A Question on VAT on car profit

[crockers]

If a dealer buys a car in for X and sells it for Y does he have to pay VAT on the profit...?

I was in my MB dealership this morning - looking at a SLK and when he told me that I thought Bullsh!t...but didn't want to push the point incase I was wrong..

 

[richard]

He was correct !

When they buy a new car, (from MB UK, who is VAT registered), they charge you VAT on the whole amount and reclaim the VAT they paid when they bought car from MB UK, who charged them VAT) - so effectively each time a profit is made as an item passes through a bunch of VAT registered companies VAT is paid on the profit.

However, when they buy a car from you, you do/can not charge them VAT, but there is a concession that means they only have to pay VAT on the profit. [edit - rather than having to charge VAT on the whole price and not being able to reclaim any VAT as you didnt charge it to them]
- This is not true for things like a hi fi dealer buying a piece of stereo from you and then selling it - they have to account/pay VAT on the whole lot, and as you didnt charge them VAT there is nothing to reclaim.


Richard

 

[Ade B]

No doubt one of the board accountants will clarify.

Ade

I see someone did clarify....

 

[television]

If the car was owned by a VAT registred company, then they would have to put VAT on the sale of the car, and re pay Custom and excise the vat on the sale. When MB take it in they re claim the VAT back in their goods in box section

The reason being that the VAT paid on the purchase of the car was re claimed in the first place by the company selling it,, this is why you see some cars sales saying +VAT

 

[crockers]

Thanks guys...I'm glad I didn't challenge him...

 

[whitenemesis]

I thought only commercial vehicles were advertised + VAT

 

[bolide]

If the vendor is VAT registered he pays VAT on the margin via the VAT Margin scheme. So if I buy at £5000 and sell at £6000 I give the VAT man £175

The VAT is not shown on the sales invoice not is it added to the sales price as in a normal transaction

By contrast, commercial vehicles typically have VAT added and I'll let someone else explain that

VAT on margin is common on secondhand goods like cameras, jewellery & cars

Nick Froome
www.w124.co.uk

 

[television]

I thought only commercial vehicles were advertised + VAT

Virtually all commercial vehcles are company owned.

This is also why company cars that are sold in adds would be far too expensive as the private buyer cannot re claim the VAT it is also stated on the cars at auction when VAT is payable. Fleet cars sold off, have the VAT taken off the final price realized at the sale,, so if a car made £16,575 at auction the onwner would re pay the £2,900,62 back to the Custom and excise

 

[whitenemesis]

Found this

"You can't normally reclaim the VAT you have to pay on a new car or used car. However, if you are a taxi operator, driving school, self drive hire, contract hire operator or motor dealer and are able to fulfil the specific conditions, input tax (VAT on purchases) may be recoverable.......

....VAT incurred on the purchase of a commercial vehicle - a van, lorry or tractor, for example - can be reclaimed in full subject to the normal rules for input tax deduction. When you sell a commercial vehicle on which VAT has been recovered you must charge output tax and issue a tax invoice if your customer is VAT registered."

 

[television]

Found this

"You can't normally reclaim the VAT you have to pay on a new car or used car. However, if you are a taxi operator, driving school, self drive hire, contract hire operator or motor dealer and are able to fulfil the specific conditions, input tax (VAT on purchases) may be recoverable.......

....VAT incurred on the purchase of a commercial vehicle - a van, lorry or tractor, for example - can be reclaimed in full subject to the normal rules for input tax deduction. When you sell a commercial vehicle on which VAT has been recovered you must charge output tax and issue a tax invoice if your customer is VAT registered."

And that is exactly the way it is, I used to be VAT registered

 

[Benzowner]

And that is exactly what I said above, I used to be VAT registered

Except if you buy the car as a company for a sales rep or even your own use, you cannot claim the VAT element of the purchase.

 

[television]

Except if you buy the car as a company for a sales rep or even your own use, you cannot claim the VAT element of the purchase.

Yes that is correct and that is why I have never charged a car to my company and do not charge workshop cost to avoid further tax(not VAT) If I moved

 

[crockers]

Yes that is correct and that is why I have never charged a car to my company and do not charge workshop cost to avoid further tax(not VAT) If I moved

If you use you home as workshop (commercial premises) you get charged CGT on the profit of the sale of the home as a % relating to the % size of the workshop

So if you had a 10 roomed house and 1 room was used as workshop 10% of the profit of the sale is liable to CGT..(after allowances)

 

[SL300-24]

One of the reasons that no VAT is shown on a purchase invoice for the private buyer, is because you will be able to work out the dealers profit margin on the car that you have just bought!

 

[Benzowner]

One of the reasons that no VAT is shown on a purchase invoice for the private buyer, is because you will be able to work out the dealers profit margin on the car that you have just bought!

How? If I sold you a pen for £1.00 plus 17.5p VAT, what is my profit margin? You will need to know the input VAT to work out the profit.

 

[television]

How? If I sold you a pen for £1.00 plus 17.5p VAT, what is my profit margin? You will need to know the input VAT to work out the profit.

I buy a pen for 50p and sell it for £1.00

The firm I bought them from would charge me VAT on the 50p in price, and I would re claim that back, the VAT on the selling price I would have to pay back.

With VAT you have an In box and an out box so the VAT is the final amount the the Customs and excize pick up.

When I was VAT rated the goods I sold were Zero rated, this menant that I only ever claimed back the VAT and never paid them enything.

They hated this and I was raided much more than normal by the VAT guys

 

[television]

If you use you home as workshop (commercial premises) you get charged CGT on the profit of the sale of the home as a % relating to the % size of the workshop

So if you had a 10 roomed house and 1 room was used as workshop 10% of the profit of the sale is liable to CGT..(after allowances)

Only if you have claimed back any money, if you do not tell them or claim, then there is nothing to pay when I sell my house

 

[Dryce]

How? If I sold you a pen for £1.00 plus 17.5p VAT, what is my profit margin? You will need to know the input VAT to work out the profit.

Because if VAT is only charged on the margin then you see a bill along the lines of £5 plus 17.5p VAT you can work out that the margin is £1.

When a dealer buys a car from you they don't claim back the VAT you paid.

There are various special rules for the car trade to deal with their situation (and presumably to clamp down on possible abuses).

 

[television]

Because if VAT is only charged on the margin then you see a bill along the lines of £5 plus 17.5p VAT you can work out that the margin is £1.

When a dealer buys a car from you they don't claim back the VAT you paid.

There are various special rules for the car trade to deal with their situation (and presumably to clamp down on possible abuses).

You can only do any VAT transaction with A VAT invoice or receipt, these must be kept in your VAT records, as if none of these two there, then the claim will be dismissed when they visit you,, and in the case of a car it would be thousands of ££ lost, just on one

 

[lil.smartie]

One of the reasons that no VAT is shown on a purchase invoice for the private buyer, is because you will be able to work out the dealers profit margin on the car that you have just bought!

No, no VAT is shown as the purchase of a 2nd hand car is not a VATable purchase and therefore a VAT invoice is not produced as they buyer has not paid any VAT!

Kate