Dealer VAT margin scheme

[legendtrader]

Hi, I have been reading a lot about this online I was wondering if anyone could clarify if the below is correct?

Assuming a dealer is on the Vat margin scheme and for arguments sake also assuming there are no cost related to the sale or business (yeah I know it's unrealistic lol). If I purchase a second hand car (which is non vat qualifying margin scheme) for £13000 and sell it for £15000 is my VAT liability going to be 1/6th of £2000 = £333.33p.?

[nct001]

Yes. That's your output vat due on sales.



But then can claim back input vat due on purchases.

So you claim back the equivalent from say petrol adverts repairs parts materials workfare stationary etc

Basically everything except insurance and mots.

[legendtrader]

nct001 said:

Yes. That's your output vat due on sales.



But then can claim back input vat due on purchases.

So you claim back the equivalent from say petrol adverts repairs parts materials workfare stationary etc

Basically everything except insurance and mots.

Thanks for confirming.

[Magic919]

The key part is that's it's the buying price to selling price difference and you don't get to offset money spent getting the car ready for sale.

[legendtrader]

nct001 said:

Yes. That's your output vat due on sales.



But then can claim back input vat due on purchases.

So you claim back the equivalent from say petrol adverts repairs parts materials workfare stationary etc

Basically everything except insurance and mots.

Thanks for confirming.

[nct001]

Magic919 said:

The key part is that's it's the buying price to selling price difference and you don't get to offset money spent getting the car ready for sale.

Obviously you do if what you spend includes vat ie buy a clutch and flywheel for £600 from a parts company which is vat registered you claim back £100 input vat on this item.

[Magic919]

Not really. You pay the VAT based on the profit and don't get to offset the £600. That's not the same as reclaiming £100 of VAT.

[nct001]

Magic919 said:

Not really. You pay the VAT based on the profit and don't get to offset the £600. That's not the same as reclaiming £100 of VAT.

You are an idiot.

[legendtrader]

Lol I knew costs would cause an argument hence I said assuming no costs. I only buy <2 years old <20k miles grade 1/2 so my car prep costs are negligible.

[nct001]

If you buy a car for 5000 spend £1000 on it all of which is vat able and sell for £6000

You have an equal input and output liability so nothing to pay vat.

If this simple stuff guys.


As for two year old stuff I prefer to use my brain and experience last week I bought a specialist commercial vehicle 10 years old from bca online
£1300 hammer price
Fees and delivery £1658

£280 for couple of jobs and mot and got garage to check it over
Ran a mop over it and valeted seats myself.
Researched model and variant on Internet.
I never even drive it.

Listed on eBay auction as its true value is difficult to assess, sold on eBay auction for £3550.

That's good business.

[Magic919]

nct001 said:

If this simple stuff guys.

Exactly.

[legendtrader]

nct001 said:

If you buy a car for 5000 spend £1000 on it all of which is vat able and sell for £6000

You have an equal input and output liability so nothing to pay vat.

If this simple stuff guys.


As for two year old stuff I prefer to use my brain and experience last week I bought a specialist commercial vehicle 10 years old from bca online
£1300 hammer price
Fees and delivery £1658

£280 for couple of jobs and mot and got garage to check it over
Ran a mop over it and valeted seats myself.
Researched model and variant on Internet.
I never even drive it.

Listed on eBay auction as its true value is difficult to assess, sold on eBay auction for £3550.

That's good business.

It's good business until customer comes back and says it's got faulty clutch, gearbox and engine problems. Did you offer a warranty?

[nct001]

legendtrader said:

nct001 said:

If you buy a car for 5000 spend £1000 on it all of which is vat able and sell for £6000

You have an equal input and output liability so nothing to pay vat.

If this simple stuff guys.


As for two year old stuff I prefer to use my brain and experience last week I bought a specialist commercial vehicle 10 years old from bca online
£1300 hammer price
Fees and delivery £1658

£280 for couple of jobs and mot and got garage to check it over
Ran a mop over it and valeted seats myself.
Researched model and variant on Internet.
I never even drive it.

