Using the VAT Margin Scheme on Vehicles Bought at BCA
Discussion
I have bought the occasional car for my own use from auction over the past few years and have been considering starting a small car business, basically changing my own car every month or so with a view to making a small profit. It is more than likely that I will hit the VAT threshold of £81k although if I stick to cheaper cars, VAT will not be an issue.
I thought it best to do my VAT research first though. I've always understood that VAT is payable on the difference between purchase price and sale price (regardless of how much is spent collecting, preparing the car and wasted trips around the country viewing cars etc).
However what has put a slight spanner in the works is that some cars bought at auction (part exchanges, finance repossessions) are Margin Cars with no VAT shown on the invoice and other cars bought at auction (ex lease cars) are Qualifying Cars with the VAT element shown on the invoice.
My initial research shows that Margin Cars are more straightforward as you can join the Margin Scheme and simply pay a sixth of the profit it VAT.
However, what happens with cars that are Qualifying? I've always preferred to buy ex lease cars so I would imagine that most of my cars will be Qualifying. Can someone kindly let me know the best way to pay the VAT on Qualifying Cars? Will I have to reclaim the VAT element of the car when purchased and then to pay the VAT on the difference between the pre-VAT cost price and sale price? Am I right in thinking that whether Margin or Qualifying, exactly the same amount will be paid in VAT? So if I buy a Margin car for £6500 and sell for £7000 the VAT bill will be the same if it was a Qualifying car? It's just that it will be worked out differently.
Also, when working out the margin between purchase and sale price, do I take the purchase price as including the buyer's fees (about £250) or excluding the buyer's fees and then claim back the VAT in the buyer's fees?
It just seems a bit overcomplicated to me! Surely most dealers who buy at auctions purchase a combination of Margin and Qualifying Cars for stock. Is it actually easier to stick to non lease cars which are Margin Cars? As I say though, I'd ideally prefer to buy ex lease cars.
It seems a bit unfair to me that car dealers have to register with a turnover of £81k as if a 10% profit is made on £81k you have to pay VAT when only making a profit of £8k a year! You could also spend loads on wasted trips to auctions yet you can't offset this against the VATable profit. If the car ends up costing a lot to repair, the VAT situation seems unfair as a £7k car + £1k repairs sold for £8k still means you have to pay VAT on the £1k margin! Also, a non VAT registered trader could make a reasonable profit of say £500 - yet the VATable profit could be say £1000 so that £500 would soon come down to £330 if VAT registered.
I can see why a lot of dealers concentrate on cheaper stock and maybe I would be sensible to follow them? I'd greatly appreciate any advice from any smaller traders who are VAT registered. A friend is an accountant but says that tax and used cars is a very specialist area. Loads of people buy and sell cars bought from auction though so I'm hoping that once established, the accounting side will be relatively straightforward.
Many thanks in advance
I thought it best to do my VAT research first though. I've always understood that VAT is payable on the difference between purchase price and sale price (regardless of how much is spent collecting, preparing the car and wasted trips around the country viewing cars etc).
However what has put a slight spanner in the works is that some cars bought at auction (part exchanges, finance repossessions) are Margin Cars with no VAT shown on the invoice and other cars bought at auction (ex lease cars) are Qualifying Cars with the VAT element shown on the invoice.
My initial research shows that Margin Cars are more straightforward as you can join the Margin Scheme and simply pay a sixth of the profit it VAT.
However, what happens with cars that are Qualifying? I've always preferred to buy ex lease cars so I would imagine that most of my cars will be Qualifying. Can someone kindly let me know the best way to pay the VAT on Qualifying Cars? Will I have to reclaim the VAT element of the car when purchased and then to pay the VAT on the difference between the pre-VAT cost price and sale price? Am I right in thinking that whether Margin or Qualifying, exactly the same amount will be paid in VAT? So if I buy a Margin car for £6500 and sell for £7000 the VAT bill will be the same if it was a Qualifying car? It's just that it will be worked out differently.
Also, when working out the margin between purchase and sale price, do I take the purchase price as including the buyer's fees (about £250) or excluding the buyer's fees and then claim back the VAT in the buyer's fees?
It just seems a bit overcomplicated to me! Surely most dealers who buy at auctions purchase a combination of Margin and Qualifying Cars for stock. Is it actually easier to stick to non lease cars which are Margin Cars? As I say though, I'd ideally prefer to buy ex lease cars.
It seems a bit unfair to me that car dealers have to register with a turnover of £81k as if a 10% profit is made on £81k you have to pay VAT when only making a profit of £8k a year! You could also spend loads on wasted trips to auctions yet you can't offset this against the VATable profit. If the car ends up costing a lot to repair, the VAT situation seems unfair as a £7k car + £1k repairs sold for £8k still means you have to pay VAT on the £1k margin! Also, a non VAT registered trader could make a reasonable profit of say £500 - yet the VATable profit could be say £1000 so that £500 would soon come down to £330 if VAT registered.
