail to register for VAT and should have done so, expect a big VAT bill and potential fines...

Thanks for the info so there is no VAT until 85k turn over

[silentbrown]

Danny4494 said:

silentbrown said:

VAT threshold is £85K in any 12 months Turnover . Just selling one ~£7K car every month will hit that.

Once you're VAT registered, you'd be a mug not to use the Margin scheme. Without it, if you buy a car privately for £5K and retail it for £6K inc VAT, your entire £1K of potential profit goes straight to HMRC. With the margin scheme, you'd pay at most £200 VAT

If you fail to register for VAT and should have done so, expect a big VAT bill and potential fines...

Thanks for the info so there is no VAT until 85k turn over

Yes. If you're just selling a couple of sheds a month you probably wont be troubling the £85K limit. But you're also unlikely to be making enough money to live on.

If you don't have one, talk to an accountant. Most will offer a free initial consultation to point you in the right direction.

[Danny4494]

Honestly that’s all I needed to know mate thankyou, looks like I’m going to becoming vat registered sooner than I thought to be honest, glad I cleared things up now and not in a few months

[NS1927]

Danny, just to make you aware, once you're VAT registered you only use the margin scheme when you sell a used vehicle that's been previously owned buy a private individual. Basically, as soon as someone buys a vehicle who isn't VAT registered there's no longer any VAT charged on future sales (because the private individual couldn't reclaim the VAT they were charged when they purchased it). Using your correct workings :

Purchase price £1,500.00
(b) Selling price £2,000.00 (No VAT charged and no VAT handed over by you to HMRC on the sale)
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6) £83.33 (VAT handed over to HMRC on the profit margin)
(e) net profit = 416.66

If a manufacturer sold the vehicle new to a VAT registered business e.g. enterprise as a direct fleet vehicle and 12 months later you purchased it at auction, the margin scheme wouldn't apply. Your selling price would include VAT. Same workings:

Purchase price £1,500.00
(b) Selling price £2,000.00 (including VAT)
(c) VAT payable = 333.33 ('normal VAT' not margin scheme)
(d) net profit = 166.67

For margin cars any work you do to bring the car up to your standards is not included in the purchase price so can't be used to bring your margin and subsequent VAT payable down. Obviously you can't recover VAT from HMRC on any losses either.

Additionally, if your customer wanted a towbar, which you then fitted and sold for an extra £500 then you would charge VAT on this element only for the margin cars. You won't include it in your margin calculation though as HMRC have already had their output VAT on this.

I speak as an accountant for a manufacturer and this scheme trips people up who've worked in the game for a number of years. Personally I'd recommend getting an accountant to deal with it at least to begin with as, like anything, it's easy enough once you're familiar.

[silentbrown]

NS1927 said:

If a manufacturer sold the vehicle new to a VAT registered business e.g. enterprise as a direct fleet vehicle and 12 months later you purchased it at auction, the margin scheme wouldn't apply. Your selling price would include VAT. Same workings:

Purchase price £1,500.00
(b) Selling price £2,000.00 (including VAT)
(c) VAT payable = 333.33 ('normal VAT' not margin scheme)
(d) net profit = 166.67

?? If you're buying a vat qualifying car for £1500 Inc VAT then theres £250 of input tax reclaimable, making the net profit identical. At least, that's how I thought it was supposed to work.....

[NS1927]

Spot on, my VAT based on the second sale only

[Danny4494]

NS1927 said:

Danny, just to make you aware, once you're VAT registered you only use the margin scheme when you sell a used vehicle that's been previously owned buy a private individual. Basically, as soon as someone buys a vehicle who isn't VAT registered there's no longer any VAT charged on future sales (because the private individual couldn't reclaim the VAT they were charged when they purchased it). Using your correct workings :

Purchase price £1,500.00
(b) Selling price £2,000.00 (No VAT charged and no VAT handed over by you to HMRC on the sale)
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6) £83.33 (VAT handed over to HMRC on the profit margin)
(e) net profit = 416.66

If a manufacturer sold the vehicle new to a VAT registered business e.g. enterprise as a direct fleet vehicle and 12 months later you purchased it at auction, the margin scheme wouldn't apply. Your selling price would include VAT. Same workings:

Purchase price £1,500.00
(b) Selling price £2,000.00 (including VAT)
(c) VAT payable = 333.33 ('normal VAT' not margin scheme)
(d) net profit = 166.67

For margin cars any work you do to bring the car up to your standards is not included in the purchase price so can't be used to bring your margin and subsequent VAT payable down. Obviously you can't recover VAT from HMRC on any losses either.

Additionally, if your customer wanted a towbar, which you then fitted and sold for an extra £500 then you would charge VAT on this element only for the margin cars. You won't include it in your margin calculation though as HMRC have already had their output VAT on this.

I speak as an accountant for a manufacturer and this scheme trips people up who've worked in the game for a number of years. Personally I'd recommend getting an accountant to deal with it at least to begin with as, like anything, it's easy enough once you're familiar.

So as it stands I’m operating correctly probably coming up the 70k mark now so want to be looking at getting vat registered.

Just want to be clear I’m not doing anything wrong not paying VAT right now ?

[wheelerc]

https://www.gov.uk/vat-registration/when-to-regist...