Listed on eBay auction as its true value is difficult to assess, sold on eBay auction for £3550.

That's good business.

It's good business until customer comes back and says it's got faulty clutch, gearbox and engine problems. Did you offer a warranty?

Oh...

Business to business sale of commercial vehicle - sales of goods act does not apply. It was a commercial vehicle sold to a taxi company. (It had a receipt for a clutch 2k miles ago.)

[fridaypassion]

I'm not sure this is quite been explained properly but this might be a more clear explanation of the margin Scheme

You buy a car for £5000
Spend £1000 including VAT on a widget for it
Sell for £7000

Your margin is still £2000 and you pay 1/6 of that £2000 margin in VAT even if you spend £3000 on a widget and loose money on the deal you will still pay 1/6 of the £2000 margin.

You do not add any prep costs (that includes fees as mentioned in the previous example) to the base cost of the car for the purposes of the margin scheme.

From the widget you paid £1000 for you will still reclaim £166.67 of VAT but this is part of your general overheads not as part of the accounting for the actual car you sold.

nct's example if reported incorrectly as I suspect is a £100 shortfall on the correct VAT figure required for HMRC.

Edited by fridaypassion on Sunday 28th August 13:51

[POORCARDEALER]

fridaypassion said:

I'm not sure this is quite been explained properly but this might be a more clear explanation of the margin Scheme

You buy a car for £5000
Spend £1000 including VAT on a widget for it
Sell for £7000

Your margin is still £2000 and you pay 1/6 of that £2000 margin in VAT even if you spend £3000 on a widget and loose money on the deal you will still pay 1/6 of the £2000 margin.

You do not add any prep costs (that includes fees as mentioned in the previous example) to the base cost of the car for the purposes of the margin scheme.

From the widget you paid £1000 for you will still reclaim £166.67 of VAT but this is part of your general overheads not as part of the accounting for the actual car you sold.

nct's example if reported incorrectly as I suspect is a £100 shortfall on the correct VAT figure required for HMRC.

Edited by fridaypassion on Sunday 28th August 13:51

Correct.

[legendtrader]

fridaypassion said:

I'm not sure this is quite been explained properly but this might be a more clear explanation of the margin Scheme

You buy a car for £5000
Spend £1000 including VAT on a widget for it
Sell for £7000

Your margin is still £2000 and you pay 1/6 of that £2000 margin in VAT even if you spend £3000 on a widget and loose money on the deal you will still pay 1/6 of the £2000 margin.

You do not add any prep costs (that includes fees as mentioned in the previous example) to the base cost of the car for the purposes of the margin scheme.

From the widget you paid £1000 for you will still reclaim £166.67 of VAT but this is part of your general overheads not as part of the accounting for the actual car you sold.

nct's example if reported incorrectly as I suspect is a £100 shortfall on the correct VAT figure required for HMRC.

Edited by fridaypassion on Sunday 28th August 13:51

the above is also my understanding from ready many sources on tinternet.

[anonymous-user]

It is theoretically possible that the MOT could be treated as a disbursement

Whether it could be easily achieved and "sold" to customers is another question

If you are having trouble sleeping and moderate interest in the topic, this tax tribunal ruling might help (in both cases)

http://www.ukvatadvice.com/wp-content/uploads/2015...

[nct001]

legendtrader said:

fridaypassion said:

I'm not sure this is quite been explained properly but this might be a more clear explanation of the margin Scheme

You buy a car for £5000
Spend £1000 including VAT on a widget for it
Sell for £7000

Your margin is still £2000 and you pay 1/6 of that £2000 margin in VAT even if you spend £3000 on a widget and loose money on the deal you will still pay 1/6 of the £2000 margin.

You do not add any prep costs (that includes fees as mentioned in the previous example) to the base cost of the car for the purposes of the margin scheme.

