VAT on used Cars

[Exige77]

I am looking for a used car for my daughter.

I thought there was no VAT on used cars (non comercial).

I am told by a dealer that they pay VAT on the difference between their buying price and their selling price (margin). They don't list that seperately in their selling price but it's included when they calculate the selling price.

Would not the full VAT have been paid when the car was new ?

is this not double paying VAT ?

Thanks

Ex77

[andye30m3]

Dealer I know has said the same,

I don't think they even get to offset anything they spend on the car

[Eric Mc]

2nd hand cars are charged to VAT under the rules of the VAT Margin Scheme on 2nd Hand Cars.

http://customs.hmrc.gov.uk/channelsPortalWebApp/ch...

VAT is generally charged on all sales transactions (unless the transaction is specifically exempted for some reason or the trader is not VAT registered)so by the time the item being purchased has made it through to the final buyer, VAT will have been charged many times as it passed through the supply chain.

[Eric Mc]

andye30m3 said:

Dealer I know has said the same,

I don't think they even get to offset anything they spend on the car

They cannot reclaim any VAT on the purchase of the car 2nd hand car - mainly because most 2nd hand cars are bought from non-registered individuals (often through trade-in deals and part exchanges) - so there was no VAT to reclaim on the purchase.

VAT registered motor traders ARE allowed reclaim VAT on cars bought from a seller who was VAT registered and charged VAT when they sold the car and they can also reclaim VAT on their normal business overheads.

[Newc]

VAT is charged on goods AND services. The dealer is providing a service (selling cars), and his charge for that service is his gross profit. He has to charge VAT on that, just like your solicitor or accountant charge VAT on their services. The custom is that for cars you don’t see the VAT split out and so you are just quoted an all-in price. As Eric says, used cars themselves are typically not liable for VAT for the cost of the goods (the price the dealer pays for the car to start with).

[Exige77]

Newc said:

VAT is charged on goods AND services. The dealer is providing a service (selling cars), and his charge for that service is his gross profit. He has to charge VAT on that, just like your solicitor or accountant charge VAT on their services. The custom is that for cars you don’t see the VAT split out and so you are just quoted an all-in price. As Eric says, used cars themselves are typically not liable for VAT for the cost of the goods (the price the dealer pays for the car to start with).

Thanks. Good explanation

Ex77

[Eric Mc]

Although you might find that some services provided by 2nd hand car dealers might be Exempt from VAT or even outside the scope.

[sumo69]

Only if they sell a lot of warranties!

I have a used car dealer client - as above pay VAT on their profit so if they make £600 they pay £100 of this to HMRC.

As a private buyer, you will not have the VAT seperately shown on your purchase invoice.

David

[Eric Mc]

I had a client (the only one who actually went bust ) who DID sell lots of warranties. It isn't that unusual in the car trade.

[Elderly]

sumo69 said:

...... sell ...... warranties!

........ pay VAT on their profit so if they make £600 they pay £100 of this to HMRC.

As a private buyer, you will not have the VAT seperately shown on your purchase invoice.

David

I do understand the margin scheme and know that the VAT element on the trader's gross profit is not shown.
However if I pay the dealer say a total sum of £15,000 for a car with a warranty,
should the split between the price I paid for the car and the price I paid for the warranty
(artificially high to reduce the gross profit on the car?) be shown?

If dealer buys the above car for £12K and sells it to me (@£15K), and includes a £3K warranty,
then he pays no VAT to HMRC.

[sumo69]

That would be fraud.

Warranties are usually 3 month FOC (worthless) or 3rd party insurance jobbies for which you contract directly with the provider - the dealer gets a commission.

David

[Elderly]

sumo69 said:

That would be fraud.


David

I agree, that's why I put a "( ....?)".

But about a year ago I bought 2 used cars from dealers;
one from a small independant garage that included a 'warranty' on the invoice
(it turned out he was self-insuring )
and the other from a main dealer (insurance based but I've no idea with whom -
I was waiting in the dealership whilst a simple component was replaced and I
overheard the service receptionist ring up to ask if it could be done under the warranty)
but my point was, on neither invoice did they put a 'value' on the warranty,
so I wonder how they calculated VAT due.