I can see why a lot of dealers concentrate on cheaper stock and maybe I would be sensible to follow them? I'd greatly appreciate any advice from any smaller traders who are VAT registered. A friend is an accountant but says that tax and used cars is a very specialist area. Loads of people buy and sell cars bought from auction though so I'm hoping that once established, the accounting side will be relatively straightforward.
Many thanks in advance
focusst1 said:
I have bought the occasional car for my own use from auction over the past few years and have been considering starting a small car business, basically changing my own car every month or so with a view to making a small profit. It is more than likely that I will hit the VAT threshold of £81k although if I stick to cheaper cars, VAT will not be an issue.
I thought it best to do my VAT research first though. I've always understood that VAT is payable on the difference between purchase price and sale price (regardless of how much is spent collecting, preparing the car and wasted trips around the country viewing cars etc).
However what has put a slight spanner in the works is that some cars bought at auction (part exchanges, finance repossessions) are Margin Cars with no VAT shown on the invoice and other cars bought at auction (ex lease cars) are Qualifying Cars with the VAT element shown on the invoice.
My initial research shows that Margin Cars are more straightforward as you can join the Margin Scheme and simply pay a sixth of the profit it VAT.
However, what happens with cars that are Qualifying? I've always preferred to buy ex lease cars so I would imagine that most of my cars will be Qualifying. Can someone kindly let me know the best way to pay the VAT on Qualifying Cars? Will I have to reclaim the VAT element of the car when purchased and then to pay the VAT on the difference between the pre-VAT cost price and sale price? Am I right in thinking that whether Margin or Qualifying, exactly the same amount will be paid in VAT? So if I buy a Margin car for £6500 and sell for £7000 the VAT bill will be the same if it was a Qualifying car? It's just that it will be worked out differently.
Also, when working out the margin between purchase and sale price, do I take the purchase price as including the buyer's fees (about £250) or excluding the buyer's fees and then claim back the VAT in the buyer's fees?
It just seems a bit overcomplicated to me! Surely most dealers who buy at auctions purchase a combination of Margin and Qualifying Cars for stock. Is it actually easier to stick to non lease cars which are Margin Cars? As I say though, I'd ideally prefer to buy ex lease cars.
It seems a bit unfair to me that car dealers have to register with a turnover of £81k as if a 10% profit is made on £81k you have to pay VAT when only making a profit of £8k a year! You could also spend loads on wasted trips to auctions yet you can't offset this against the VATable profit. If the car ends up costing a lot to repair, the VAT situation seems unfair as a £7k car + £1k repairs sold for £8k still means you have to pay VAT on the £1k margin! Also, a non VAT registered trader could make a reasonable profit of say £500 - yet the VATable profit could be say £1000 so that £500 would soon come down to £330 if VAT registered.
I can see why a lot of dealers concentrate on cheaper stock and maybe I would be sensible to follow them? I'd greatly appreciate any advice from any smaller traders who are VAT registered. A friend is an accountant but says that tax and used cars is a very specialist area. Loads of people buy and sell cars bought from auction though so I'm hoping that once established, the accounting side will be relatively straightforward.
Many thanks in advance
You seem to have done your research well. With the margin scheme the VAT is indeed calculated on the sales price less purchase price, regardless of preparation costs.I thought it best to do my VAT research first though. I've always understood that VAT is payable on the difference between purchase price and sale price (regardless of how much is spent collecting, preparing the car and wasted trips around the country viewing cars etc).
However what has put a slight spanner in the works is that some cars bought at auction (part exchanges, finance repossessions) are Margin Cars with no VAT shown on the invoice and other cars bought at auction (ex lease cars) are Qualifying Cars with the VAT element shown on the invoice.
My initial research shows that Margin Cars are more straightforward as you can join the Margin Scheme and simply pay a sixth of the profit it VAT.
However, what happens with cars that are Qualifying? I've always preferred to buy ex lease cars so I would imagine that most of my cars will be Qualifying. Can someone kindly let me know the best way to pay the VAT on Qualifying Cars? Will I have to reclaim the VAT element of the car when purchased and then to pay the VAT on the difference between the pre-VAT cost price and sale price? Am I right in thinking that whether Margin or Qualifying, exactly the same amount will be paid in VAT? So if I buy a Margin car for £6500 and sell for £7000 the VAT bill will be the same if it was a Qualifying car? It's just that it will be worked out differently.
Also, when working out the margin between purchase and sale price, do I take the purchase price as including the buyer's fees (about £250) or excluding the buyer's fees and then claim back the VAT in the buyer's fees?
It just seems a bit overcomplicated to me! Surely most dealers who buy at auctions purchase a combination of Margin and Qualifying Cars for stock. Is it actually easier to stick to non lease cars which are Margin Cars? As I say though, I'd ideally prefer to buy ex lease cars.