From the widget you paid £1000 for you will still reclaim £166.67 of VAT but this is part of your general overheads not as part of the accounting for the actual car you sold.

nct's example if reported incorrectly as I suspect is a £100 shortfall on the correct VAT figure required for HMRC.

Edited by fridaypassion on Sunday 28th August 13:51

the above is also my understanding from ready many sources on tinternet.

It makes no difference if you buy for 2000 and sell for 2600 but buy a widget for £600 which includes vat in its price then there is no vat payable.

In the input collumn there is 1/6 of 600 vat claimable hmrc that is £500 plus £100 vat

In the output collumn there is 1/6 of 600 payable to hmrc so 1 sixth of £600 so £100

There is no bias towards percentage output due - you claim back equally!

A simple excel spreadsheet with purchase ledger input vat and isolate vat from purchases and a sales book with margin and vat due on margin. It's so easy.

In reality you will have lots of input costs which you cannot recover vat from such as

Train tickets, staff wages, eBay adverts are a funny one, mots, warranties, insurance, hand car washes, smaller garages may not be vat registered etc.

As mentioned always best to include mot into cost of vehicle so you don't include it in your margin.

[fridaypassion]

You can't add the mot or any other cost to the car. The margin is the difference between what you bought it for and what you sold it for. No exceptions.

I think you are almost are the right conclusion buy there's a subtle difference.

If you buy a car at 2000 and sell at 2600 you will be paying 100 in vat.

If you buy a widget and claim the vat back then yes you reclaim the vat but you aren't not paying the vat on the car. You still need to account for it.

If you have a business you have been working vat put incorrectly for it might be a good idea to get an accountant in to run through the books. A bit wrong here and there adds up and if you go 6 or 7 years with and then get audited they will expect the shortfall paying. If you have been adding even small costs on the bottom line of your stock it's a problem you need to deal with immediately.

[robdcfc]

nct001 said:

legendtrader said:

fridaypassion said:

I'm not sure this is quite been explained properly but this might be a more clear explanation of the margin Scheme

You buy a car for £5000
Spend £1000 including VAT on a widget for it
Sell for £7000

Your margin is still £2000 and you pay 1/6 of that £2000 margin in VAT even if you spend £3000 on a widget and loose money on the deal you will still pay 1/6 of the £2000 margin.

You do not add any prep costs (that includes fees as mentioned in the previous example) to the base cost of the car for the purposes of the margin scheme.

From the widget you paid £1000 for you will still reclaim £166.67 of VAT but this is part of your general overheads not as part of the accounting for the actual car you sold.

nct's example if reported incorrectly as I suspect is a £100 shortfall on the correct VAT figure required for HMRC.

Edited by fridaypassion on Sunday 28th August 13:51

the above is also my understanding from ready many sources on tinternet.

It makes no difference if you buy for 2000 and sell for 2600 but buy a widget for £600 which includes vat in its price then there is no vat payable.

In the input collumn there is 1/6 of 600 vat claimable hmrc that is £500 plus £100 vat

In the output collumn there is 1/6 of 600 payable to hmrc so 1 sixth of £600 so £100

There is no bias towards percentage output due - you claim back equally!

A simple excel spreadsheet with purchase ledger input vat and isolate vat from purchases and a sales book with margin and vat due on margin. It's so easy.

In reality you will have lots of input costs which you cannot recover vat from such as

Train tickets, staff wages, eBay adverts are a funny one, mots, warranties, insurance, hand car washes, smaller garages may not be vat registered etc.

As mentioned always best to include mot into cost of vehicle so you don't include it in your margin.

WRONG

You pay the Vat on the mark up from purchase, say 1k so £166.67 vat, you then reclaim the vat on parts say £100 in your case, this means you still have to pay £66.67 in vat to HMRC.

That show the margin scheme works.

I hope you dont get a visit from HMRC Vat inspector as they will go back the last 4 years for any shortfalls.