Vehicle Sales

[RRLover]

Hi everyone, i'm in need of some help!
My business core is reconditioning & rebuilding engines but lately we have had a few opportunities of buying non running vehicles & putting them right & moving them on. Speaking to my accountant today he has advised me that we pay VAT on the profit that is made from the vehicle purchase to the sale & the repair bill hasnt to be counted in.
For example car bought at £3600, repair bill of £2500+vat making the car SIV at £6100 sell at £7500 so vat payable on the profit of £1400 would be £233.33 - My understanding.
I have been advised that i shouldn't be counting the repair / prep cost into the SIV & should pay vat on £3900 profit & would be £650
What is everyones understanding ?
We arent a motor trader but we do have a dealer license & will probably only move on a handful of vehicles a year.

TIA & i hope i made sense

[Butter Face]

On a margin scheme you pay VAT on the difference between what you paid for the car and what you sell it for. Your prep costs do not count towards your car SIV.

So in your example you pay VAT on the £3900.

[daemon]

RRLover said:

Hi everyone, i'm in need of some help!
My business core is reconditioning & rebuilding engines but lately we have had a few opportunities of buying non running vehicles & putting them right & moving them on. Speaking to my accountant today he has advised me that we pay VAT on the profit that is made from the vehicle purchase to the sale & the repair bill hasnt to be counted in.
For example car bought at £3600, repair bill of £2500+vat making the car SIV at £6100 sell at £7500 so vat payable on the profit of £1400 would be £233.33 - My understanding.
I have been advised that i shouldn't be counting the repair / prep cost into the SIV & should pay vat on £3900 profit & would be £650
What is everyones understanding ?
We arent a motor trader but we do have a dealer license & will probably only move on a handful of vehicles a year.

TIA & i hope i made sense

You would pay VAT out of the £3900 profit @ £650, BUT would be able to reclaim the VAT element of the repair costs @ £500.

So your VAT due would be £150

[Henry-F]

daemon said:

You would pay VAT out of the £3900 profit @ £650, BUT would be able to reclaim the VAT element of the repair costs @ £500.

So your VAT due would be £150

That's not strictly true.

You will be able to offset any VAT paid to third parties but not on your internal labour costs which will probably form the bulk of the costs. On a margin scheme such as car sales you end up paying VAT on your wage bill.

Henry

[singlecoil]

Henry-F said:

daemon said:

You would pay VAT out of the £3900 profit @ £650, BUT would be able to reclaim the VAT element of the repair costs @ £500.

So your VAT due would be £150

That's not strictly true.

You will be able to offset any VAT paid to third parties but not on your internal labour costs which will probably form the bulk of the costs. On a margin scheme such as car sales you end up paying VAT on your wage bill.

Henry

Just like any other VAT registered business

Edited by singlecoil on Thursday 25th September 11:26

[daemon]

Henry-F said:

daemon said:

You would pay VAT out of the £3900 profit @ £650, BUT would be able to reclaim the VAT element of the repair costs @ £500.

So your VAT due would be £150

That's not strictly true.

You will be able to offset any VAT paid to third parties but not on your internal labour costs which will probably form the bulk of the costs. On a margin scheme such as car sales you end up paying VAT on your wage bill.

Henry

Using the example of the "repair bill" being a third party then my response is correct.

Cant see how anyone would think they could rack up an internal bill, charge themselves VAT then claim it back, but if you think that needed clarification...

[Henry-F]

daemon said:

Using the example of the "repair bill" being a third party then my response is correct.

Cant see how anyone would think they could rack up an internal bill, charge themselves VAT then claim it back, but if you think that needed clarification...

The OP stated his main business was repairing engines and that he had been offered non running cars, ie that need engine repairs.

In this instance the repair element would be internal so for the purpose of this thread I think your comment was misleading.

Re "the same as any Vat registered business", the problem with cars is that there is no Vat charged. If you invoice plus Vat then your wage bill is part of your costs and so you pass on the Vat element to your customer. With cars (not commercials) even if the buyer is Vat registered you as the dealer have to swallow the Vat element of your wage bill.

I realise car sales is not the only business to operate on a margin scheme but it is one of the sectors where wages can potentially form a very large part of your costs and so you can easily get into trouble.

Henry

[singlecoil]

Henry-F said:

Re "the same as any Vat registered business", the problem with cars is that there is no Vat charged. If you invoice plus Vat then your wage bill is part of your costs and so you pass on the Vat element to your customer. With cars (not commercials) even if the buyer is Vat registered you as the dealer have to swallow the Vat element of your wage bill.

I realise car sales is not the only business to operate on a margin scheme but it is one of the sectors where wages can potentially form a very large part of your costs and so you can easily get into trouble.

Henry

Well then you have to add the VAT to the selling price, same as any business that sells to non-VAT registered entities. Value added tax means a tax on the value that is added to the product. If you are, for instance, a builder and build someone a wall using bricks and mortar they supply then virtually all of your costs are going to be wages. You then have to charge the customer enough to cover those, the VAT, and your profit.

There really isn't any essential difference.

Single

[Henry-F]

singlecoil said:

Well then you have to add the VAT to the selling price, same as any business that sells to non-VAT registered entities. Value added tax means a tax on the value that is added to the product. If you are, for instance, a builder and build someone a wall using bricks and mortar they supply then virtually all of your costs are going to be wages. You then have to charge the customer enough to cover those, the VAT, and your profit.

There really isn't any essential difference.

Single

But if the builder worked for a Vat registered company he could charge plus Vat and the client would reclaim the Vat. With used cars there is no way of charging the Vat because used cars are Vat exempt.

The other slightly strange thing is the fact prices are often set by non Vat paying suppliers such as private sellers and non Vat paying dealers (who may or may not be trading legitimately).

It's just something to consider, particularly in the context of the OP's situation.

Henry

[daemon]

Henry-F said:

daemon said:

Using the example of the "repair bill" being a third party then my response is correct.

Cant see how anyone would think they could rack up an internal bill, charge themselves VAT then claim it back, but if you think that needed clarification...

The OP stated his main business was repairing engines and that he had been offered non running cars, ie that need engine repairs.

In this instance the repair element would be internal so for the purpose of this thread I think your comment was misleading.

Well, i guess you must feel its an important point and worth reiterating several times so i bow to your judgement.

I'll repeat it for clarity - everyone, in case you didnt know this already - if you run a VAT registered business you cant charge yourself VAT.

HTH.