It seems a bit unfair to me that car dealers have to register with a turnover of £81k as if a 10% profit is made on £81k you have to pay VAT when only making a profit of £8k a year! You could also spend loads on wasted trips to auctions yet you can't offset this against the VATable profit. If the car ends up costing a lot to repair, the VAT situation seems unfair as a £7k car + £1k repairs sold for £8k still means you have to pay VAT on the £1k margin! Also, a non VAT registered trader could make a reasonable profit of say £500 - yet the VATable profit could be say £1000 so that £500 would soon come down to £330 if VAT registered.
I can see why a lot of dealers concentrate on cheaper stock and maybe I would be sensible to follow them? I'd greatly appreciate any advice from any smaller traders who are VAT registered. A friend is an accountant but says that tax and used cars is a very specialist area. Loads of people buy and sell cars bought from auction though so I'm hoping that once established, the accounting side will be relatively straightforward.
Many thanks in advance
So if you buy for £6500 and sell for £7000, the VAT cost is £83.33, reducing your profit to £416.67 before other costs.
For VAT qualifying cars, you are correct in that the VAT payable ends up the same, but is accounted for differently. You must reclaim the VAT on the entire purchase price, and pay it on the entire sales price. So using the same example as above, you would reclaim £1083.33 VAT, then pay £1166.67 VAT when the vehicle is sold, a net VAT cost of £83.33. There is a cash flow advantage with this, as there will be situations where you reclaim the VAT in an earlier period to that which you pay it in.
The VAT does have a nasty habit of eating into your margin I am afraid. I traded for about 3 years (part time) and occasionally the VAT man would make more than I did on a car!
You do not need to register for VAT straight away which is helpful, and you can prolong this dealing cheaper cars for sure, but remember you will not be able to reclaim the VAT on any of your costs until you are registered.
It is possible to make a few £££'s part time, but it's not easy and not as profitable as you may think - everything seems to cost a bit more than you expect and sell for a bit less in my experience.
Unfortunately the VAT rules are complicated so I would urge you to get fully clued up (there are HMRC guides online) before you embark on your venture. Best of luck
I don't think you have realised that you can claim your input vat back.
That is, your fuel, internet and phone bills, advertising, workware, vat garage bills, vat paintwork bills, tools purchased etc etc.....
Remember no vat on mots, if working from home or a home office a percentage of mortgagee cost and utilities.
That is, your fuel, internet and phone bills, advertising, workware, vat garage bills, vat paintwork bills, tools purchased etc etc.....
Remember no vat on mots, if working from home or a home office a percentage of mortgagee cost and utilities.
Many thanks for your replies Dazmo & nct001 - I really appreciate your advice as I was finding the VAT issue quite a headache. I originally thought the main problem with buying & selling cars in a small way would be to avoid problem cars and to ensure that I can sell each one relatively quickly. However the VAT situation throws a spanner in the works as it is basically an "extra tax" to consider. I totally appreciate that 95% of dealers must be registered for VAT as their turnover is bound to be many times over the £81k threshold.
However if dealing in a very small way, it might make more sense to keep the turnover under £81k if the turnover is only likely to be say £120k. If for example, I hit £80k in 10 months I might almost be better off stopping trading until the next tax year. Besides the extra tax, it is a fair bit of hassle and admin doing quarterly VAT returns, especially when relatively little money is involved.
Also, VAT isn't on a sliding scale so once registered, you have to pay VAT on everything you sell in the next year from the start - at least in the first year you have £81k grace.
Just one small question though - when buying a car at an auction do I always take the purchase price as including the buyer's fees? So that hypothetical £6500 car would actually be about £6800? It would be quite harsh to pay the VAT on the 'profit' of £300 when that 'profit' has been automatically paid in buyer's fees!
Do margin cars have a VATable purchase price including the buyer's fees and with Qualifying Cars would I have to pay the VAT on the difference excluding the buyer's fees and then claim back the VAT in the buyer's fee?
I really appreciate the breakdown of how the VAT is calculated Dazmo - it seems bizarre really that although the VAT is calculated differently for Margin & Qualifying the VAT payable is exactly the same. So the actual amount paid is the same regardless of the VAT type.
To take an example though, if I buy a car for £6500 and spend £600 on it, say a train trip to collect it, service, MoT & advertising, I'd be happy to sell it for £7500 making £400. This £400 would be tax free up to a total of £10.5k a year. If I could build up a few thousand doing a hobby when looking for a job that would be great.
But if I turned over £81k+, I'd have to pay VAT on £1000 in the above example so £166.60 would be deducted from that £400 - this represents almost half of the profit being taken away! And of course it's not as though you can make a profit of £10.5k a year before you pay VAT!
So my reasonable £400 profit falls to £233.40 because of the VAT.
However, maybe I am being a bit pessimistic as nct001 pointed out, I can reclaim back the VAT on all the bills except the MoT. So from the £600 I spent on the car, am I right in thinking that £120 can be reclaimed in VAT, except for the MoT? I must admit I wasn't sure before if train trips have VAT?
So if I claim back say £100 in VAT, allowing for the MoT, my £233 profit goes up to £333 which isn't much lower than the £400. And of course if VAT registered, the sky is limit turnover wise. One disadvantage of not being VAT registered is that if a nice £12k car comes up I wouldn't go for it as I'd know a few of them would soon put me in VAT territory.
