Used car dealer and paying vat ?
Discussion
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
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 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 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 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...
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.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.
Just want to be clear I’m not doing anything wrong not paying VAT right now ?
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