trader or not

[anonymous-user]

Guys

Need some advice here please.

My mate sold a car recently. He had only recently bought it but having read the M Coupe article in the GG he sold it on to a trader and made a large chunk of profit.
He bought another similar type of car that was appreciating in value and sold that on for a profit too. And then 1 more.

All the sales money is in his account.

So, he obviously can't carry on like this because it is not on and he could get into trouble I would imagine. So, with his recently made profit sitting in his account, is he obliged to contact HMRC and tell them?

At what point will HMRC become interested? Is it based on an amount of profit? Will his bank not start asking questions?

If not, how may can he sell on the side without setting up as a trader? ie buying and then moving on to the motor trade?

[Countdown]

Is he buying primarily with the intention of selling to make a profit? If so then he is trading and needs to declare it to HMRC. Please note he doesn't actually need to make a profit to be trading.

I think if he did it more than 5 times a year HMRC would consider him to be trading.

[daemon]

Countdown said:

Is he buying primarily with the intention of selling to make a profit? If so then he is trading and needs to declare it to HMRC. Please note he doesn't actually need to make a profit to be trading.

I think if he did it more than 5 times a year HMRC would consider him to be trading.

First paragraph is right. Full stop

Second paragraph is wholly wrong

[DuraAce]

Is he registering the cars properly in his name each time? If yes, then surely you can change your own car as often as you like without penalty?

If he isn't filling in V5's then he is on dodgy ground from the very first car.

[Countdown]

daemon said:

First paragraph is right. Full stop

Second paragraph is wholly wrong

I could perhaps have phrased it better but I'm not sure why its wholly wrong?

From my accountancy studies (20+ years ago admittedly) I seem to recall that one of the things that HMRC would look for, if trying to prove that somebody was carrying out a trade, was a pattern of similar activities over a certain period of time. 5 sales and purchases during one year and making a profit each time would be more than expected for a normal person .

[Spangles]

Countdown said:

I could perhaps have phrased it better but I'm not sure why its wholly wrong?

From my accountancy studies (20+ years ago admittedly) I seem to recall that one of the things that HMRC would look for, if trying to prove that somebody was carrying out a trade, was a pattern of similar activities over a certain period of time. 5 sales and purchases during one year and making a profit each time would be more than expected for a normal person .

I assume that would HMRC's job of prosecuting easier, to have the activity repeated, but doing it once is still trading.

[TooLateForAName]

DuraAce said:

Is he registering the cars properly in his name each time? If yes, then surely you can change your own car as often as you like without penalty?

If he isn't filling in V5's then he is on dodgy ground from the very first car.

irrelevant.


From the description given, your 'mate' is a trader and should be declaring this to hmrc. Look up margin scheme.

[anonymous-user]

TooLateForAName said:

DuraAce said:

Is he registering the cars properly in his name each time? If yes, then surely you can change your own car as often as you like without penalty?

If he isn't filling in V5's then he is on dodgy ground from the very first car.

irrelevant.


From the description given, your 'mate' is a trader and should be declaring this to hmrc. Look up margin scheme.

Thanks to all for the info.

Given the clarification and future implications would he just stop right now and keep any monies gained or would they still find out?

[Drawweight]

How exactly are they going to 'find out'

If you buy a car every couple of months, advertise it discreetly i.e not with a big sign on it outside your house then I can't see them ever finding out.

Just be careful not to ps off a customer as the first advice given on here is usually 'tell HMRC'

Disclaimer...I'm not saying it is right/legal. Just putting it out there.

[Red Devil]

^^This^^

As ever, it has been discussed before - http://www.pistonheads.com/gassing/topic.asp?t=108...

If it's one car at a time (and you have no other), it is registered in your name and insured on a private car policy, then it probably won't even be on anyone's radar. Probably best for him to stop now though while he's ahead of the game.

HMRC's stance - http://www.hmrc.gov.uk/guidance/selling/examples.h...

What counts in these cases is pattern and motive - http://www1.lexisnexis.co.uk/taxtutor/public/busin...

If push came to shove he would have to convince HMRC that he just liked changing his car frequently and was fortunate to be able to bag a bargain each time. Good luck with that.

[anonymous-user]

But would the bank not start seeing unusual amounts of money/transactions? I understand HMRC are tied in with the banks and share info?

[Jasandjules]

lord trumpton said:

But would the bank not start seeing unusual amounts of money/transactions? I understand HMRC are tied in with the banks and share info?

"Your friend" has bought a car and sold it with a view to making a profit, then bought another one because it was an "appreciating" asset to make more. He is a trader.

[rivercatch]

Jasandjules said:

"Your friend" has bought a car and sold it with a view to making a profit, then bought another one because it was an "appreciating" asset to make more. He is a trader.

Or an investor.

There's probably no "one thing" to make him a trader. It will be a number of a things usually combined:

Number of transactions - the more there are the more likely it is a trade.
Intention - buy for resale each time then probably a trader. More importantly does he have any evidence of his intention at the time of each purchase
Registration - if not registered in his name then more likely
Insurance - trader policy? or written in his individual name each time? competitive quotes each time?
Other trade/income - is it motor related?
Use - does he use the car or is it treated like stock? does he improve them before sale?
Profits - you don't need to make a profit to be a trader but it is indicative. If you are making losses, firstly HMRC probably won't be that interested, also making losses is evidence of replacing a depreciating asset (e.g. a taxi driver could change his car 2 to 3 times per year)

[Countdown]

Spangles said:

Countdown said:

I could perhaps have phrased it better but I'm not sure why its wholly wrong?

From my accountancy studies (20+ years ago admittedly) I seem to recall that one of the things that HMRC would look for, if trying to prove that somebody was carrying out a trade, was a pattern of similar activities over a certain period of time. 5 sales and purchases during one year and making a profit each time would be more than expected for a normal person .

I assume that would HMRC's job of prosecuting easier, to have the activity repeated, but doing it once is still trading.

I agree - it was the HMRC proof I was referring to.

[CaptainSlow]

Bloke down pub told me you can sell up to 12 cars per year and not be a trader. You can sell as many grey Audis as you'd like though, as they go through on the grey market*

• I made this joke on the last thread on this subject, but as nobody seems to know where the search function is it won't be noticed.

[Who me ?]

Spangles said:

Countdown said:

I could perhaps have phrased it better but I'm not sure why its wholly wrong?

From my accountancy studies (20+ years ago admittedly) I seem to recall that one of the things that HMRC would look for, if trying to prove that somebody was carrying out a trade, was a pattern of similar activities over a certain period of time. 5 sales and purchases during one year and making a profit each time would be more than expected for a normal person .

I assume that would HMRC's job of prosecuting easier, to have the activity repeated, but doing it once is still trading.

BUT first, you have to wake HMRC up. I've got one close by, with at least 20 cars in a year. Often there's one or two non taxed/MOT'd cars sitting on the road close by his place. DVLA- forget it. Police -same thing. This isn't some posh estate ,where he's lowering the "tone" ,but a backwater council estate, with a narrow road and limited parking for those legitimate vehicles owned legally.