So maybe I am being a bit downbeat suggesting that I should try and keep below the VAT threshold?
I guess it all depends if there are bigger margins on more expensive cars. A few dealers I've spoken to at auctions though reckon they might not make much more on a £12k car than they would a £3k car. So in that case (although I didn't originally want to) I might be better off sticking to say £4k cars and then I can buy and sell 20 before VAT is an issue.
I can see what you mean about the VAT having a nasty habit of cutting into the profit Dazmo - this is what worries me about turning over £81k+. It is such a competitive market out there that it will be hard to make a profit so having a chunk automatically taken away by the government doesn't exactly go down too well unless I was turning over hundreds of thousands a year.
I entirely agree about everything costing more than you expect and selling for less! Having read a car magazine article on the subject, I used to try and buy a car from an auction, use it for 6 months and then sell it for the same price! It never worked though as invariably if you don't go a bit higher than you want to, you never buy anything at auction! And when you come to sell, even private buyers tend to act like dealers in that they'd rather miss a car they like than spend an extra £200 or £300 on it!
I have to put my thinking cap on really - do I go for £12k cars and try and make £1k on them (not easy in reality) or do I think sod it, I'll only buy cars up to say £5k and then I probably won't have VAT to worry about in the first year.
Many thanks again for the advice - I'm just glad I'm doing my research now rather than when my turnover is on the border of reaching the VAT threshold.
However if dealing in a very small way, it might make more sense to keep the turnover under £81k if the turnover is only likely to be say £120k. If for example, I hit £80k in 10 months I might almost be better off stopping trading until the next tax year. Besides the extra tax, it is a fair bit of hassle and admin doing quarterly VAT returns, especially when relatively little money is involved.
Also, VAT isn't on a sliding scale so once registered, you have to pay VAT on everything you sell in the next year from the start - at least in the first year you have £81k grace.
Just one small question though - when buying a car at an auction do I always take the purchase price as including the buyer's fees? So that hypothetical £6500 car would actually be about £6800? It would be quite harsh to pay the VAT on the 'profit' of £300 when that 'profit' has been automatically paid in buyer's fees!
Do margin cars have a VATable purchase price including the buyer's fees and with Qualifying Cars would I have to pay the VAT on the difference excluding the buyer's fees and then claim back the VAT in the buyer's fee?
I really appreciate the breakdown of how the VAT is calculated Dazmo - it seems bizarre really that although the VAT is calculated differently for Margin & Qualifying the VAT payable is exactly the same. So the actual amount paid is the same regardless of the VAT type.
To take an example though, if I buy a car for £6500 and spend £600 on it, say a train trip to collect it, service, MoT & advertising, I'd be happy to sell it for £7500 making £400. This £400 would be tax free up to a total of £10.5k a year. If I could build up a few thousand doing a hobby when looking for a job that would be great.
But if I turned over £81k+, I'd have to pay VAT on £1000 in the above example so £166.60 would be deducted from that £400 - this represents almost half of the profit being taken away! And of course it's not as though you can make a profit of £10.5k a year before you pay VAT!
So my reasonable £400 profit falls to £233.40 because of the VAT.
However, maybe I am being a bit pessimistic as nct001 pointed out, I can reclaim back the VAT on all the bills except the MoT. So from the £600 I spent on the car, am I right in thinking that £120 can be reclaimed in VAT, except for the MoT? I must admit I wasn't sure before if train trips have VAT?
So if I claim back say £100 in VAT, allowing for the MoT, my £233 profit goes up to £333 which isn't much lower than the £400. And of course if VAT registered, the sky is limit turnover wise. One disadvantage of not being VAT registered is that if a nice £12k car comes up I wouldn't go for it as I'd know a few of them would soon put me in VAT territory.
So maybe I am being a bit downbeat suggesting that I should try and keep below the VAT threshold?
I guess it all depends if there are bigger margins on more expensive cars. A few dealers I've spoken to at auctions though reckon they might not make much more on a £12k car than they would a £3k car. So in that case (although I didn't originally want to) I might be better off sticking to say £4k cars and then I can buy and sell 20 before VAT is an issue.
I can see what you mean about the VAT having a nasty habit of cutting into the profit Dazmo - this is what worries me about turning over £81k+. It is such a competitive market out there that it will be hard to make a profit so having a chunk automatically taken away by the government doesn't exactly go down too well unless I was turning over hundreds of thousands a year.
I entirely agree about everything costing more than you expect and selling for less! Having read a car magazine article on the subject, I used to try and buy a car from an auction, use it for 6 months and then sell it for the same price! It never worked though as invariably if you don't go a bit higher than you want to, you never buy anything at auction! And when you come to sell, even private buyers tend to act like dealers in that they'd rather miss a car they like than spend an extra £200 or £300 on it!
I have to put my thinking cap on really - do I go for £12k cars and try and make £1k on them (not easy in reality) or do I think sod it, I'll only buy cars up to say £5k and then I probably won't have VAT to worry about in the first year.
