VAT chargeable on 2nd hand items?

[munky]

I know dealers of all things second hand (except cars?) that buy at X and sell at X+Y must charge VAT (on the whole amount, or on the Y?) but what if a company buys a depreciating asset new (let's say a mobile phone, which it is in the business of renting out and providing airtime) and sells it on later at a loss - is VAT still chargeable on the sale?

thanks!

[spikeyhead]

For cars, if a dealer buys a second hand car from a business, ie a lease company, then the car is VAT qualifying and the dealer can claim back the VAT on the purchase, but then pays VAT on the whole of the sale price.

If the dealer buys a car from an individual or non VAT registered company then they pay VAT on the gross profit, ie the difference between selling and buying price.

[munky]

Thanks - sorry I should have been clearer, my request isn't about cars (AFAIK the rules on cars are different).

To be more specific, it's about me (as an individual not a company) buying "my" company blackberry from the rental & airtime co. that supplied it to the company that I work for. So the phone co. would have purchased it new, presumably paying VAT, rented it to the company that I worked for, and I used it. Now it's 18 months old, there's an option for me to buy it from the phone co. directly and I just wondered whether the phone co. should or shouldn't be charging me VAT, especially as they made a loss due to depreciation, rather than a profit (the profit of course was made on the airtime agreement).

Hopefully that makes it more rather than less clear!

cheers

[Eric Mc]

Who owns the phone at this moment in time (i.e. who has legal title to it)?

Edited by Eric Mc on Thursday 2nd April 18:59

[mas99]

They're still a vat registered business selling something to you. Why would they not charge vat?

[munky]

Eric Mc said:

Who owns the phone at this moment in time (i.e. who has legal title to it)?

Edited by Eric Mc on Thursday 2nd April 18:59

Hello Eric! Legal title would, at the moment, belong to Aerofone. They have owned it from new and rented it to the company I work for, which lent it to me. So I will be purchasing it from them 2nd hand, it would just seem strange (although not unfeasible) to have VAT charged twice on the same object when there has been no "value added" since the last VAT transaction (I'm assuming they would have to pay VAT on a new purchase, as they are not a phone reseller as such)

[munky]

mas99 said:

They're still a vat registered business selling something to you. Why would they not charge vat?

Because VAT (I believe, I may be wrong) would have already been paid when it was purchased the first time. It is now being sold at a loss (after depreciation) and therefore there has been no "value added" to tax, I'd have thought. But logic isn't a requirement of our taxation system..

If the phone company was in the business of buying second hand phones and reselling them for a profit then sure, I can see why VAT would be charged as the "value added" is their profit. But that is not what this company does.

[Deva Link]

Somewhat wierd question?

Of course they charge VAT on the sale - can't imagine why you would think otherwise.

If a company bought something and kept it in stock for ages, then had to sell at a loss, they'd still charge VAT on the sale.

[munky]

Deva Link said:

Somewhat wierd question?

Of course they charge VAT on the sale - can't imagine why you would think otherwise.

That's because I know nothing of VAT rules and why I'm asking you experts! It's also because I read on some other forum that VAT is only chargeable on 2nd hand items when there has been some sort of value added by the seller.

Perhaps in my naivety I thought double taxation didn't happen. The reason I thought it didn't happen in this instance is that there has been no value added, and surely VAT is a value added tax.

OR, are you saying that they can claim back the amount of VAT that is charged on the resale? e.g. if company XYZ buys machinery for £1m plus £150,000 VAT and then, after using said machinery to make widgets for x years, sells it second hand for £100,000 to a private individual, which of these things happen?

a) XYZ sells it for £100k and no VAT is payable as it's second hand
b) XYZ sells it for £100k + 15k VAT - the HMRC gets 2 bites of the cherry
c) XYZ sells it for £100k + 15k VAT but then claims back 15k from HMRC as they already paid 150k VAT when new
d) a VAT registered company wouldn't have paid VAT on the purchase of new equipment
e) something else entirely

Deva Link said:

If a company bought something and kept it in stock for ages, then had to sell at a loss, they'd still charge VAT on the sale.

Sure - I agree they would if the item was held in stock for ages and sold as new at a discount resulting in a loss, but does it still apply if the item has not simply been in stock but has been used (rented out to a customer (me, indirectly) for 18 months and is now 2nd hand?

thanks!

by the way, they are quoting me ex-VAT prices and I don't yet know if they are planning to add VAT or not, I was just intrigued as to the rules

Edited by munky on Thursday 2nd April 20:11

Edited by munky on Thursday 2nd April 20:35

[anonymous-user]

We buy recon equipment, VAT is chargable!

[neilski]

munky said:

OR, are you saying that they can claim back the amount of VAT that is charged on the resale? e.g. if company XYZ buys machinery for £1m plus £150,000 VAT and then, after using said machinery to make widgets for x years, sells it second hand for £100,000 to a private individual, which of these things happen?

a) XYZ sells it for £100k and no VAT is payable as it's second hand
b) XYZ sells it for £100k + 15k VAT - the HMRC gets 2 bites of the cherry
c) XYZ sells it for £100k + 15k VAT but then claims back 15k from HMRC as they already paid 150k VAT when new
d) a VAT registered company wouldn't have paid VAT on the purchase of new equipment
e) something else entirely

XYZ sells it for £100k + 15k VAT but then the buyer claims back 15k from HMRC if they are registered for VAT. XYZ also pays £15k VAT to HMRC when they do their next VAT return.

A VAT registered company still has to pay VAT on the purchase of new equipment but is then able to reclaim this VAT from HMRC.

[Eric Mc]

They WILL need to charge VAT.

They still own it and it is theirs to sell. They have never sold it before (it has been leased out) so therefore it is technically not second-hand.

When they purchased the phone themselves, they would have reclaimed Input VAT on that purchase. They are therefore obliged to charge VAT in full on the selling price when they sell it to you.

VAT has very little to do with "Value Added" (the tax is not really accurately titled). In reality, it is a Sales Transaction Tax.

Consider this scenario.

Your business buys a new van. It (correctly) reclaims the VAT on the purchase price of that van. It uses the van for five years. After five years the van is sold at a much lower selling price than the original purchase price. Should your business charge VAT when it sells the van?

The answer is definitely "yes".

[munky]

Thanks all. Having done some reading, seems what I was thinking of is called the "margin scheme" for 2nd hand goods, but it wouldn't apply in this case.

Eric - Aren't there special rules for vehicles though - which differ according to whether they are private or commercial? Or does it depend on whether the previous owner was VAT registered or not rather than what the vehicle is? There are an awful lot of adverts for "no VAT vans" - is that because they're vans, or does it just mean the previous owner wasn't VAT registered?

[Eric Mc]

Yes - there is a special scheme for second hand car dealers.

[spikeyhead]

munky said:

Thanks all. Having done some reading, seems what I was thinking of is called the "margin scheme" for 2nd hand goods, but it wouldn't apply in this case.

Eric - Aren't there special rules for vehicles though - which differ according to whether they are private or commercial? Or does it depend on whether the previous owner was VAT registered or not rather than what the vehicle is? There are an awful lot of adverts for "no VAT vans" - is that because they're vans, or does it just mean the previous owner wasn't VAT registered?

I refer the gentleman to my previous response.