VAT on used cars

[Deletedmember130310]

why do dealers have to pay VAT on the profit on used cars they sell?

Surely the VAT was paid when it was new?

I don't mean VAT qualifying cars - but used cars generally.

 

[Piff]

The Margin Scheme on second-hand cars and other vehicles (VAT Notice 718/1)

 

[elan362]

short story...
they only pay VAT on the profit element of the deal -
so if they make £1k on a trade in & resale, they pay £200 VAT to Ernie.

edit.. it appears a bit more complex, e.g.
A standard rate of VAT of 20% gives a ‘VAT fraction’ of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6.

but the essence is the same - the dealer pays vat on the profit element of the deal only

 

[johnsco]

This puzzled me when I bought my last car from a dealer.
I was surprised when there was no VAT on the invoice.
At the time, I was a VAT-registered business, and it was confirmed that I should not charge VAT when I sold the car at some time later.

 

[tangey]

short story...
A standard rate of VAT of 20% gives a ‘VAT fraction’ of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6.

Really ?

 

[Atavus]

It’s for car dealers after all. :-O

 

[elan362]

Really ?

Yes. Really

The Margin Scheme on second-hand cars and other vehicles (VAT Notice 718/1)

"3.3 Calculate the margin
Under the Margin Scheme, you only have to account for VAT when you sell a vehicle for more than you paid for it.

To work out the VAT due on an individual sale, follow the steps in the example:

Term Amount
(a) Purchase price £1,500.00
(b) Selling price £2,000.00
(c) Gross margin (b - a) £500.00
(d) VAT payable (c × 1/6) £83.33
The VAT fraction allows you to calculate the amount of VAT included in a given sum of money.

A standard rate of VAT of 20% gives a ‘VAT fraction’ of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6."

 

[Atavus]

Idiots.

 

[GLK]

I bet they use calculator to multiply by 1.

I've seen people doing that when multiplying by 10.

 

[markjay]

I've seen people doing that when multiplying by 10.

Now that's silly.

I just use my fingers.

 

[Atavus]

We used to multiply by 7 and divide by 47. I guess they only updated the numbers and didn’t think to change the method.

 

[jaymanek]

oh don't get me started.

if i buy a car for ,£1000. sell it for £2000 but spend £1500 on prep work, making a loss, I still have to pay Harry and Meghan £200.

the vat is calculated on purchase price and sale price only.

 

[pmcgsmurf]

oh don't get me started.

if i buy a car for ,£1000. sell it for £2000 but spend £1500 on prep work, making a loss, I still have to pay Harry and Meghan £200.

the vat is calculated on purchase price and sale price only.

But the VAT is only £166.67

Look on bright side you get to reclaim the VAT on the applicable parts for the prep. work.

VAT in the UK between VAT registered business is a farce in my mind, would be a lot less VAT fraud if it was done away with.

 

[jaymanek]

But the VAT is only £166.67

Look on bright side you get to reclaim the VAT on the applicable parts for the prep. work.

VAT in the UK between VAT registered business is a farce in my mind, would be a lot less VAT fraud if it was done away with.

Sorry yes you are correct... but let’s assume all that spend was ex vat.... see what I mean?

Hence it’s better for us to buy cars with as little work required as possible but that makes the job very difficult as most cars do require work before resale.

 

[pmcgsmurf]

Sorry yes you are correct... but let’s assume all that spend was ex vat.... see what I mean?

Hence it’s better for us to buy cars with as little work required as possible but that makes the job very difficult as most cars do require work before resale.

Yes, a real pain the backside and let's not get started on the whole MTD thing.

 

[rockits]

Don't get me started on VAT either. Why business to business transactions aren't VAT except I'll never know.

Two ends collecting/sending or processing then the VAT office processing stuff for zero reason or point. What a waste of massive time and resources.

 

[219]

short story...
they only pay VAT on the profit element of the deal -
so if they make £1k on a trade in & resale, they pay £200 VAT to Ernie.

edit.. it appears a bit more complex, e.g.
A standard rate of VAT of 20% gives a ‘VAT fraction’ of 1/6. When you have worked out your gross margin, multiply the figure by 1, then divide by 6.

but the essence is the same - the dealer pays vat on the profit element of the deal only

20% is 1/5 , not 1/6

 

[Bellow]

Calculate the VAT by dividing by 5.
Extract the VAT by dividing by 6.

 

[elan362]

don't shoot the messenger!
HMRC said to at 20% VAT, one calculates the "VAT fraction" as 1/6 of the Gross Margin, i.e. 16.6%
when it was 17.5%, HMRC apparently the "VAT Fraction" said 7/47, which is 14.89%,
so there is clearly some other accounting trick going on as well - but as i said don't blame me... I'm only quoting from HRMC!

I suspect the reason is the "VAT Fraction" is the Gross margin (i.e. profit plus VAT) less the VAT element, rather than 20% the Gross Margin (profit plus VAT) - if that were the case, one would be paying VAT on the VAT - which is wrong.
edit - beaten to it by @Bellow above ^

 

[elan362]

e.g
20% of £1000 (VAT 20%) VAT element=£200
£1000 Gross margin (comprising £833.34 profit and £166.66 VAT on the profit) -
£166.66 VAT component is 1/5 (20%) of profit (£833.34) and
£166.66= 1/6 (16.66%) of £1000 Gross margin