Many thanks again for the advice - I'm just glad I'm doing my research now rather than when my turnover is on the border of reaching the VAT threshold.
focusst1 said:
This £400 would be tax free up to a total of £10.5k a year.
VAT is one issue, tax is another, if you already have a job that is using your personal tax allowance, then you are not entitled to a second personal allowance on a new job. If you are already a higher rate taxpayer with your normal job, you will be paying higher rate tax on all your profit from the car business.Pleased to be able to help. To answer some of your further questions:
1. You are right, quick turnover and minimising lemon cars will be very important. Especially if space and/or cash flow is limited.
2. You should treat the VAT as an extra direct cost, just like a repair, or advertising. So postponing registering as long as you can is probably a good idea in your situation.
3. I would agree that if you hit say £80k in 10 months, you’d be best of not selling anything else for a couple of months to keep below the threshold. However, note the tax year or calendar year is irrelevant for VAT registration; it’s the LAST 12 months that HMRC are interested in. If you are on the ball you may be able to keep just keep below the threshold and make a bit of pocket money.
4. For the margin scheme, purchase price is before any buyers fees are applied. But buyers fees are treated as per any other VAT applicable cost so you would reclaim the VAT and not be out of pocket. Using the previous example of buying at £6500 and selling at £7000, we had a VAT cost on the margin scheme of £83.33. If the same car had a buyers fee of £200 (inc. VAT), bringing your ‘true cost’ up to £6700, you would still owe the same £83.33, but would reclaim £33.33 (£200 / 6), so a net VAT cost of £50. If you had deemed the cost price to be £6700, you would also have a net VAT cost of £50 (ie. (£7000 - £6700) / 6). Not sure if that makes sense!
5. Yes you are correct in you example that the VAT reclaimed on your costs does soften the blow of the VAT paid on the margin. But yes, remember that not everything has VAT to reclaim, including MOT’s and rail fares. Also be aware many small businesses are not VAT registered so you obviously cannot reclaim anything there either – eg. My dent man, wheel man, and delivery man were not VAT registered. You may find this is the case with many one man band mechanics and bodywork guys too.
6. My experience was that more expensive cars didn't necessarily mean more profit, although they were generally less hassle. Weirdly sometimes its the cheap old PX’s that you didn't want that make good money and the nice cars that should fly out the door stick around and barely make anything! You are being quite realistic though and from all I’ve heard, sticking to cars of £3-5k and aiming to clear about £500 sounds feasible. Just be aware hat 1 in 10 may be a stinker that you have to take a loss on, but occasionally you might just make £1000 or more.
7. Stock turn may be a problem. If it takes 6 weeks say to sell a car (bear in mind time to get it delivered, prep’d, fixed, advertised etc), and you need to sell it to fund the next, but you only make £300, that’s not a great monthly income and won’t get you near you tax allowance (agree with nct01 on that topic btw).
8. I was selling cars of £8 - £12k generally. I would aim for £1000 profit but more often than not the reality was £6-£700 (with the odd £2000+). My experience only though, I’m sure some could do better, others worse. I’d find yourself a niche, something you know about and are confident selling. I found TT’s, Boxsters, Z4’s, e46 6-cylinder BMW’s and Mini Coopers worked well.
9. Have you thought about credit/debit card acceptance? Most customers will want to pay by card (even if just the deposit), especially as you are working from home, as they feel more comfortable. Its very difficult to get a facility as a home trader, although I managed in the end (just!).
Hope that answers most of your questions?
1. You are right, quick turnover and minimising lemon cars will be very important. Especially if space and/or cash flow is limited.
2. You should treat the VAT as an extra direct cost, just like a repair, or advertising. So postponing registering as long as you can is probably a good idea in your situation.
3. I would agree that if you hit say £80k in 10 months, you’d be best of not selling anything else for a couple of months to keep below the threshold. However, note the tax year or calendar year is irrelevant for VAT registration; it’s the LAST 12 months that HMRC are interested in. If you are on the ball you may be able to keep just keep below the threshold and make a bit of pocket money.
4. For the margin scheme, purchase price is before any buyers fees are applied. But buyers fees are treated as per any other VAT applicable cost so you would reclaim the VAT and not be out of pocket. Using the previous example of buying at £6500 and selling at £7000, we had a VAT cost on the margin scheme of £83.33. If the same car had a buyers fee of £200 (inc. VAT), bringing your ‘true cost’ up to £6700, you would still owe the same £83.33, but would reclaim £33.33 (£200 / 6), so a net VAT cost of £50. If you had deemed the cost price to be £6700, you would also have a net VAT cost of £50 (ie. (£7000 - £6700) / 6). Not sure if that makes sense!
5. Yes you are correct in you example that the VAT reclaimed on your costs does soften the blow of the VAT paid on the margin. But yes, remember that not everything has VAT to reclaim, including MOT’s and rail fares. Also be aware many small businesses are not VAT registered so you obviously cannot reclaim anything there either – eg. My dent man, wheel man, and delivery man were not VAT registered. You may find this is the case with many one man band mechanics and bodywork guys too.