I'd you are selling two cars for an average price of £3600 per month your turnover will be over £85k per year so you need to register now. You can't wait until you have sold £85k worth of cars over say 11 months.

[tight fart]

If you’ve sold a van and charged vat when not registered then you have done it wrong.
You need an accountant ASAP.

[MustangGT]

Danny4494 said:

Thanks for the info so there is no VAT until 85k turn over

I believe that if you turnover just over £7k/month you would need to register for VAT immediately as you will be expecting to exceed the £85k during the year.

[CloudStuff]

NS1927 said:

Danny, just to make you aware, once you're VAT registered you only use the margin scheme when you sell a used vehicle that's been previously owned buy a private individual. Basically, as soon as someone buys a vehicle who isn't VAT registered there's no longer any VAT charged on future sales (because the private individual couldn't reclaim the VAT they were charged when they purchased it). Using your correct workings :

Purchase price £1,500.00
(b) Selling price £2,000.00 (No VAT charged and no VAT handed over by you to HMRC on the sale)
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6) £83.33 (VAT handed over to HMRC on the profit margin)
(e) net profit = 416.66

If a manufacturer sold the vehicle new to a VAT registered business e.g. enterprise as a direct fleet vehicle and 12 months later you purchased it at auction, the margin scheme wouldn't apply. Your selling price would include VAT. Same workings:

Purchase price £1,500.00
(b) Selling price £2,000.00 (including VAT)
(c) VAT payable = 333.33 ('normal VAT' not margin scheme)
(d) net profit = 166.67

For margin cars any work you do to bring the car up to your standards is not included in the purchase price so can't be used to bring your margin and subsequent VAT payable down. Obviously you can't recover VAT from HMRC on any losses either.

Additionally, if your customer wanted a towbar, which you then fitted and sold for an extra £500 then you would charge VAT on this element only for the margin cars. You won't include it in your margin calculation though as HMRC have already had their output VAT on this.

I speak as an accountant for a manufacturer and this scheme trips people up who've worked in the game for a number of years. Personally I'd recommend getting an accountant to deal with it at least to begin with as, like anything, it's easy enough once you're familiar.

I have to admit to being thoroughly confused by the VAT on car sales rules. Worryingly, I think my accountant isn't sure, either.

The scenario is, Ltd Co., VAT registered but not a motor trader buys a car (an EV fwiw) from a main dealer in Q3 2021.

Main dealer's invoice includes VAT, of course.

Two or three questions, please:

1) For the impending VAT return, presumably the buying Ltd. co should NOT reclaim VAT in the impending return?

2) The Ltd Co., may well sell the car to another car dealer (direct sale). Presumably, it can be sold as VAT qualifying as nothing has been reclaimed. Should the selling Ltd. include VAT on the invoice, even though in this instance there will be no cash received by the Ltd (buying dealer will clear finance)? At which stage does anybody actually claim the VAT?

[Eric Mc]

VAT cannot be reclaimed by a VAT registered entity on the purchase of a motor car UNLESS the car falls into some very strict categories.

When the car is eventually sold, or traded in, no VAT is declared at the point of sale/grade-in.

[CloudStuff]

Eric Mc said:

VAT cannot be reclaimed by a VAT registered entity on the purchase of a motor car UNLESS the car falls into some very strict categories.

When the car is eventually sold, or traded in, no VAT is declared at the point of sale/grade-in.

Thanks Eric - my accountant doesn't know the rules on this. Need to get some advice from a new one.

[Jim Lone Wolf Autos]

I’m glad I stumbled across this thread as I’m just starting out as a use car trader, mainly operating off my drive way to start with.
I had heard of the used car vat scheme but was a little unsure of exactly how it worked.
I just want to clarify I few things if I may, as a self employed sole trader..
1, Car purchase price, auction fees and delivery costs are all part of the purchase price ie Sold price - purchase price divided by 6 = payable vat?
2, All other costs like MOT’s, servicing and any refurb/repair costs will be added to my expenses and deducted from my yearly tax return?

[anonymous-user]

Jim Lone Wolf Autos said:

I’m glad I stumbled across this thread as I’m just starting out as a use car trader, mainly operating off my drive way to start with.
I had heard of the used car vat scheme but was a little unsure of exactly how it worked.
I just want to clarify I few things if I may, as a self employed sole trader..
1, Car purchase price, auction fees and delivery costs are all part of the purchase price ie Sold price - purchase price divided by 6 = payable vat?
2, All other costs like MOT’s, servicing and any refurb/repair costs will be added to my expenses and deducted from my yearly tax return?

See 8.3

https://www.gov.uk/guidance/the-margin-scheme-on-s...

Hammer price + Auction house services, i.e buyers fees and car checks, NOT delivery as that will be invoiced with VAT and are not applicable to the margin scheme along with any other associated prep, repair and marketing costs.

VAT is then required for the difference of the sale price, irrespective of other costs required to get it there, although as you say, they may be able to be claimed for separately as a part of your business' annual tax return.

[silentbrown]

[quote=WorldBoss
VAT is then required for the difference of the sale price, irrespective of other costs required to get it there, although as you say, they may be able to be claimed for separately as a part of your business' annual tax return.

[/quote]
You can reclaim any VAT you've paid for repairs/refurbs though? So if you have £3600 difference in sale price, but £2000+£400VAT on prep costs, there's only £200 of VAT due, IIRC.