6. My experience was that more expensive cars didn't necessarily mean more profit, although they were generally less hassle. Weirdly sometimes its the cheap old PX’s that you didn't want that make good money and the nice cars that should fly out the door stick around and barely make anything! You are being quite realistic though and from all I’ve heard, sticking to cars of £3-5k and aiming to clear about £500 sounds feasible. Just be aware hat 1 in 10 may be a stinker that you have to take a loss on, but occasionally you might just make £1000 or more.
7. Stock turn may be a problem. If it takes 6 weeks say to sell a car (bear in mind time to get it delivered, prep’d, fixed, advertised etc), and you need to sell it to fund the next, but you only make £300, that’s not a great monthly income and won’t get you near you tax allowance (agree with nct01 on that topic btw).
8. I was selling cars of £8 - £12k generally. I would aim for £1000 profit but more often than not the reality was £6-£700 (with the odd £2000+). My experience only though, I’m sure some could do better, others worse. I’d find yourself a niche, something you know about and are confident selling. I found TT’s, Boxsters, Z4’s, e46 6-cylinder BMW’s and Mini Coopers worked well.
9. Have you thought about credit/debit card acceptance? Most customers will want to pay by card (even if just the deposit), especially as you are working from home, as they feel more comfortable. Its very difficult to get a facility as a home trader, although I managed in the end (just!).
Hope that answers most of your questions?
Many thanks again Dazmo, your replies have been a tremendous help and a great insight, I really appreciate your input - I was going around in circles before but now I've pretty much decided to try and keep under £81k in the first year. If things go really well, I guess it is inevitable that I will turnover in excess of £81k but if I'm only likely to turn over about £100k, I might as well keep it under £81k.
If I could buy say ten £12k cars and sell them for £14k that would be great even though I'd have to pay VAT but as you say, a more expensive car doesn't necessarily mean a greater profit. The problem with VAT is that even if I only make a profit of £5k in the first year a fair old chunk could end up going in VAT. If I didn't buy many cars and made many wasted trips I can easily see me paying more in VAT than I actually make in profit. And as you say, many car repairers such as wheel refurbers & valeters etc aren't VAT registered. In a way, I'm surprised that more fuss hasn't been kicked up by car dealers about VAT as it does seem a bit unfair that it assessed on the difference between purchase and resale. But if operating on a large scale, it isn't really such a problem. I think the trouble with car dealing is that the public and HMRC perception is that they are all loaded but in reality it is pretty tough to turn a decent profit.
Going back to your excellent points:
1.) Quick turnover is really important but bearing in mind I'm trying to lower my turnover now, ideally I need to make as much as possible on each car - if I make £300 a car I'd need to sell a lot and this would push me over £81k. I guess my ideal car now would be a £3000 car I could sell for £4000 but in reality I think £4-£500 is a realistic profit. One slight snag about not being VAT registered is that every single car I buy needs to make a reasonable profit as otherwise it will only serve to push me closer to the VAT threshold without making me any money. That said, it is inevitable that a few cars may only end up leading to a £200 profit - it just means that I'd need to make £800 on another to keep the average profit to £500.
2.) I totally agree about seeing VAT as an extra direct cost - that's a good way to look at it. I definitely think I should delay it as long as possible
4.) Can I just ask if the buyer's fees on Qualifying Cars are treated the same as Margin Cars, i.e. the purchase price is assessed as the hammer price before any fees are applied?
6.) It does seem tricky to predict which cars will sell, I almost enjoy researching which cars stick and which sell quickly but at the end of the day it can be potluck as to who is looking for which cars at any given time. I almost fancy buying oddball cars as I'll have less competition but then again, very few people will want to buy them. That is so true about getting an occasional stinker and I think it's impossible to be totally sure if a car is fault free at auction, especially these days when you aren't even allowed to sit in them or rev them etc. If I could make £500 on a £3-5k car that would be great - it is highly debatable whether I would make £1500 on a £9-15k car so again it all points towards cheaper cars. A dealer at an auction a few years ago was saying his mates ask him why he bothers with £8k cars as he only makes £500 when he could make the same on £2k cars but he said he prefers dealing with nicer stock. At the time though, I didn't even think of the VAT advantage of dealing with £2k cars.
7.) That is very true about stock turnover, as I say pre VAT worries, I wouldn't mind making a very small profit and turning over cars quickly but if I do that my turnover will increase up to VAT a lot quicker. That's the irony really, it would actually take a lot of sales to make £10.5k to pay income tax on the venture but it wouldn't take that long to reach £81k in turnover. I may even need to set a limit of £5k a car so at least then I can buy and sell 16 cars a year. I wonder if many small/part time car dealers have this VAT dilemma, it's not something I've really considered until very recently.
8.) I think that making £6-£700 on each of your cars is pretty good. It is far better to actually make a profit of £6-£700 than advertise cars for month after month at inflated prices. It is amazing how some dealers seem to have the same stock month after month as their prices are so high, if anything some seem dearer than main dealers! It makes sense to concentrate on cars I have experience and product knowledge of - I've always fancied getting something interesting. I always wanted a Boxster since they first came out but I've been a bit nervous about buying them at auction due to the high cost of replacing something like a clutch. BMWs have always been a bit of a favourite of mine and they generally seem fairly free of issues. The M Sport models always seem popular but I've not bought one at auction as they always seem to make a small fortune.
9.) I have asked my bank about credit and debit card acceptance but they've said that basically I won't turnover enough for them to bother with setting that up for me and something mad like 3% commission was mentioned for credit cards! When I've sold my own cars in the past, I've insisted on either cash on collection or a bank transfer carried out in advance of collecting the car. I totally agree though that it would be better to accept cards and I'll probably try and ask a more helpful bank - I must admit banks always seem to annoy me as they are so keen on giving me something I don't want but very reluctant to give me something I do want!
Many thanks again for all your help, I hope I haven't rambled on too much! I feel a lot better now as I have a much clearer idea of how VAT could effect the venture. If I can manage to avoid turning over £81k, the accounting process will be generally straightforward, just setting my sale prices against my purchase prices and expenditure.
If I could buy say ten £12k cars and sell them for £14k that would be great even though I'd have to pay VAT but as you say, a more expensive car doesn't necessarily mean a greater profit. The problem with VAT is that even if I only make a profit of £5k in the first year a fair old chunk could end up going in VAT. If I didn't buy many cars and made many wasted trips I can easily see me paying more in VAT than I actually make in profit. And as you say, many car repairers such as wheel refurbers & valeters etc aren't VAT registered. In a way, I'm surprised that more fuss hasn't been kicked up by car dealers about VAT as it does seem a bit unfair that it assessed on the difference between purchase and resale. But if operating on a large scale, it isn't really such a problem. I think the trouble with car dealing is that the public and HMRC perception is that they are all loaded but in reality it is pretty tough to turn a decent profit.
Going back to your excellent points:
1.) Quick turnover is really important but bearing in mind I'm trying to lower my turnover now, ideally I need to make as much as possible on each car - if I make £300 a car I'd need to sell a lot and this would push me over £81k. I guess my ideal car now would be a £3000 car I could sell for £4000 but in reality I think £4-£500 is a realistic profit. One slight snag about not being VAT registered is that every single car I buy needs to make a reasonable profit as otherwise it will only serve to push me closer to the VAT threshold without making me any money. That said, it is inevitable that a few cars may only end up leading to a £200 profit - it just means that I'd need to make £800 on another to keep the average profit to £500.
2.) I totally agree about seeing VAT as an extra direct cost - that's a good way to look at it. I definitely think I should delay it as long as possible
4.) Can I just ask if the buyer's fees on Qualifying Cars are treated the same as Margin Cars, i.e. the purchase price is assessed as the hammer price before any fees are applied?
6.) It does seem tricky to predict which cars will sell, I almost enjoy researching which cars stick and which sell quickly but at the end of the day it can be potluck as to who is looking for which cars at any given time. I almost fancy buying oddball cars as I'll have less competition but then again, very few people will want to buy them. That is so true about getting an occasional stinker and I think it's impossible to be totally sure if a car is fault free at auction, especially these days when you aren't even allowed to sit in them or rev them etc. If I could make £500 on a £3-5k car that would be great - it is highly debatable whether I would make £1500 on a £9-15k car so again it all points towards cheaper cars. A dealer at an auction a few years ago was saying his mates ask him why he bothers with £8k cars as he only makes £500 when he could make the same on £2k cars but he said he prefers dealing with nicer stock. At the time though, I didn't even think of the VAT advantage of dealing with £2k cars.
7.) That is very true about stock turnover, as I say pre VAT worries, I wouldn't mind making a very small profit and turning over cars quickly but if I do that my turnover will increase up to VAT a lot quicker. That's the irony really, it would actually take a lot of sales to make £10.5k to pay income tax on the venture but it wouldn't take that long to reach £81k in turnover. I may even need to set a limit of £5k a car so at least then I can buy and sell 16 cars a year. I wonder if many small/part time car dealers have this VAT dilemma, it's not something I've really considered until very recently.
8.) I think that making £6-£700 on each of your cars is pretty good. It is far better to actually make a profit of £6-£700 than advertise cars for month after month at inflated prices. It is amazing how some dealers seem to have the same stock month after month as their prices are so high, if anything some seem dearer than main dealers! It makes sense to concentrate on cars I have experience and product knowledge of - I've always fancied getting something interesting. I always wanted a Boxster since they first came out but I've been a bit nervous about buying them at auction due to the high cost of replacing something like a clutch. BMWs have always been a bit of a favourite of mine and they generally seem fairly free of issues. The M Sport models always seem popular but I've not bought one at auction as they always seem to make a small fortune.
9.) I have asked my bank about credit and debit card acceptance but they've said that basically I won't turnover enough for them to bother with setting that up for me and something mad like 3% commission was mentioned for credit cards! When I've sold my own cars in the past, I've insisted on either cash on collection or a bank transfer carried out in advance of collecting the car. I totally agree though that it would be better to accept cards and I'll probably try and ask a more helpful bank - I must admit banks always seem to annoy me as they are so keen on giving me something I don't want but very reluctant to give me something I do want!
Many thanks again for all your help, I hope I haven't rambled on too much! I feel a lot better now as I have a much clearer idea of how VAT could effect the venture. If I can manage to avoid turning over £81k, the accounting process will be generally straightforward, just setting my sale prices against my purchase prices and expenditure.
Edited by focusst1 on Saturday 16th August 12:16
Hey Guys,
I just wanna check I got this all right.
If I buy a car from Joe Bloggs @ £500 & sell it to someone else @£1000, We pay 1/6th VAT on the £500 difference being £83.33
If I buy a car from the Auction house for £500 and sell it to Joe Bloggs for £1000, I pay VAT on the whole sale price of £1000 @20% equalling £200.
And if I buy a car from £500 from joe blogs/The Auction and sell it for £100 to Billy Brown, Ive made a £400 loss. So what VAT do I calculate here?
Thanks Guys (=
I just wanna check I got this all right.
If I buy a car from Joe Bloggs @ £500 & sell it to someone else @£1000, We pay 1/6th VAT on the £500 difference being £83.33
If I buy a car from the Auction house for £500 and sell it to Joe Bloggs for £1000, I pay VAT on the whole sale price of £1000 @20% equalling £200.
And if I buy a car from £500 from joe blogs/The Auction and sell it for £100 to Billy Brown, Ive made a £400 loss. So what VAT do I calculate here?
Thanks Guys (=
Just to add - different auction houses use different schemes for the buyer's fees.
Most simply make them a normal VATable fee, so, if the car costs £6000 and the fee is £200+VAT (£240) you reclaim the £40 on the fee and the base cost for a margin car is £6000.
The main different one is BCA who use the Auction VAT scheme and do not charge VAT on the buyer's fee on a margin car. In such a case, if the car is £6000 and the fee £200 your base cost for the margin scheme is £6200.
It makes no difference on the overall calculation just when, and how, the VAT is reclaimed/paid.
Most simply make them a normal VATable fee, so, if the car costs £6000 and the fee is £200+VAT (£240) you reclaim the £40 on the fee and the base cost for a margin car is £6000.
The main different one is BCA who use the Auction VAT scheme and do not charge VAT on the buyer's fee on a margin car. In such a case, if the car is £6000 and the fee £200 your base cost for the margin scheme is £6200.
It makes no difference on the overall calculation just when, and how, the VAT is reclaimed/paid.
Flexipix said:
Hey Guys,
And if I buy a car from £500 from joe blogs/The Auction and sell it for £100 to Billy Brown, Ive made a £400 loss. So what VAT do I calculate here?
Thanks Guys (=
You get nothing back if you make a loss on a margin car. You do, however, get something back if you make a loss on a VAT Qualifying car.And if I buy a car from £500 from joe blogs/The Auction and sell it for £100 to Billy Brown, Ive made a £400 loss. So what VAT do I calculate here?
Thanks Guys (=
Pardon the thread resurrection, thank you to the previous posters for sharing their detailed and pertinent knowledge.
Sorry if I have missed it but the only question that is not 100% clearly answered to me is..
"What vat would a non-vat registered trader need to pay when selling on a vat qualifying car?"
Is it as simple as 20% on the full selling price (obviously with no avenues to reclaim anything)?
Thanks again all!
Sorry if I have missed it but the only question that is not 100% clearly answered to me is..
"What vat would a non-vat registered trader need to pay when selling on a vat qualifying car?"
Is it as simple as 20% on the full selling price (obviously with no avenues to reclaim anything)?
Thanks again all!
https://cardealermagazine.co.uk/forum/forum/2-gene...
Worth a read through, especially the bits about comebacks and refunds.
Worth a read through, especially the bits about comebacks and refunds.
essexboy69 said:
Pardon the thread resurrection, thank you to the previous posters for sharing their detailed and pertinent knowledge.
Sorry if I have missed it but the only question that is not 100% clearly answered to me is..
"What vat would a non-vat registered trader need to pay when selling on a vat qualifying car?"
Is it as simple as 20% on the full selling price (obviously with no avenues to reclaim anything)?
Thanks again all!
Surely if the car is vat qualifying, you will have paid vat on the purchase, however, if you are not vat registered you can't claim the vat back, and you also can't charge vat on it, so you are simply selling it for £xxxxxx. Sorry if I have missed it but the only question that is not 100% clearly answered to me is..
"What vat would a non-vat registered trader need to pay when selling on a vat qualifying car?"
Is it as simple as 20% on the full selling price (obviously with no avenues to reclaim anything)?
Thanks again all!
I would guess you still pay HMRC the 1/6th margin scheme, so 20% of the difference between purchase price and sale price.
I guess this also take the car out of being vat qualifying too.
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